Forget skipping the daily cappuccino or foregoing smashed avocado on toast: the simplest way to save is to automate it, a tech CEO has said.
Making conscious decisions to spend less is a good place to start when it comes to saving, but it doesn’t need to be that hard, CEO of microinvesting and savings app Raiz George Lucas told Yahoo Finance.
“Set up an automatic feature to sweep money after you are paid into a savings bank account,” he said.
It’s a process other experts describe as ‘paying yourself first’. Essentially, make sure every time you get paid, you put money first into savings and then into other expenses, and finally into discretionary spending.
“It is hard to save - period. We all know it is something we should do and be better at – and there is always an excuse not to save,” Lucas said.
“The key is to have a system which is automated to create the discipline, whether it be sweeping cash when you get paid into a savings bank account or using one of the automatic saving features that apps like Raiz offer.”
Raiz allows users to apply automatic roundups to grow savings. That means that when a user buys a $4.50 coffee, for example, the cost is rounded up to $5 and the 50c difference is funnelled immediately into the app where it is invested.
His comments come as Aussie savers face a low-savings-rate environment, with the average saver earning little interest on their savings.
As of Tuesday, the average ongoing interest rate on savings accounts was 0.19 per cent, according to Canstar analysis. The highest rate on offer was Westpac’s 2.5 per cent for 18-29-year-olds.
It means people need to focus more on the amount they can save, as the interest rates won’t work hard to grow their money, Lucas said.
“Saving is not a get-rich scheme, unfortunately. In times of low interest rates, you need to think about savings more.
“At the end of your goal time, it will always be about the amount you save and not the interest rate you earn on your savings. A 1 per cent increase in the amount you save is more effective than a 1 per cent change in returns.”