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Importance of saving
By Tammy Barton

Stressed about BillsAround 3.7 million Australians have no savings. They’re living week-to-week with no funds to fall back on should an emergency or unexpected expense arise. It’s a scary proposition considering rising fuel and food prices, and global economic instability. But if you don’t have a savings plan, don’t despair. Today is the perfect day to start saving.

No savings is one of the quickest ways into debt

One of the greatest causes of credit overuse and unmanageable debt these days is a lack of savings. People who regularly spend as much as they earn—either because of low income or overspending habits—are especially vulnerable to debt and credit reliance.

Here’s how it happens… They start out using their credit card to meet the occasional gap between their income and expenses. Then they have an unexpected emergency—for example, car repairs or a vet bill—which gets added to their credit card, too. Suddenly, they can’t pay off their credit card balance in full at the end of the month and interest starts accruing. Before they know it, their finances are going backwards.

Low and middle income earners are not the only people affected by overspending and under-saving. In fact, high income earners are especially prone to unmanageable debt and credit misuse because they’re more likely to have multiple credit cards, personal loans and a lavish lifestyle.

Why is it important to save? Firstly, because savings provide a financial safety net in case of unexpected expenses or a sudden change of income, such as a job loss or marriage breakdown. Secondly, committing to a savings plan is a way to develop financial discipline. Financial discipline is the key to achieving your short and long-term financial goals.

Start small and watch your savings grow

Saving is a lot like going to the gym. Committing to a regularly routine is the hardest and most important part. I suggest that you start by allocating a small amount of money from each pay packet to a special bank account. Ask your employer to disburse part of your pay directly into this account so that it never touches your pocket.

If you’re asking “how can I save when I can barely pay my bills?”, this is an opportunity to take a serious look at your expenses. What can you cut back on to create an opportunity to save? Do you buy your lunch? How about take-away coffee? Magazines? Clothes? Do you dine out regularly? How much do you spend on socialising and entertainment? These are areas where loose change quickly turns into cold hard cash.

If you’ve done that exercise and still can’t find money to save, it’s time to analyse your personal budget in detail. Long-range budgeting will reveal if you need to reprioritise your bills, reduce your expenses in certain areas, increase your income or approach your creditors about renegotiating more affordable payment terms with them.

There are lots of different ways to make a budget balance and save. You can save. You can get ahead. You can take control of your money. You can achieve your financial goals.

This article was featured in The Advertiser 'My Week' lift-out on 5 September, 2011. Catch more of Tammy's money-wise tips in The Advertiser every Monday and in other News Limited publications.

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