Saving isn’t hard when you know how
The lesson in successful saving is to take it step by step.
Like a student’s “A, B, C’s”, the importance of saving is drilled into us from an early age. Most people understand the need to save to meet their goals. What they get hung up on is…how? How do I save for expensive goals, like a home or my retirement? How can I save and still enjoy myself today? How do I start?
You start by establishing a savings plan that’s unique to you—which, it’s true, takes some soul searching, a realistic assessment of your assets, a little discipline and some determination. However, most people find that the effort to establish and stick to a savings plan becomes a habit and results in a lot of satisfaction as they achieve their goals.
We’ve got a game plan to help.
First, identify what you are saving for. It sounds obvious, but having a specific goal—such as a down payment on a home—is a lot more motivating than just saying to yourself “I need to save.” According to Educators Certified Financial Planner professional Marian Ollila, “It really helps people to achieve their goals if they visualize them first.”
Next, figure out how much you are able to save, by establishing a budget using the following steps:
#1. Note your net income (not your gross income).
#2. Track your spending.
It’s a good idea to do this for a couple of months in case one month is unusually high or low. There are many online budget calculators available to help you, including this one from the federal government, and our own Educators budget calculator.
Begin with your fixed expenses, like rent or mortgage payments, utilities, and car payments. Next, list your variable expenses—things that could change every month, like groceries or entertainment costs. Record your daily spending with pen and paper, an app, or your smartphone.
Your variable expenses are typically where you might be able to cut back.
Tip: if you have several loans or credit cards, you may be able to reduce the amount of interest you pay on your debt by consolidating them into one, low-interest line of credit.
#3. Take stock, and make a plan.
With a clear idea of your fixed and variable expenses, you can predict how much you’ll need to budget for in the next few months. By subtracting them from your expected income, you’ll know how much you can save.
Tip: When estimating upcoming costs, factor in those special events and times of year when you might be spending more—a loved one’s birthday, or when you take a holiday, for example.
#4. Experiment with ways to save more, and faster.
If after establishing your budget you decide that you want to boost your savings, here are some time-tested strategies to try.
As mentioned above, take a good look at your variable expenses. Maybe you can find a less expensive phone plan. Have friends over for a potluck rather than going to that new restaurant. Borrow books from the library instead of buying them new. And analyze each purchase before you buy it—is it a ‘want’ or a ‘need’? (There’s an old saying: “Never let today’s want make you forget your long-term need.”)
Investigate the various options for saving and investing your money. An Educators Certified Financial Planner professional can explain the difference between savings accounts, Guaranteed Investment Certificates (GICs), mutual funds, registered plans, and more. The savings vehicle you choose should reflect how much you can afford to save, how frequently you plan to add to your savings, and how quickly you may need to access your money. If saving for short-term goals, focus on safety and liquidity of your funds. (Savings accounts, Tax-Free Savings Accounts, GICs and high-interest savings accounts are good options.) The longer you have to reach a financial goal, the more investment risk you can afford.
Tip: Make saving effortless with a Pre-Authorized Contribution (PAC) plan, which automatically invests an amount you determine, at intervals that work for you.
#5. Monitor your progress regularly, and increase the amount you can put aside if possible.
Got a raise? Try living on what you earned before you got it, and add the extra income straight to your savings.
Take advantage of the knowledge and help available to you.
Make the most of the government programs designed to help you save, such as a Registered Education Savings Plan for your child’s education, and a Registered Retirement Savings Plan for your retirement. (Even with the OTPP, you’ll want to maximize your retirement savings.)