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Saving, by definition, is the difference between what you earn and what you spend. To start saving, or to increase the amount you save, all you have to do is increase your income or cut down on spending. It should be easy, but it’s something that many people struggle to achieve. Some people blame their low income for not being able to save. Believe me, there are many people on low incomes who save small amounts regularly over a long period of time and build up a tidy sum. No matter what your income is, you can save if you really want to. The easiest way to do this is to decide how much you want to save each payday and set that money aside before you spend it.

There is an order of priority for what you do with the money you save. The first thing you should do is join KiwiSaver, that is, if you are under the age of 65. The great thing about KiwiSaver is that it is deducted from your pay automatically, so you don’t get the opportunity to spend it. As well, there are contributions from the Government and your employer which can potentially triple your savings. If you are employed, you will need to contribute 4% of your pay, or if you are self-employed or unemployed, you can make contributions at the level of your choice by direct debit or lump sum payment. It’s best to put in at least $1000 a year so you can take full advantage of the Government tax credit of $1,040 a year, which matches your contributions.

The next most important thing to do with your savings is to pay off any short term debt you have. By that, I mean credit cards, store cards, car loans, etc. Debts such as these generally have a very high interest rate, and they will prevent you from getting ahead. Make a list of your short term debts, starting with the one that has the highest interest rate, and increase your repayments for the one on the top of the list by the amount of savings you have committed to make. Even if it’s only another $20 a week, it will make a big difference.

Once you’ve got rid of expensive debts, your savings should go towards building up an emergency fund and saving for any big purchases you might want to make. Ideally, your emergency fund should be enough to cover three months of living expenses, but this may not be achievable. Having money on hand which you regularly add to will help cover any one-off expenses or big purchases, preventing you from having to go into debt again by using your credit card.

The next thing to tackle is the mortgage or, if you don’t own a house, then savings for a deposit on a house. You can voluntarily increase the amount of your mortgage repayments so that you pay your mortgage off quicker. Talk to your bank about how best to achieve this without incurring any penalties for early repayment. Try and avoid increasing your mortgage unless it’s absolutely necessary. Home improvements are best paid for from savings rather than a mortgage, unless of course you are doing extensive renovations.

As well as paying off your mortgage, consider setting up a regular savings scheme for your retirement in addition to your KiwiSaver scheme. Start by making small contributions until such time as your mortgage is paid off, and as soon as the mortgage is gone, increase your contributions by at least the equivalent of what your mortgage payments were. It’s best to make these savings into a diversified fund that invests across all the different asset classes – that is, fixed interest, property and shares. While saving requires discipline, once you get into the habit of it, it’s easy. The benefits are security, peace of mind, and not having to worry when you get that unexpected bill.