Combatting financial uncertainty: Save money for the future
In today’s world, where inflation rates are rising and financial stability can be uncertain, knowing how to save money for the future has never been more critical. This blog will delve into the importance of having a financial cushion to secure the future and discuss how the current inflation and challenging financial situations can impact your savings goals.
Before discussing saving money for the future, you should understand the financial forces shaping the Australian economy and people’s capacity to save money for the future. Inflation has been mentioned much more now than it was three years ago. The recent Australian inflation increase began in the second half of 2021 when the COVID-19 pandemic hit for the second year in the country. Challenges around the world in managing lockdowns, business shutdowns, supply chain constraints and people’s need for government support were some of the main issues at that time.
Inflation: A Silent Savings Killer
Firstly a little about inflation. Inflation is the rate at which the general level of prices for goods and services rises. This leads to a decrease in the purchasing power of money. In other words, when inflation occurs, money buys fewer goods and services than before.
Secondly, inflation is usually expressed as a percentage. It is typically measured over a specific period, such as a month or a year.
Thirdly, inflation is a normal economic phenomenon, but excessive or rapid inflation can adversely affect an economy, such as eroding the value of money, making it more expensive to borrow, and potentially distorting economic planning.
Finally, runaway inflation can also severely impact a governments ability to manage a country’s economy and also impact foreign exchange rates.
Several factors contribute to inflation increases
▸ Supply chain disruptions: The COVID-19 pandemic caused significant disruptions to global supply chains, which led to higher prices for goods and services.
▸ Increased demand: As the economy reopened after the pandemic, there was a surge in demand for goods and services, contributing to higher prices.
▸ The war in Ukraine: This war has caused energy prices to soar, further fuelling inflation.
▸ Currency fluctuations: Exchange rate changes can impact imported goods’ prices. If the Australian dollar weakens in relation to other currencies, it could lead to higher prices for imported products, contributing to inflation.
▸ Global inflationary pressures: Appart from local factors, global inflationary pressures can also affect Australia’s inflation rate. Changes in global commodity prices, like oil and metals, can directly impact prices in Australia.
To find the most up-to-date information on Australian inflation, including the current inflation rate and trends, you can visit the Australian Bureau of Statistics website or check with reputable financial news sources and economic publications. They will provide the latest data and analysis on inflation in Australia.
Cost of living affects your capacity to save money
Australia is frequently recognised as one of the nations with both high average incomes and a high cost of living. The cost of living measures the amount of money required to purchase essential goods and services. In our previous blog, Cost of Living in Australia: Your 2022 Guide, we discussed the most important topics to understand the cost of living in Australia.
The cost of living refers to the amount needed to cover basic expenses such as housing, food, transportation, healthcare, and other essential needs in a particular location or lifestyle.
How the of cost of living influences how you can save money
Higher living costs reduce disposable income: If the cost of living in your area is high, a larger portion of your income will cover basic expenses. Therefore, it leaves you with less disposable income for saving and investing.
Impact on housing: Housing costs, such as rent or mortgage payments, often make up a significant portion of the cost of living. In areas with high housing costs, individuals and families may need help finding affordable housing or allocate a more substantial income to housing expenses, leaving less for saving.
Influence on lifestyle choices: The cost of living can influence lifestyle choices. Activities such dining out, travel, or recreational activities may need to be dropped.
Savings prioritisation: When the cost of living is high, individuals may prioritise immediate financial needs over long-term savings goals. This can lead to a delays in building up emergency funds, retirement savings, or investments.
Income-expense imbalance: A high cost of living can create an imbalance between income and expenses. This makes it essential to budget and make conscious financial choices to save effectively and carefully.
The importance of saving money for the future
Saving money provides a safety net for unforeseen emergencies such as medical bills, car repairs, or a sudden job loss. Good money saving habits can help you navigate these challenges without falling into debt.
Investing for the future is not just a good financial habit, it’s a critical strategy for achieving financial security, realising your dreams, and enjoying peace of mind in an uncertain world. The sooner you start saving, the more time your money has to grow and work for you. Saving money for the future is essential for several reasons.
• Covering unexpected expenses
• Reaching your financial goals
• Having financial security
The best way how save money
Saving money is a vital aspect of financial well-being. To help you effectively save money, consider following these money-saving tips:
Set savings goals
Define clear and achievable savings goals. Whether for a down payment on a home, a vacation, or retirement, having specific goals will motivate you to save consistently.
Create a budget
A budget will help you track your income and expenses to see where your money is going. From this, you can identify areas where you can cut back. Many different budgeting methods are available, so find one that works for you and stick to it.
Cut unnecessary expenses
Identify and eliminate discretionary expenses that don’t align with your priorities. This includes dining out less, cancelling unused subscriptions, or buying generic brands.
Embrace a modest standard of living
This may mean spending less money than you earn. It may require some sacrifices, but it’s the best way to save money over the long term.
Look for ways to make extra money for savings
Suppose you need to save more quickly. In that case, you might want to look for ways to make extra money. Making extra money can provide financial flexibility and help you achieve your financial goals faster. Here are some ways to make extra money:
If you have skills in writing, graphic design, web development, or other areas, consider freelancing. Websites like Upwork, Freelancer, and Fiverr connect freelancers with clients seeking specific services.
Take on a part-time job besides your full-time job. Retail, food service, and customer service roles often offer part-time positions with flexible hours.
Join the gig economy by working as a rideshare driver (Uber, DiDi). Food delivery driver (Uber Eats, DoorDash, Menulog), or completing tasks through platforms like Airtasker.
Rent Out a Room or Property
If you have extra space, consider renting it on platforms like Airbnb. This can be a good source of passive income.
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