While the jingling sound of coins falling into your “savings jar” or the sight of stuffing bills under your mattress provides some reassurance (and gratification) that you are accumulating savings, you may want to employ a little more detailed strategy to get the most bang for those bucks. To get rid of debt, you’ve obviously got to pay debts off, but you’ve got to be strategic and save money to get rid of debt.
“If your focus is to pay down debt, the tendency is that savings are an afterthought. Month-to-month, if there is any money left over, you put it into savings, and hope for the best,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“In order to avoid accumulating more debt in the event of unexpected costs, you’ve got to have savings on hand. One strategy is to shift saving to the top of your priority list, and to be mindful not only of how you accumulate your savings, but of what you do with them to get the most mileage from them,” says Schwartz.
Here are some points to consider when developing your savings strategy, which will not only help you accumulate wealth, it will actually help you become debt-free- today and in the long term.
Pay yourself first
Kudos if you’ve been able to gather savings by scrounging together savings here and there. The best way to really get your savings going- make it the first deduction from your paycheque.
Your employer may offer this service either for straight savings, or for retirement or pension savings. In some cases, they even contribute or match your contributions.
If your employer doesn’t offer automatic payroll deductions, meet with your bank. They’ll set you up and can also discuss some options as to where you should hold your savings, based on your goals and your needs.
Different savings, different goals
We know the importance of an emergency fund to lower the need for credit in the event of a financial emergency, but that’s not the only saving goal you need to consider. You need to have immediate goals, but also some for the medium and long term as well.
In addition to your emergency savings, it’s a good idea to try to put a little aside for your retirement as well, even if it is years away. With more and more seniors having to work longer or carry debt into their retirement, it’s well worth your while to invest now and let it grow over time to make your golden years debt-free.
There are plenty of choices when it comes to deciding where to store your savings.
For an emergency fund, make sure that you are putting the money somewhere that is liquid (i.e. that you can get at right when you need it, without penalty or risk). Good options are savings accounts or cash-equivalent investments like cashable GICs or TFSA.
For your longer term savings, consider an RRSP, where you choose a mix of investments that will reduce risk, let your money grow and outpace the costs of inflation, as well as generate a return on your initial investment.
Are you struggling with debt payments and can’t find money to put in savings? Have unexpected expenses put you in a dangerous debt position? We can help. Call one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.