Around 7 years ago I was in a conversation with a colleague around what income you would need to be in a position where you cannot help but save money. That is, not being able to spend it all. This is a reflection of the lifestyle adjustment that usually follows increases in income. Those who earn more will often acquire a more expensive house, drive a flasher car, have more luxurious holidays – A.K.A. the Lifestyle Monster.
At that time $250,000 seemed like the amount of income needed to get ahead of the Lifestyle Monster and be able to save. I would say that figure is now outdated and $400,000 is probably the new ‘cannot help but save’ figure (although there are always exceptions to the rule).
If you want to save you have a couple of options: either earn $400,000 a year, or actually put a savings plan in place. Now as this is in the property section one of your best savings option is to make extra repayments to your mortgage. There are a number of ways to do this:
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Increase your loan repayments.
This is simple and effective as the money automatically goes into your mortgage with the loan now being paid off faster, this is lower in flexibly but stronger in guaranteeing the result.
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Create a savings facility within your home loan and divert an amount each month into it.
By having a separate account it ensures you cannot unknowingly spend this savings but it keeps the money available if needed. This is my preferred starting point for a savings account as it is very flexible. However, it does not work for everyone as the temptation to access it may be too strong.
They are many other possibilities but the best way to have a successful savings system is to make it regular and consistent. $200 a month is far better than $1000 occasionally.
