Round it up<\/p>\n
Technology has made spending dangerously frictionless \u2013 but it is also starting to offer easier ways to save, too.<\/p>\n
One of the options is round-ups \u2013 where your spending is rounded up to the nearest $1, $2, or $5. For example, if you spent $4.30 and were rounding up to the nearest dollar, 70c (less any fees) would be diverted to savings. <\/p>\n
ASB is the only major bank I could find offering this itself, through Save the Change, but there are non-bank alternatives. Otto offers round-ups as part of its $5-a-month paid plan; Feijoa sends them to KiwiSaver and charges a transaction-based fee; while Sorted\u2019s free Buffer Builder can round up spending into savings or automatically skim money from your account when you get paid. <\/p>\n
Sorted Buffer Builder is great (and free always appeals), but I utilise my emergency buffer as a mortgage offset, so it\u2019s not quite what I\u2019m looking for. I decided to download Feijoa to give it a try because, as I\u2019ve written about before, finding anything close to the frictionless KiwiSaver experience that employees benefit from is tough.<\/p>\n
Feijoa helps overcome the inertia that can often be a barrier to saving, but there are a couple of things I\u2019m cautious about.<\/p>\n
The fees are small in dollar terms, but less so when expressed as a percentage of what you\u2019re actually saving. Feijoa charges 0.5% of the purchase price, capped at 15% of the roundup or 20c. Co-founder Mark White-Robinson told me the average user rounds up $2.47 a day, saving about $900 a year, and pays average fees equivalent to about 4.7% of those contributions.<\/p>\n
Put another way, you\u2019re paying roughly $42 to save $900. You could of course do this directly, for free \u2013 but the value proposition is behavioural. What you\u2019re paying for is taking it off your financial admin \u201cto-do\u201d list, which may be a price worth paying if otherwise it would never get done.<\/p>\n
I\u2019m also aware it could give you a false sense of security. If your retirement goals mean your KiwiSaver really needs 8% of your overall salary, don\u2019t confuse small change with actually hitting the contributions that requires. I\u2019m thinking of it as a bonus, not as my primary contribution.<\/p>\n
And lastly \u2013 if you don\u2019t have an emergency fund yet, locking away more money in KiwiSaver isn\u2019t where you should start. That\u2019s where the other options like Sorted\u2019s Buffer Builder could be useful.<\/p>\n
Rethinking reward schemes<\/p>\n
I\u2019ve always been wary of schemes that reward spending. They exist to encourage more spending, many are attached to credit cards, and annual fees can mean you need to spend a considerable amount just to match the cost of the card. Then, often, the reward itself is just something else to spend.<\/p>\n
But I like Sharesies\u2019 spin on them \u2013 Investback. It\u2019s a debit card rather than a credit card, so you\u2019re only spending money you actually have, which should help short-circuit the negative spending psychology associated with credit cards. Fees are low \u2013 $25\/year (or $12 if you\u2019re on the Sharesies investment plan) \u2013 so with a 1% reward you only have to spend between $1200-$2500\/year to break even. Plus, if you\u2019re going to be rewarded for spending, surely the most useful reward is one you don\u2019t then also spend \u2013 here you invest the reward. The (hopefully obvious) caveat here is that it must be money you were planning on spending anyway!<\/p>\n
Tap and pay: Paywave, which requires no contact and no Pin, will cost you more in surcharges.<\/p>\n
There are, of course, some things to be aware of. If you use the card to pay via tap and go and the merchant charges a surcharge of 1.5%-2.5%, that will more than offset any benefit you get from using it. Why would you spend $2.50 to earn $1? While you can opt to invest your rewards in either KiwiSaver or more readily available investment funds, this shouldn\u2019t be confused with a savings account. This is investing, and investing comes with risk. Your $1 of rewards could become 80c rather than grow. Once again, if what you\u2019re after is an emergency buffer, this probably isn\u2019t where you should start.<\/p>\n
Boring options also work!<\/p>\n
You don\u2019t need an app or a financial product to automate good behaviour \u2013 a good old automatic payment that goes out to your savings account the day after you get paid can also be effective. Provided you\u2019ve done the sums and what\u2019s left over can cover all your expenses, \u2018paying yourself first\u2018\u2013 that is, saving first then spending the balance rather than the other way around \u2013 is a good way to prioritise the outcome you want.<\/p>\n
None of these options will fix a budget where there simply isn\u2019t enough money left over to save. Micro-savings are also not a substitute for working out how much you actually need to put aside for retirement. But if it\u2019s the frailties of human nature that keep getting in the way, and demanding more discipline from yourself isn\u2019t solving that \u2013 setting up a system that doesn\u2019t rely on it just might.<\/p>\n