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Which comes first – saving or investing?

Article By Adam Hurwood | | Financial Planning

As a nation, both our level of savings, as well as our level of investment, are higher than many other developed countries’1. But over the last five years there has been a shift in the relationship between how much we save and how much we invest. So, what does this say about how we should approach saving and investing in the future to make the most of our dollars?

According to the Reserve Bank of Australia (RBA), the amount we save as a nation started to increase from the mid-2000s, after a period during which the amount we saved started to fall.1 Accordingly, from 2000 to 2010 the ratio of national net saving to GDP rose by three percentage points, from 4.9% to 7.9%.2

Interestingly, and although it might seem counterintuitive, saving and investing are not mutually exclusive. Just because we’re now saving more than in the past doesn’t mean we’re investing less. In fact, the RBA has also noted our high levels of household, as well as corporate, savings have allowed Australia to fund substantial investment in the mining sector.

So how do you get the balance right between saving and investing to establish a firm financial foundation? First, let’s take a look at the principles of saving.

The key is to consistently set funds aside beyond what is needed to pay for bills, groceries, school fees and other payments. To do this, it’s important to understand the true cost of these commitments. Once you know how much you need to set aside to pay for your ongoing expenses, you can work out how much you have left available to save. A rule of thumb is to aim to save 10% to 15% of your after-tax income.

This is often more difficult at certain stages of your life – for instance when you start a family. When this happens, you might find you don’t save as much as during other stages of your life. Don’t be too concerned – the idea is to develop a habit of saving throughout your whole life, rather than be too focused on the specifics of the amount.

So, what’s an effective way to save? One of the most beneficial strategies is salary sacrificing into superannuation. This may allow you to make a tax-effective contribution to superannuation, subject to certain thresholds. It’s a way of increasing your nest egg, while also reducing the tax you pay.

Another saving strategy is paying your mortgage through an offset account. This allows you to use your savings account balance to reduce the amount you owe on your loan, which could lower the interest you pay on your mortgage.

These are just two ways you can help increase your savings. There are lots of other initiatives you can also put in place to help build up the value of your investments over time.

The idea is to work with your financial adviser to put together a comprehensive financial plan that incorporates the right savings and investment strategies to help you achieve your goals, taking account of your individual circumstances and life stage so you can make the most effective use of your financial resources.


  1. Bishop, James & Cassidy, Natasha ‘Trends in National Saving and Investment’, RBA, 2012
  2. ‘Measure of Australia’s Progress, Australian Bureau of Statistics (ABS), 2010


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