Wondering what’s the best strategy to save money? Having savings on hand is an essential part of your financial health, but how much do you really need? Furthermore, how are you supposed to accumulate those savings, especially when money is tight?
“If you are focusing on paying down debt, it may not make much sense on the surface to take away money from your debt payment. However, savings is actually an important part of paying down debt, and staying debt-free,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
How much should I have?
There are varying schools of thought as to how much you should have in savings. The amount depends greatly on how old you are, your cash flow and how much debt that you carry.
Remember that you should have different types of savings to address different goals. You should have cash on hand for emergency savings, as well as money put aside for retirement. When it comes to emergency savings, it is recommended that you have about three month’s salary in the bank, just in case you experience a financial emergency.
For retirement savings, again this figure varies from person to person and individual financial circumstance, but you usually need about 70 percent of your working income in retirement. What does this mean and what is the best strategy to save money for you?
Set up a budget that focuses on savings
Tweak your budget so that there is an adequate amount to direct to savings every month. That may mean that you need to cut back on other spending, but it is short term pain for long (and medium) term gain.
Pay yourself first
One of the easiest ways to accumulate savings is to pay yourself first. By having savings automatically deducted from your paycheque (through your employer) or through your financial institution, it becomes a habit that you don’t even notice.
By having it done automatically, it is seamless and it doesn’t seem like a sacrifice. It’s also more convenient for many people, which means that it is more likely to happen.
Where can I find extra money?
You can boost your planned savings by keeping other savings strategies on your radar. Although slightly more low-tech than automatic payments, but still effective, try collecting your change and putting it in a jar. You can either just collect coins, or you can work out a system where you “keep the change” from a purchase and put it in the jar. This can be an effective way to boost your overall savings plan.
Want to have more money for savings? Get rid of debt. “ If you are carrying debt, paying down that debt will help increase your saving power. You’ll have more money in your budget because you aren’t making debt payments,” says Schwartz.
Bank things like tax returns or money gifts. If you receive a raise at work, live off of your old salary and bank the difference, accelerating your savings.
Set up separate savings accounts
Set up savings accounts (or other investments) for each of your financial goals. That way you can separate your goals and keep them on track. For instance, you don’t want to withdraw from your RRSP for home repairs or to cover expenses when you lose your job.
For help setting up a budget that will let you pay down your debt and build up your savings, call us at 1-888-294-3130 or check out our free online debt analysis