How we achieve an additional $50,000 in savings annually

First let’s be clear. We do not live on tins of baked beans or substitute gravel for toilet paper. Ouch!

Secondly the $50,000 in additional savings we are accumulating is not from any increase in income or side gigs.

Our savings are purely from implementing smarter ways and choices to legally keep more money in our pockets instead of others.

Thirdly, we’re not special.

We have the same amount of time and days in a week to do everything we need to do just like you.

Lastly we also each have average incomes. Disclosure we pay ourselves $73,060 (after tax) or $100,000 gross annually.

So how did we do it? How could we find these  additional $50,000 in savings annually (we already save one income of $100,000 annually) without cutting back on our necessities and quality of life?

More importantly how can you achieve these levels of savings or more for you?

The short answer is “You can, just like us”.

You simply need to decide on what you want, identify the price, and decide if you are willing to pay and if so pay the price. Then get on with it.

Simple but not easy!

For me the biggest hurdle to achieving anything important in life has always been overcoming my inner voices of self-doubt and remaining persistent and committed to the task at hand.

How can we maintain our motivation when we don’t feel like doing the work?

How can we stay the course when we are constantly dazzled and distracted by alternative choices?

How do we break the boredom, and to keep going when it feels like we’ve been plateauing for so long, we’re so far from our destination and its just not fun or interesting anymore?

I have received many, many, many blessings over my life from my parents, however I believe the most valuable of all was their support and commitment to my swimming throughout my youth and teenager years.

For twelve plus years my Father tickled my feet at 4.45 am to wake me up, then would drive me to a swimming pool ( 40 km away) six mornings a week. Then after more time in the pool, five afternoons a week my Mum followed through by getting me home from 6.30 pm before preparing dinner for the family. By the way she had a full time job too. This went on winter, summer, spring and fall, school holidays and during school term for more than a decade.

A herculean effort of support that set me up for life. Thanks Mum and Dad.

The two most important lessons I learnt.

Choose one thing, do it to the best of your ability and stay the course. And the second is be accountable to someone; because there are going to be times when self-motivation alone is not going to get you out of bed or into that pool. Especially on a cold winter’s morning.

Sure I was a good at swimming. It was my teenage identity that I relished, but I believe want took me even further was persistence and staying the course of commitment.

And I got to see this play out each year at swimming national titles. I saw less and less of my prior competition on the blocks beside This fact alone empowered me and still today even more so, to do better and stay the course.

Now back to finances and a little more pool time..

Firstly let’s call saving money out for what it is. Saving money is boring, painful and takes the fun out of life. “It's a traffic light when you’re already late or a no-smoking sign on your cigarette break”- Thanks Alanis.

Do you think I longed to get into that cold water on a winters morning at 5.30 am because it was fun? No it was not!

I braced myself and dived in because I had momentum i.e. I was already there to swim and I was a long 40 km from home by car. So my options were limited. On balance I just got in and did the work. True, it was shocking and painful at first but then soon after I’d forgotten and moved on.

Just like when choosing to save $50,000 annually. It’s painful and a real shock at first but you soon get used to it and life gets back to a resemblance of normality.

Also saving money like swimming can also get very boring very quickly. I was so bored and tired when swimming, sometimes I would mistakenly hit my head on the pool end because I had slipped into a sleep swim. That hypnotic rhythm and blured black line......

How do you stay motivated watching that black line…Up and back, up and back?

Simple you take your mind off into your own little world. You go there to solve your problems, you count laps, talk to yourself and you sing. You study, you pace yourself, you focus on your sets, you push yourself and you do the work.

When it comes to maintaining your savings cadence you also simply rhythm the same things i.e. 80% of the time take your mind off the task and engage it in other activities that don’t stop you saving but keeps you entertained on the journey..

Running is free and healthy. So too is borrowing a book from a library, doing chores around the home. Writing a blog, attend a free community college class. There are so many ways we can invest in experiences that have a direct benefit to us without costing us a cent.

The other 20% of our time, simply because we are doing the work we will naturally want to improve.

Again no money is required to research alternative strategies, or benchmark our progress, fine tune our goal plans or revisit a better deal from your service providers. The point is focusing and doing self-improvement and analysis 100% of the time will burn you out.

Achieving financial independence is a marathon not a sprint.

Finally in regards to fun police.

At the time I thought I was missing out on friends parties, other sports, studying, scouts, or whatever others talked about but I wasn't there because I was training. The truth was that I wasn’t missing out at all. In fact swimming instead of partying kept me out of trouble instead of getting into it.

Any sport we choose encourages us into a healthier lifestyle and generally healthier interests. So  too does embracing greater savings.

Being focused on sports naturally meant I was interested in eating healthier, becoming stronger, engaging in other sports instead of, hours of watching TV and less healthy lifestyle pursuits.

So too saving regularly gravitates us to have greater self interested ways to better manage our finances, distance ourselves from all to easily caving to instant gratification and helping us to place greater value on maintaining things that are important and special to us.  

So bottom line how did we find and maintain $50,000 a year in savings.

Wealth creation and legal tax minimization via salary sacrificing up to our maximum each $25,000 into superannuation we minimized our taxable income down to $75,000 which saves us $4,825 each in tax per year or $9,650 total annually, this is net savings after paying 15% contributions tax into our superannuation.

The benefit of doing this is not only limited to lower taxes, but our money growing in a low tax environment that is protected from creditors and currently is tax free on withdrawal after age sixty.  

Becoming a single car household. Savings $5,000 annually. As we work together we only require a single car. For the time we are in different placed we use Uber about once a month costing $500 annually.

General food savings and discount coupons. We have a budget of $100 per week which includes our dinners out. The cost annually is $5,500 however previously it was over $15,500 as we would often buy lunches instead of making them, not buy bulk foods, buy mineral water where as we now use soda stream, or buy coffees and now we have a coffee machine. Savings $10,000 annually.

We also expanded our business with a business acquisition. While this new business acquisition has substantially increased our earnings, these earnings are retained within our company and are being used to pay down borrowings which we project to be nil by 2020.

The benefit of structuring this acquisition asset with borrowed monies is that borrowing costs are deductible. While this has increased our costs, by $20,000 (4% interest cost on $500,000) based on company tax of 27.5% gives the business a tax savings of $5,500 annually along with an increase in revenue of $200,000 (which we have excluded in our findings of savings). The good news is that when this loan is fully paid business income is projected to increase by $20,000 as this represents the current annual interest on loan borrowing costs.

In this process of expanding our business we also relocated to Cairns. Because of this we purchased a property here in Cairns to live in. Doing so incurred a $250,000 to our savings as a purchase cost, with additional and ongoing costs of $5,000 for strata.

However doing so also freed up our house for rental. Which we receive $2,000 per week or $100,000 annual in rent. Again I have not included this in additional savings as we simply see this as a windfall in income and currently building up to replace the $250,000 purchase of our current residence.

Investment properties allow expenses to be deductible and since the property with strata and management fees annual cost is approx $35,000 annually, based on a current marginal tax rate of 37.5% these investment costs now becoming deductible, we have been able to achieve $13,125 annually in tax savings.

We also brokered a better rate with our following service providers

Bank: Saving 0.50% annual interest on a $500,000 loan $2,500 annual savings.

Credit cards: Choosing only one credit card with a complimentary holder has achieved savings of three annual fees or $1,200 annually.

Power: Change of providers and lower usage savings via more efficient blubs and appliance usage achieved $100 monthly or $1000 annually.

Subscriptions dropped: Foxtel saving $660 annually as this is replaced with SBS online and movies via a smart TV.

Health: Like with power bills a change of providers we achieved savings achieved $1000 annually with same benefits and excluding some ancillaries we don’t require i.e. pregnancy, remedial massage etc.

Phone/Internet: Like with power bills a change of providers we achieved savings achieved $1000 annually now we get unlimited data and free calls to each other.

Total ongoing savings are $50,635 annually.

Note these savings are in addition to an increase of business $180,000 and $60,000 personal incomes annually. So in total we are ahead by over $290,000 in savings annually (less personal income tax and excluding other investment incomes)..

Most importantly these savings and growth in income is only the ticket to get you and I to the game. The real prize is given after patiently maintaining the cadence of saving money, increasing earnings and building ones assets to the point of attaining financial independence.

As Einstein famously said about compound interest “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t pays it.”

This post was written by Peter Horsfield, as such they are his personal views. 

About Peter Horsfield

Peter Horsfield in an Authorised Representative and Investsure Holdings Pty Ltd ABN 16 050 286 630 as trustee for Horsfield Family Trust ABN 55 609 068 513 is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523.