One in five Aussies believes having $1000 in emergency savings is enough. But experts say people need much more than this.
Many households are battling soaring costs of living expenses and record levels of debt. But new findings from Westpac show that 46 per cent have just five thousand dollars or less tucked away in case disaster strikes.
Chris Browne talk finances with 2HD’s Brent Bultitude
BRENT: We welcome to the program the managing director of Rising Tide Financial Services, Chris Browne, this afternoon. Hello Chris.
CHRIS: G’day Brent, how are you?
BRENT: I’m good mate. Thank you for your time.
BRENT: That figure of 46 per cent that have just five thousand dollars or less tucked away in case disaster strikes – I’ve got to say to you, I thought that that was a fairly high percentage of people to have five thousand dollars saved. I wouldn’t have thought there would be that high a percentage of people that actually have that much money saved.
CHRIS: Yeah, that surprised me as well. But I think what surprised me more was the one in five people that think a thousand dollars or less is sufficient because that’s clearly not the case.
BRENT: Yeah, I mean I was thinking – when I was reading this – I thought to myself you know, I know how much I’ve got in the bank and for a rainy day, and all those sort of things, and I thought yeah, I could see there’d be a lot of people out there that would have around about a thousand bucks in the bank for a rainy day.
Or for, you know, a purchase that comes along: the car breaks down, you blow a tyre; something goes wrong and you’ve got to find the money to pay for it.
CHRIS: Oh totally, and I had a personal experience with that last year. I was down at the park with my son kicking the footy, and I popped the ligament out of my finger. And I trotted off to the hospital – I thought that my private health insurance would cover everything.
CHRIS: But as I discovered, that wasn’t the case and I found myself dipping into savings that I hadn’t anticipated that I’d have to do.
BRENT: And see Chris, there’s a great example whereby people who do have private health insurance – you’re exactly right – you think that everything is covered. You’re not. These medical expenses can add up, can’t they?
CHRIS: Really really quickly. Look, in my experience, and I’ve been going for about 15 years now, I think that the average punter should have something like, at a minimum, one-month gross income. So, if you’re the average Aussie earning the average income, which is – I think it’s about $80,000 these days – that equates to about six and a half grand at a minimum, and then you can think about things like relying on your income protection policy thereafter, in the event that you’re able to claim on that.
BRENT: Yeah, that’s funny, the average income you’re saying is about 80 thousand dollars. I know when we bring that up on the program lots of people ring and say, “If only I was earning $80,000 a year, I’d be very happy.”
BRENT: So, a minimum is one month’s salary. What about a maximum?
CHRIS: The maximum? I reckon up to twenty thousand dollars. And there are some people out there that would be shaking their head and saying, “Based upon my life’s experience you need more than that.” However, what I’d like to see more people doing, is the money sitting in your savings account that exceeds $20,000, pay off your credit cards or pay off your home loan, or chuck some extra money into superannuation because that will mean that your money is working harder for you.
BRENT: Because if you’ve got money, Chris, in a savings account these days you are earning two-fifths of bugger all when it comes to interest.
CHRIS: Totally. And look, I had a short period of time working in a bank and banks prey on apathy, so ringing your bank today and asking what is the interest that I’m earning on my savings? (because I find that quite often it’s zero or it’s a smidge over zero) so get in there, negotiate hard and shop around, checking out the Canstar website. That’s a great website, a really good tool to figure out what the competition looks like because there might be a better option out there for you.
BRENT: Chris, what about term deposits or if you’ve got a mortgage, an offset account so that the savings that are going into that account are offsetting the interest payments on your mortgage?
CHRIS: Yeah, I like that. I mean, as a rule, I’d like to see people shop around as I mentioned before, and find a savings accounts that offer interest. Alternatively, go to your bank and see whether or not you’re eligible for an offset account with your home loan.
Some banks offer that, often the online home loan services don’t offer that, but you can shop around – the choice is endless.
And then the final one, and you’ve already mentioned it, Brent, that term deposits are a really good idea for people that are a little bit undisciplined. The people who are prone to sort of hacking into their savings on a Saturday night, when they’re at the TAB on a Saturday night. So, you know, have a look around and just go: Which category do I fit in? Am I disciplined?
And if you’re disciplined, look at those high-interest accounts and the offset accounts. If you are prone to overspending, look at the term deposits. I think the term deposit, or making it difficult for you to access the money – not impossible but difficult – and it could be as simple as setting up a savings account, and when they say, “Do you want a debit card?” Just say no. And when they say, “Well look, you can download our banks’ app onto your phone – don’t download it. Just build little walls to make that money difficult to access.
BRENT: Great advice. I love what you said; I’ve written it down. “Banks prey on you being apathetic – on apathy.” Banks work on people being apathetic – that’s so true isn’t it?
CHRIS: Totally. And one more thing Brent, if you’re afraid of having that hard conversation with your bank, go to a mortgage broker and get them to have that negotiation on your behalf.
BRENT: Terrific. Thanks for taking the time to talk to us this afternoon, Chris.
CHRIS: Pleasure, mate.
BRENT: Nice to chat with you. Bye-bye. That’s Chris Browne, he’s the manager and director of Rising Tide Financial Services.
View the original article at 2HD.