Are you really ‘surplus’ing or actually saving?

Andrew Zbik

Andrew Zbik

According to the Reserve Bank of Australia (RBA), Australian households are currently savings 5.5% of their income.

Is this really ‘savings’? Or is it actually a ‘surplus’. There is a difference.

‘Savings’ is when you deliberately put money aside to build a cash reserve for a new car, investments, your next holiday or to accelerate your home loan repayments.

A ‘surplus’ is when your expenses are lower than your income.

‘Savings’ is putting an exact amount of money aside each week, month or year. ‘Surpluses’ just happen – sometimes they don’t.

In my experience most Australians run a surplus which they call savings. They may just happen to be accruing some money each month after their income has been used to cover expenses. There is nothing deliberate about running a surplus.


Graphic: The savings rate of Australian households – past 30 years.

Savings chart


Here are my tips on how to be deliberate about ‘saving’ money.

1. Use a budgeting app

Use a proper budget tracking tool such as MyProsperity (which we use with our clients at CreationWealth). This will help you understand where you spend your money. Once you know exactly where you spend your money it will help you better prioritise what spending habits you will change.

2. Break down your net household income into these four broad categories:

a. Savings: Be deliberate and choose a set amount of money you will put aside into a savings account each pay. For example, this may be 5%. This idea here is this money goes into your savings account before you even have the chance to consider spending it on core or discretionary expenditure items.

b. Core Expenses: Know what your basic living expenses are. For example, the cost of running your home (Utility bills, rent or mortgage payments, Council rates etc), the cost of putting food in your mouth (Weekly grocery spend…OK…some freedom here to choose if coffee fits in this essential category), and essential personal items (Such as basic clothing purchases, health care and personal grooming).This is the bare basics that you need to have shelter over your head, food in your mouth and have clothes on your back.

c. Discretionary Expenses: Know where you spend your money on the fun items. This includes entertainment, hobbies, eating out, holidays. We all need to enjoy the journey that is life. Knowing the difference between core and discretionary expenses can be very helpful for planning your financial future. It breaks down the goals to work towards in building enough superannuation and investments to generate a passive income. First base is to have enough passive income to cover your core living expenses. This can often be achieved when many people have put in a solid plan for a decade or so. There is an amazing sense of freedom I see in my clients when they know that are now in a position where they are no longer working because they need to (i.e. have to cover both core and discretionary expenses) but are working because they can choose to (i.e. core expense are covered by passive investment income and the money they earn now covers their discretionary expenditure and continues to help save and build investments for the future).

d. Surplus: Ensure there is still a little surplus as the end of each month. Our cash flow commitments are not always beautifully divided into 12 instalments over 12 months. Some months you will have a bit of cash left over, other months will be a negative but the previous months surplus will have that covered already.

Saving money is a deliberate habit. The above tips will help you achieve genuine savings. Not a coincidental surplus.

By Andrew Zbik, Senior Financial Planner

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