Reasons to save money, adding millions over a lifetime

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Reasons to save money, adding millions over a lifetime

Reasons to save money – The money saved by merely buying a bicycle and ditching the car can add up to millions over a lifetime. This may seem incredible – unbelievable in fact – but when compound interest is taken into account, savings in the millions can be achieved. The key is to start early, build a lifestyle around cycling, and keep the savings made by not driving in the bank. This is a smart way of money handling.

A Brief Overview of Cycling Costs

Since the 1880s when the classic safety model was first invented, the basic shape, design and function of the bicycle has not changed much. There have been improvements made here and there, but a modern day rider could hop on a bicycle at the start of the 20th century without noticing too much difference in their riding experience.

Buying a new bicycle, therefore, is not rocket science. One size basically fits all, which means the novice cyclist need not mess their head too much when it comes to decision making. When approaching your local bike shop, simply ask for the cheapest they’ve got. Most retailers will also allow a test ride, so take advantage of this opportunity to see if the model is a good fit. In general, a basic bike will cost around $500 (Australian money). If you’re good at putting bikes together, you can buy one in a box with an instruction sheet for as low as AUD $150.

Repairs can be handled by a local bike shop, and a yearly service costs around $50. Punctures can be fixed for approximately $20, new tyres replaced for $50, and gear cables updated for $30. Alternately, get a “How To” manual and do it yourself. A bicycle that gets a regular weekly workout will cost no more than $100 a year to run in maintenance, barring any unfortunate accidents.

The Costs of Driving a Car Versus Money Handling Cycling

A study by the National Road and Motorist’s Association (NRMA) stated that the basic family car costs around AUD $260 per week to run. That comes to AUD $13,520 a year. Someone who decided to sell his or her car and use only a bicycle could consider their savings as almost equivalent to holding down a part-time job. Here’s a possible job description: carbon neutral, eco-friendly travel service. Another bonus: instead of burning fossil fuels, you’ll be burning your body’s fuel.

Here are some startling figures. Based on the above AUD $260 a week car costs, if someone started at age 18 to put away $260 a week in the bank rather than drive a car, they would save on a retirement age of 67 a total of $662,480. Now, if that 18-year-old were to put the money into a bank account that attracted a modest 5% interest per year, the total figure upon reaching a retirement age of 67 would be $2,816,864. That’s almost 3 million dollars.

The above figure doesn’t even take into account the uncertainty of future oil prices.

For some, a fair argument against this proposal is that circumstances mean they must live a long distance from work, shops and family. For others, cheaper housing is often far from basic amenities. Yet as shown above, long-term, the savings made from cycling mean it is financially more rewarding to make a move to areas where it is possible to cycle everywhere, rather than depend on travel by car. Three million dollars is a lot of money, after all!

Becoming Successful Money Savers

What do successful money handling person have in common? In essence, they all use their savings as a launching pad to build wealth, understand the need to set aside an amount of their income before it is all spent and know how to make their money work for them.

To achieve all these, there must be some sort of money-saving and money-boosting strategy. Here are some practical tips to help Australian families build up and make the most of their savings.

Consolidate Savings

Most families have multiple bank accounts, resulting in more fees and other charges. One way to reduce fees and enjoy higher interest rates is to combine several smaller savings accounts into one or two high-return financial products. In fact, it may be advisable to use only one bank for all finances – savings loans, mortgages, credit cards, etc. By consolidating savings and finances, all transfers between accounts can be done quickly with no extra charges.

Understand Interest Rates

Interest rates go up and down. So avoid investing money in fixed-term deposits when interest rates are low. Only lock money in fixed-term deposits when interest rates are high. Keep a close eye on the financial market to check interest fluctuations.

Also, learn how interest is calculated. Some financial products calculate and pay interest more frequently than others. Some also pay compound interest – interest on interest. When interest is paid more regularly or compounded, the savings will grow into a considerable sum sooner.

Pay off Debts

There is little point in trying to save when the interest rate of a savings plan is much lower than that of debts, particularly credit card debts. So pay off big credit card debts first. Clearing a credit card debt that charges an interest rate of 15% will result in more savings in the long term than depositing the same funds into a savings account that earns a 4.5% interest rate.

Make Use of Home Loan

Families with a home loan can also consider putting money in a mortgage offset account. This is a savings account linked to the mortgage or home loan account in which money pumped into savings account is offset against the loan. For instance, a family takes up a $300,000 home loan and has $20,000 in the mortgage offset account. That means the family only needs to pay interest on $280,000, resulting in a shorter mortgage repayment period. At the same time, the savings are effectively earning the home loan interest rate too.

Opt for Salary Packaging

The good thing about salary packaging in Australia is that it allows employees to pay for non-cash benefits such as cars, computers or mobile phones out of their pre-tax salary. Generally, it is useful to make forced savings before people get the chance to spend all their income and help reduce income tax. Bear in mind, however, that salary packaging is only practical if it includes benefits that a family will otherwise have to pay out of their own pocket.

Successful money savers use various approaches to build up and boost their savings. Australian families can make the best of their money by consolidating savings, understanding and watching out for fluctuating interest rates, paying off debts, making use of a mortgage offset account and opting for salary packaging.

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