Esta Hammond's Easy Ways To Save Money

Esta Hammond runs the website www.easywaystosavemoney.com.au and has written the book Save It (easy ways to save money). She is a savings' expert and has even been called moneybags by her co-workers. Her book is packed with so many ways to save around the house; it can be hard to know which one to use first. She was very kind in giving us some time to talk about her history and give advice to our readers.

Maybe you can give our readers a bit of a background into your history?
I used to work in recruitment, and even back then my work colleagues used to call me moneybags, just because I was very good with money. Everything seemed to be going my way in regards to money. My job was high paying and all my investments were doing well. The moneybags title stuck until things turned around on me in a complete 180 degree turn.

I invested in a business which ended up going into liquidation. Plus I also owned a rental property where the tenant living there ended up going bankrupt, and we were owed about a year's rent. All this happened at the same time. And to add insult to injury, once the company went into liquidation, I lost my employment. So my income stopped as well. Numerous other things also went wrong and we found ourselves every month thousands of dollars short of our repayments. So suddenly I was in a huge amount of debt.

I knew I had to do something pretty drastic right away or we were going to lose everything. I had worked so hard and sacrificed so much. I was in my 20s, and while most of my friends were out partying, holidaying or drinking we were busy working. I didn't want to have done all that for nothing.

So I sat down and analysed every single thing we spent money on. Then I would work out ways to eliminate it, reduce it and find clever ways to save money to get out of debt as quickly as possible.

I guess a lot of people have come to you in the past with their money problems. Could you tell us about some experiences you have come across?
Yes, I have helped a lot of people in the past; mainly friends who have come to me. They came to me with a lot of problems like how to get out of debt, or purchase a new car or save for a house. It's funny, while the answers seem pretty easy to me, some people are just not wired to know about home budgeting. Finances are just not their forte. So I like to help.

One case that always sticks in my mind when I worked as a lender, was a pair of teachers that I helped. They were a middle aged couple who were both on a really good income. However, they had so much debt. They had a crazy number of credit cards, around 14 if my memory serves me correctly. They had a number of cars, a personal loan and an expensive home loan. They were absolutely struggling, and it was no wonder as they had so much consumer debt on top of their mortgage and expenses.

This couple had no idea how much money was going towards their credit cards alone. But once we worked it out they were completely floored. This extra credit card money could have gone back into their own pockets rather than making the bank richer. The kicker to this couple was they were not getting credit cards to do something with them (e.g. something important), it was all for luxury items. They weren't in control of their budget in any way shape or form, and each month they were on the poverty line after they had just made their minimum payments.

So what are your views on credit cards?
I don't like them. I don't like them at all! There is no real reason why people need a credit card. If you need to purchase online, there is always debit credit cards. Everyone needs to get themselves into a position where they have a buffer. There are so many ways to save money. It may not happen overnight, and it may take months or even a year to get to a buffer of cash. But once you have a buffer in place, this should be there for your emergencies. You shouldn't be using a credit card to fall back on.

Think of it this way, if you were going to borrow money from a friend, and that friend said, "Yes, I will lend you $100, but you owe me $20 in interest."

You would say, "No way!" But we don't seem to have any qualms about giving this money to banks.

So with a credit card it's like it's not real money and this creates so many problems for so many people. Unfortunately, because people are not financially aware of the downside of a credit card, they can fall into the trap very quickly.

The global financial crisis hit in 2008; did you notice a change in people's behaviour?
Absolutely! The good times came to an end pretty suddenly. A lot of people thought the good times would never end. Prior to 2008 you saw all these people with the flashy cars, buying nice clothes and always going out to restaurants, and now there has been a complete turnaround. People are coming back to a more simplistic lifestyle, which is really great.

The economic data has really backed this view. Savings have gone up to the highest level in 30 years. People are really worried now; the good times are finished. A lot of people who have lived through the good times really had saved nothing over that time. Now they are buckling down to save.

But we are not out of the woods yet. In fact, even right now on a global level, things are really bad. Greece, Italy and many other countries are struggling with debt, and here is still a lot of uncertainty out there.

Even here in Australia home prices are coming down, and a lot of expenses are going up.People are starting to take notice and prepare themselves financially for the future, which is very important.

Apart from credit cards is there a fundamental mistake people make time and time again?
Yes, to be honest, I think most people overcomplicate their home budget and finances. They think it's this big, hard, complicated thing, where it's really simple.

It comes down to making a decision about every cent you spend. It's like the old saying, take care of the cents and the dollars will take care of themselves.

Unfortunately, most people think making little changes will not affect anything. They think:

What does it matter if I use the clothes dryer instead of putting it out on the clothesline?

What does it matter if I drive down to the shops instead of walking?

What does it matter if I don't get any quotes when the insurance comes due?

What does it matter if I don't shop around once my mobile phone contract is up?

But these little things are the biggest things over time. Most families think if they are not doing something on a big scale it's just not worth it. But this is a massive mistake because it really does add up to thousands of dollars every single year. And this money can be used for important things like paying your home loan down. At the end of the day, it is not too difficult and it equals financial security. Most things make absolutely no difference at all to your lifestyle so you aren't missing out on anything, but for a little bit of effort or planning, it is money back in your own pocket instead of giving it to the banks, or the supermarket etc- Anyone can do it!

If you had to give the readers three savings tips for around the house, what would you suggest?
1. The first thing I would suggest is groceries! Get some economical, nutritious and easy recipes and start using menu plans each week. Then use your menu plan to write your shopping list. Look in your cupboards and fridge first to use up and incorporate what you already have. Make sure to check out specials and always look at unit pricing to get the best deals. Groceries are one of the biggest household expenses, but also one of the most poorly managed with Australian's throwing out approximately 4.5 million tonnes of food each year worth about 7.5 billion dollars! It's the same as throwing your money in the trash. The extra effort is well worth it and will save you a fortune.

2. Conserve your expensive resources such as electricity and water. Just small changes go a long way and there are so many simple things we can all do that all add up to big savings, such as turning off standby power which will save the average home around $120 per year. Also using shower timers, reusing kitchen and bath water to water plants and using mulch will all help conserve your water. While these are boring and everybody sort of knows these, you actually need to follow through to save the money.

3. Just replace your cleaning stuff with a few natural products. It's a third of the price and just as effective. In my bag of tricks I have bi-carb, vinegar, metho and three essential oils. A combination of these ingredients can see you through for a very long time. They are cheap, effective and they do a great job. Plus they are a lot safer to use around your family and pets.

What is the worst mistake you have made budget wise?
Occasionally, and it still happens now, when I get busy I do not stick to my menu plan orf shopping lists. It drives me nuts because I know how much money I am wasting because I'm not organised.

Organisation can be a massive downfall for me and everyone. If you're not organised, even things like paying bills or getting videos back on time can cost you money.

If a couple came to you drowning in debt, what would your first piece of advice be to them?
It would be a four step process:

1. Firstly I would tell them to do up a budget right away to see exactly where their money is going, and if they are living within or beyond their income. Until they sit down and write up every single expense and add it all up, they won't really know what they are dealing with or where to even start. You can't drive to an address you have never heard of before without using the refidex to guide you, and similarly, a budget will help guide you to your financial destination.

2. Once they have identified every single expense and see it all in black and white, for many people it is a total eye opener. Then it is just a matter of going through and working out how each individual expense can be reduced or eliminated and getting their budget in surplus. It's just a matter of doing a bit of brainstorming, and people are often extremely surprised at just what sort of ideas they can come up with to cut down on their spending. I know I was, and that is what lead me to write 'Save It' and share all the money saving tips I had discovered to help other people to save money and get out of debt as well.

3. Prioritise your financial products. List all your debts in order of the highest interest rate, and then start with the facility with the highest interest rate first and work on paying it off. Then move to the next highest rate facility, and so on. Or, if you are able to, consolidate all your loans into one, or into your home loan. Of course if you consolidate into your home loan it is very important to keep up the same repayments to have it paid off in the same time frame it otherwise would have been, or you will be paying a fortune in interest over 30 years which will just see you worse off.

4. Restructure your financial products. Look into your mortgage to see if you can get a better interest rate, which can save you thousands of dollars every year. Also don't pay for account keeping fees, there are many banks out there that offer fee free banking. Get a debit credit card instead of credit card if you need one for online purchases etc. And lastly make sure you are structured for your individual requirements, one size does not fit all. As an example, If you are always accessing your redraw facility, then you need to find a home loan with free redraw facility when you are shopping around. If you like to always have money sitting in your bank account as a buffer, then open a transactional offset account so that money is working off the principal of your home loan saving you a fortune in interest over the life of the loan. There are lots of different products and facilities out there, you just need to identify the things you need in your financial products, and then find the right products based on your requirements. Ultimately, having the right structure for you can mean the difference of thousands of dollars going back in to your pocket each year.

A lot of baby boomers have saved very little for retirement and they are getting closer to not working. What do you believe the future holds for these people?
Well, we are lucky we live in a country with a pension, so they will not be left on the streets. They will have some income coming in but it will not be a huge income by any means.

If they are coming from working for a living, to a pension with very little savings, they really need to re-adjust quite quickly. My advice is while they are still working they need to see a financial planner or an accountant to discuss their Superannuation, as there are many government incentives such as tax breaks for Super contributions that they can start taking advantage off to increase their Superannuation. I would also suggest looking at other ways they can start saving money right now to start preparing for retirement.

Over the next two decades there will be more people going into retirement, taking with them their invaluable skills, then there will be new people entering the workforce to take their place. This will lead to skills shortage and I believe the Government will therefore start encouraging people to stay in the workforce for longer, and possibly even increase the retirement age. Whatever happens, I think they really need to act now on saving money and maximising their superannuation for their retirement.

Thanks Esta Hammond for your time; you have given us some good advice.