How do your savings stack up against others?
With increasing financial transparency subverting traditional norms, have you ever wanted to know how your savings compare to your peers?
There is a rising trend on social media of people on the street being interviewed about their finances and revealing information about their income, savings and financial goals.
As you can imagine, this content does some serious numbers. Nothing quite piques the curiosity like trying to determine how your circumstances compare to those in your age group. Am I doing well? Could I be doing better? How did that person save up so much money? All these questions run through my mind as I’ve noticed the wide range of savings revealed, some with none and others my age with over $50,000.
However, these videos tend to reflect only the individuals within Sydney’s bubble, resulting in a unique intersection of padded corporate salaries and those weathering the ongoing cost of living crisis. To get some more clarity, I sought out to find a more comprehensive idea of how different generations across the country are doing.
So how do the numbers look?
According to Finder’s Consumer Sentiment Tracker, the average Australian in 2024 has $37,915 in savings with the total reported value of $655 billion across all savings accounts in the country.
Source: Consumer Sentiment Tracker October 2023.
If you’re reading this and the number seems alarmingly high, fear not – super savers with larger balances disguise the true state of affairs. For the individuals who have more than $1,000 on hand, the average savings balance is $65,078. In contrast, a more recent insight from the tracker also revealed that almost half (45%) of surveyed Australians have less than $1,000 in their bank account.
Unsurprisingly, surveys find that 76% of Aussies are currently stressed about their financial position. If you are part of this group or would simply like to learn more about the art of saving, this article explores tips on how to structure your finances to maximise your savings whilst investing for future returns.
How much do you really need in savings?
Whilst markets remain volatile, and the RBA have held cash rates at 4.35% - although the impending rate cut environment threatens the returns you may stand to gain from a high interest savings account. Pooling cash is not the pathway to achieving your financial goals. Investing in growth assets is critical, therefore optimising your savings becomes crucial.
So how much do you really need in your savings account? That entirely depends on your stage of life and personal goals. Whether you’d like to retire early or simply save enough to enjoy your next holiday. A general rule of thumb is to accumulate enough cash savings to keep you afloat for a few months, should you be hit by exceptional circumstances. Alongside this, you may also choose to prioritise a cash savings account for lump sum investment or pending financial goals such as a house deposit.
The three month rule
The general sentiment among financial advisers is that you should set aside between three to six months’ worth of expenses in an emergency fund for unforeseen events such as redundancy or medical bills.
These expenses include only the essentials such as rent or mortgage repayments, utilities, transportation and food. It’s important to note that this doesn’t include any fun money or additional savings required.
Putting this money in a high-yield savings account can keep you invested for the long-term as it is more accessible option than stocks, bonds or ETFs, should you need to withdraw immediately.
However, it is important to note that this isn’t a be all end all – some nuance can be afforded here. Getting to the three to six month savings mark shouldn’t always be prioritised above paying off outstanding credit card debt or other loans. The average credit card debt per account in Australia is $3,317 based on a monthly balance. These borrowings often incur higher interest rates and penalties for failure to pay, potentially leaving you in worse circumstances if your primary focus is the rainy day fund.
Once you hit the three month buffer, you can focus on building wealth through investments, or a mix of both, to meet the six month mark.
Personal circumstances should also be considered when determining how large your rainy day fund should be. Additional factors such as homeownership vs renter status, number of dependents (i.e. children) and frequency of income are all relevant.
50-30-20 rule
A helpful guide on how to allocate your post-tax income is the 50-30-20 rule that categorises spending into needs, wants and savings, allocating a respective 50%, 30% and 20% to each.
50% of your income should be assigned to needs and obligations, this can include things like rent / mortgage payments, car payments, groceries and insurance.
The 30% goes to things you want but aren’t absolutely essential - entertainment subscriptions, gym memberships, excessive clothing etc. I find it easiest to make concessions in the ‘wants’ category, as downsizing a rental or switching to a cheaper insurance provider can be a difficult and lengthy process.
My secret is attending one of the cheapest gyms in Sydney - located in the CBD - which means I must account for an extra 25 minute travel time each way, if I can’t go directly from the office. As inconvenient as this sounds, the walk to and from means I can skip cardio on days the skies choose not to unleash apocalyptic floods in spring. I’ve decided that the money I save weekly is worth the extra commute time.
The final 20% you should aim to allocate to savings and investments. Whether that means contributing to your rainy day fund or towards building wealth – it is recommended that 20% is the minimum amount to assign.
Keep in mind that the 50-30-20 rule is a general framework. Personally, I swap the percentage allocation of my ‘wants and savings, so I end up attempting to save roughly 30% of my income as opposed to only 20%. This is highly circumstantial to my personal goal of amassing enough cash to aggressively lump sum invest now, as opposed to smaller contributions over time. You can read about the difference between lump sum investing and dollar cost averaging here.
