How to build effective savings habits
If you went outside on a rainy day without an umbrella and got wet, it wouldn’t take you by surprise right? The same philosophy should hold true when an emergency arises that needs quick cash to cover it. If you don’t plan ahead, you’re going to get wet (financially speaking, of course).
But what if your focus is on paying down debt? Shouldn’t all your spare cash go towards those payments? A smart financial plan addresses both debt payment and savings, even if cash is tight and here is why:
“While it is a good idea to direct whatever extra cash you have to pay down debt, contributing to an emergency fund on a regular basis means that you will have cash on hand if you need it unexpectedly,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada. “Often people have to fall back on credit when unexpected expenses arise, which can erase all the hard work you’ve done to bring your debt load down.”
Saving up your rainy day fund conjures up images of stuffing your mattress with bills or filling old coffee cans with change. In reality, it’s all about creating a habit and transforming your approach to money – and this will transform your bank account.
If you don’t have one already, set up a separate savings account that is liquid. Take an extra step to protect those savings by not linking it to your debit card (avoid the temptation to draw the funds at the ATM or at the checkout).
This money has a purpose. It needs to stay put until it is needed.
Conventional wisdom suggests that trying to have 10-15 percent of your income socked away is a good benchmark, but adapt this to suit your financial situation, especially if you are aggressively paying down debt.
Re-tool your budget to see what you can afford to direct towards savings every month, and then commit to it. And remember, most financial experts recommend having a cushion of three to six months of living expenses, in the event of and emergency or sudden reduction in income.
Out of sight, out of mind
Does your employer or bank offer automatic savings, deducted right from your paycheque? If you can, direct a set amount every paycheque into a savings account. Chances are, you won’t even notice it missing. What you will notice, however, is a growing savings account!
Every little bit counts
A common objection to savings is the idea that you don’t have enough to really make a difference. Not true. Literally every drop in that savings bucket counts.
This means collecting change and small fistfuls of cash. It’s about creating good habits that pay off.
You may have more savings available to you than you realize. When you are out and about using cash, keep the change that accumulates and put it in a jar every night when you get home.
Identifying and employing a strong savings strategy can help you reach your financial goals more quickly than you might think.
If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at 1-888-294-3130 for a free debt analysis.