When I first started work my Mum and Dad advised me how to look after my money. Pay a third to my Mum for board, one third to save, and a third to live on (that meant fares to work and lunches). Why in thirds? Would you believe it stems back to days of old, when the lady of the house would take her husband’s wages and keep certain amounts in a jar.
Those ladies were quite clever with money. They divided up that wage into several jars. So much per week had to be put away to pay the rent. So much for bills, so much for food and so much was put aside for unexpected occasions. This was done by taking how much was needed per month for each item, and dividing up the wage so the correct amount went into each jar, every week. Quite often that jar for those unexpected occasions, received very little.
The point is, putting money into the jars every week, helped the amount to grow and bills and rent got paid along with having enough to keep everyone fed. The system was known in the house, and wow betide anyone who went digging into the jars to buy something that wasn’t for the use of the whole family.
When I first started work, I was paid weekly, and received a smallish brown envelope large enough to hold notes flat and any small change. In those days I got paid in Pounds, Shillings and pence. Now it is Dollars and cents. The change over occurred on the 14th February 1966. There was a jingle on the radio and television so one never forgot it. Where we started with 1, and 2 cent coins along with the 5, 10, 20 and 50 cent coins, we in Australia now only have the large coinage. No 1 or 2 cents.
Strangely enough this has had an effect on our savings, especially for children. Most of those 1 and 2 cent coins ended up in children’s saving boxes. Dad would empty out his pockets and Mum her purse and all those copper coins were spread between all the children in their piggy banks.
The idea of saving and where is fun for children is they can see the pile growing. Well, they could. Things have changed since the world was hit by COVID. Due to the risk of passing on COVID with paper money and coinage, more and more people took to paying with a debit or credit card, instead of using cash.
Now cash is still in use, and legal tender for anything you wish to purchase, but one has to admit the coinage is heavy. And that was the reason Dad and Mum used to empty out the pockets and purses each night. Also, because people are paid directly into their bank account, there are no more brown envelopes with weekly wages. Everyone has to go to the bank or take out money when shopping to carry notes around in one’s wallet or purse. Using the little debit card to pay for purchases has made life so much easier.
Of course there can be a big problem with the payment card. You have to know precisely how much money you have in your bank account, so you don’t overspend. And that’s another thing. You have to have a bank account. Remember I said no more wage packets in a little brown envelope. It is all done digitally now and whereas when I started work, someone had to go to the bank every Friday and withdraw the week’s wages in the correct number of notes and coinage to pay the staff, no one sees the money any more. A list is emailed over to their bank with the names, amount and account numbers and hey presto, the money is transferred and you and I have been paid.
Remember Grandma’s jars where she put in different amounts each week to cover the costs? Well, we now have to do that by transferring so much from one account to another electronically, either on our phone or lap top. We have to play Grandma and work out how much to put into each account.
This is where the fun begins. It is called budgeting. Many people find it hard to understand this, though there are loads of sites on the internet advising how to do it. What it boils down to is what businesses call a cash flow. As my Dad used to say, If you receive $100 per week; you should only live on $99. That way you will never over spend. So, you have to sit down and work out how much money you need each week just to cover your costs, such as food and board. Then divide the rest up between other needs.
Now you are probably reading this and thinking why is she rabbiting on about this? I’ll tell you why. Most people don’t know how to budget. They receive their salary, and go out and spend. I used to be paid weekly, now it is fortnightly and for some people it is monthly. This means you receive a lot of money once a month and you have to make it last until the next month. If you don’t budget, what’s the betting you end up with a week to go before being paid again and you don’t have enough food to eat in the house and no money to buy more? This is why budgeting is essential.
So, we have to play Grandma and use those jars, but really have other accounts in the bank, along with the one your pay goes in. The rich people will tell you that you should always take out 10% from what you earn and put that into a savings account. 10% of $100 is $10. That goes into the savings account each month and by the end of the year you have $120. Actually, with compound interest you will earn more but I will go into that in a minute.
So once your savings have been taken out, you have $90 left. How much does it cost for board. Hopefully about a third $30. Leaving you $60 for unexpected costs like new glasses, dental appointments, or new clothes and living. $30 in an emergency account will leave you with $30 in your living account. You now have to work out how to live on that $30 per week.
Obviously, the amounts I have chosen are small. Most people’s salaries are a lot more than that amount now. But the principle is the same. Once you have saved your 10% you divide the rest in to thirds and live on one third. Can you do it? The answer is TRY. You will be surprised what you can achieve it you try.
But let’s get back to the savings and compound interest. For your savings account you should find an account that pays interest each month. The ones most people use is where you need to put in a minimum of $10 per month. At the end of the month, you receive interest on what is in the account. Some special savings accounts pay you a bonus interest, so that’s two lots of interest being paid into that account. So, to explain further. If you put in $10 into the account and get a regular monthly interest say 1% and a 2.5% bonus how much do you have after the interest? $1 for the 1% and $2.50 for the 2.5%. Grand total in the bank $13.50. All you put in was $10. Next month you put in another $10 making the total $23.50. Once again you get the regular interest of 1% and bonus interest of 2.5%. This month you receive $2.35 for 1% and $5.87 for the 2.5%. You now have $31.72. But you have only put in $20. How did you get that extra $11.72? It is called compound interest. You are getting interest on your deposits as well as the monthly interest the bank is giving you. So, at the end six months, your $10 per month is not $60, but $105.29. Nearly what you hoped to save in a year. Exciting isn’t it.
And that is what spending and saving is all about. Looking after how you spend your money, helps you to save. Next time you want a special outfit or an overseas holiday, work out how much you have to save and how long it will take and hey presto, before you know it, you will be catching that plane taking you to new places. As I said. Give it a go, you will be surprised at the results, and how easy it was.
Please note: the interest rates quoted are used to show how compound interest works. You will need to search to find a suitable rate of interest for your savings.
Julie Finch-Scally ©
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