This is a continued challenge among Aussies. According to the 2021 Canstar Consumer Pulse Report, 25% of Australians are not able to save any of their after-tax income. When they do get around to it, 26% of Australians are able to save 10% of their after-tax income. Across age groups, individuals save about a median rate of $5000 of their monthly wage.


There are numerous money traps, or marketing messages masked as ‘good deals,’ that can keep you from reaching your financial goals. Addressing these traps and finding solutions for them can help you effectively manage your finances and build your wealth.


3 financial traps that can prevent you from reaching your saving goals



Money traps are practices or expenses that prevent people from accomplishing their saving goals and building their wealth. All these traps can be interwoven in your daily life, so it’s important that you’re conscious of them and see them as obstacles to your financial stability.


1. Undisciplined spending


Is buying coffee or going out for lunch considered “overspending”? Not necessarily. Undisciplined spending may seem subjective, but it boils down to a few familiar bad habits:

  • Overspending beyond one’s income: When you spend much more than you earn, that’s when you are ‘overspending,’ and over time you’ll end up with much less income than you can set aside for savings.
  • Spending without budgeting: Spending without a plan is a sure way to lose track of your money, especially when you’re living from one paycheck to the next. Buying a comparatively more pricey item is not an ‘undisciplined’ expense when you cut back on other expenses to make room and pay for this more costly item or service. 
  • Purchasing a product that’s beyond reasonable price: There is a ‘reasonable range,’ of prices that most customers set for products on the market, usually based on what rates you find for the same item in different shops. When you encounter the same service or item for a lower price, you think it’s cheap, while if you run into a variant priced higher than this reasonable range, it’s extravagant. Consistently seeking items beyond reasonable prices will leave you with even less money to budget.


The characteristics of overspending all relate in some way to a lack of self-discipline and being thoughtless about purchases. This means that it’s okay to indulge yourself every once in a while — as long as it’s within reason (and budget). 


Undisciplined spending can happen because of spontaneous shopping sprees, indulging in retail therapy or impulse buying. Constantly purchasing products and services that are not a necessity can hinder you from saving money.


2. Lifestyle inflation


When you receive a raise or get settled into a new job with higher pay than your last one, there’s a temptation to seek out the pricier alternatives or buy more expensive products. Giving into this temptation is another money trap that many young professionals fall into.


Known as lifestyle inflation, this is a tendency to increase spending when one’s income goes up. Lifestyle inflation goes up every time there’s a pay raise, which can encourage overspending. 


For example, newly graduated Chloe is sharing a three-bedroom apartment with three roommates. She’s frugal with her spending, she cooks her own food at home instead of eating out; she walks or uses public transport instead of getting a cab to get to her destination. 


But when she gets a promotion at her job, Chloe decides to rent a one-bedroom apartment in one of the most expensive capitals in Australia. She also starts eating out twice or thrice a week at expensive restaurants. While her expenses may still be within her income, the costs might push Chloe to live from paycheck to paycheck. 


Lifestyle inflation, when left unchecked, makes it difficult to get out of debt and save for your long-term financial goals.


3. Credit card debt


Using credit cards in itself is not bad, and can actually be a great tool for your transactions, but letting credit card debts pile up can have a significant negative impact on your finances. 


Some of the most common mistakes with credit card handling will not only hinder you from saving extra income but also affect your credit score, which many financial institutions use as a reference for substantial loans (i.e. house mortgages). The credit card pitfalls to avoid are:

  • Only paying the minimum amount: high interest rates will keep the balance growing every month, so increase payments to get compound interest working in your favour.
  • Using credit cards for daily necessities: common purchases like groceries or utilities will rack up interest charges, so the $2 tube of toothpaste will turn into a $20 one if you don’t pay off the full balance by the end of the month.
  • Chasing credit card rewards: bonuses are often worth a lot less than the interest you’ll accrue spending to meet the minimum requirements, as most rewards will be around 2%, while promotions will look something like one point for every dollar spent, but you need to redeem 10,000 points to get a $50 discount on a plane ticket for a specific travel period.


Running to catch up to your balance is sure to affect your credit score, especially if you’re guilty of the credit card mistakes above. Your credit score refers to the personal and financial information stored in your credit report, and is calculated based on the following aspects:

  • How much money you have borrowed
  • How many credit applications you’ve made
  • How consistently you pay on time


Depending on the credit reporting agency, your credit score will be between zero and either 1,000 or 1,200. A higher score means a lender considers you less risky and could mean you get a better deal and save money. A lower score affects your ability to get a loan or credit.


3 tips to help you reach your saving goals


Getting your finances in order is a gradual process, and you don’t need to fret about not adopting all the best practices right away. We’ve shortlisted three tips that you can use to help you save and counteract the money traps we’ve previously mentioned.


1. Create a spending plan

A spending plan will help you create a clear overview of your expenses, due dates and sources of income. It gives you a good idea of how much money you can set aside each month. It also ensures that you set realistic savings goals for yourself. 


An effective spending plan is realistic, considers your necessities and gives you enough to work with to build up to the big-ticket expense you’re saving for, like a home deposit. Start by evaluating your expenses and categorising them as needs, wants and savings:

  • Needs are expenses that can’t be avoided, like rent, groceries, utilities, insurance, loan and credit payments,
  • Wants are ‘fun’ expenses like streaming subscriptions or dinners out, and
  • Savings are for big goals like a three- to six-month emergency living expense fund, investing for retirement or paying off debt. 


In creating your spending plan, there are a few possible schemes you can follow, but the most effective budget ultimately depends on your goals:

  • The 50-30-20 rule prioritises spending, wherein 50% of your income goes to your needs, 30% to your wants and 20% to your savings,
  • Envelope-based budgeting determines weekly or monthly allowance depending on what’s in dedicated envelopes, limiting it to the cash available, or
  • An 80-20 budgeting plan allocates 80% to expenses and 20% to savings.


If you’re saving for a house or a similarly hefty expense, allocate more than 20% to your savings, but it pays to list and allocate your income before you start spending.


2. Use the right financial and saving tools


With the launch of so many fintech apps and platforms today, you can easily find tools you can use to help you in your savings goals. This can help you automate payments, so that money is automatically set aside for your bills. 


When choosing fintech tools and apps, you need to consider more than what’s popular among friends and family or what you’ve recently heard in the media:

  • There are different fintech sectors that deal with various functions, so familiarise yourself with apps for budget tracking, consumer banking, robo-advising and stock trading before you download.
  • Each financial venture comes with its own risks, so it’s crucial you do your research before putting your income anywhere.
  • Digital platforms are not all created equal and it’s important to understand the processes ahead of your transaction.


Regardless of which tool or app you choose, it’s essential that you know where you’re putting your money, especially since you’re going to be transacting on an entirely digital platform.


3. Invest in different assets


Investing in different assets, such as gold, can help you increase your wealth and give you additional streams of income. This will allow you to set aside extra funds for your goals. 


Gold is a good investment option, especially for younger generations, because you’re putting your money in an asset that’s intrinsically valuable, accessible through digital formats on fintech apps and is a consistent hedge against inflation. Gold is a safer investment because its value consistently increases since it’s not set on whatever value a government sets on it. 


Reaching savings goals is a gradual process, but it can be simple with the right tools and guidance. We can help you achieve your savings goals. Download the Nauggets App to start saving in gold today!