Building A Great Strategy For Savings

Building a strategy for savings is so important. You need to decide whether you want to save for that unexpected bump in the road, your dream vacation, a home, or educational needs. Without a strategy, it can seem impossible to meet your needs.

However, building savings doesn’t happen overnight. However, putting it off certainly isn’t going to get you any closer to your goals.

Luckily, you can build savings through small, measured steps. These small amounts may seem trivial, but they add up quickly. Before you know it, you can have the money you need to make your dreams and goals come true. 

So where do you start? 

Identify your goals

Start by thinking about what you want to save for in the long and short-term. For instance, retirement can seem decades away, but it comes quicker than you might think. It’s important to include these far off goals, not just short-term ones that offer more immediate gratification. 

Things you may want to consider saving for are: 

• A vacation 
• You or your children’s post-secondary education 
• Retirement 
• A house 
• A new car 
• Home renovations 
• Starting a family 

These are just examples. You likely have your own priorities, but you can’t work towards them unless you identify them. We suggest you write out a list and then number them from first to last. 

Save more or pay down debt? 

You’ll read plenty of advice online about whether it is smarter to save money or pay down debt first. In truth, that totally depends on your situation.

First, look at the interest rates of your debt and the type of credit. For example, a student loan may have a lower interest rate than a credit card or payday loan. In this case, you would want to pay down the debts with the higher interest rates. You’ll also want to focus on any debt with severe penalties if you don’t meet the required minimum payments.

Of course, you should at least make your minimum debt payments. Otherwise, it will impact your credit score. However, if you have money leftover after making your debt payments, consider putting money into savings. Even $20 a week can make a difference. Accounts like RRSP or TFSA’s can be good options here. 

Should I have an emergency fund? 

In short, yes. Emergency funds are often ignored, until it’s too late. You could face a home repair, a medical emergency, or even a global pandemic that causes you to lose your income. 

All too often, we think this will never happen to us. If this pandemic teaches us anything, it is that even the most unexpected event can happen.

The rule of thumb here is that you should have 3-6 months worth of expenses saved in your emergency fund. When we say “expenses” we mean anything that is a necessity to live such as your rent/mortgage payments, food, hydro, water, internet, etc. 

This money should also sit in an account that you can access, but not as easily as a chequing account. You don’t want to be dipping into this account for unrelated things. Nonetheless, you don’t want to pay withdrawal penalties or have restrictions on how much you can take out when you need it. 

Can you afford it? 

Some people say that they can’t afford to save. That might be true, but you won’t know unless you closely examine your finances. So before you quickly say “no” to savings, go through this process: 

Update your budget
How often do you update or manage your budget? Do you even have one? If you do, are you checking your budget regularly or is it something you only look at when you are in a crisis?

When it comes to your budget, doing regular updates can help you see where your money is going and if there are spots in your budget where you could be saving more.

It’s important to remember that you can start small. If you can commit to putting aside a small amount of money each pay cheque and work your way up, you’ll see your savings grow quicker than you expected. 

Treat your savings like a bill
When you start looking at your savings like a necessity, your mindset changes. We often put off savings, because we feel it is optional. It doesn’t carry the save weight as paying a bill.

However, if you get used to putting money into your savings as if you were paying a monthly bill, you quickly develop a savings habit. 

Lifestyle changes
This is the real test as to whether or not you can save more money. Are you financially stressed? Are you looking back at your statements and wondering where your money is going?

It’s likely things like eating out too often, buying your daily morning coffee, or binging on shoes you don’t need. You needn’t stop spending completely, but you should be more mindful. Otherwise, you won’t have the money you need to save.

Can you save MORE?

The next question to ask yourself is whether or not you can be saving more than you are? Maybe you are already saving, but you haven’t taken a look at your finances for a few years. Could you be building up your savings quicker than you are? Here are some ways to reevaluate your finances and your budget to be saving more: 

Step one: Calculate your after-tax income
Your after-tax income is what remains of your pay cheque after taxes and deductions. If you get a regular paycheck or salary, just look at your previous pay stubs. If you are self-employed, you’ll need to take your gross income, minus your business expenses and what you put aside for taxes.

Step two: Limit your needs
Now go back to your budget. If you don’t have one, create one! Take a look at how much you spend on needs each month. Things to include are:

• Car insurance
• Mortgage/rent
• Utilities
• Groceries
• Home or life insurance
• Regular medical expenses like prescriptions

Remember, only 50% of your income should go towards your needs. If you come in over, take a look at what can be adjusted or where you can save. Maybe it’s calling your local car insurance company to see if there are better options. Perhaps you can look for better grocery deals.

Remember, your needs aren’t your wants. Wants are things you can live without like cable. Needs are things that can severely impact your life if you aren’t putting money towards them.

Step three: Limit your wants
This is one of the easiest categories to cut down on, because you don’t need any of the things. It is important you watch how much you spend on manicures and trips to Thailand.

Items you might include in wants are your cell phone bill, cable or Netflix subscription, home renovations, etc. Even if you need your cell phone for work, having unlimited data, text, and calls might be a want. Your wants shouldn’t consume more than 30% of your budget.

Step four: Save more
Now let’s get to the saving. Note that this can also include debt repayments outside of your minimum repayment amount that falls under “needs”. This can include any additional car payments or credit card payments beyond your minimums.

Savings should account for 20% of your budget. This may go into your emergency fund, and/or your retirement accounts. To make it easy, you may want to make an auto-withdrawal from your account that your pay cheque goes into. That way you won’t have an excuse not to save..

You’re probably wondering why 20%? It’s the estimated percentage that the average person will need to save this amount to reach financial independence before they’re too old to enjoy it. That’s based on 25 times your annual income for 41 years.

Obviously the less, or more, you save, the longer or shorter time it will take to achieve that goal. If you want to work fewer years, you’d better get saving now!

What are small things I can give up? 

We often get so caught up in life and think we have no extra income to put into our savings. The reality is, if you take a good, hard look at your expenses each month, you can probably cut back somewhere. 

If you are looking for additional inspiration on how you can save money, take a look at these suggestions: 

• Cable: Do you need it at all? Do you fully utilize the plan you’re paying for? Are there cheaper options? 
• Lunch: Can you meal prep and bring your own lunch to work or school more often? 
• Shipping: Are you doing a lot of online shopping and paying for shipping when you could just go to a local store instead? 
• ATM fees: Can you cut back on where you’re using your cards? Can you limit yourself to your bank’s ATMs? 
• Bank fees: Are there banks you could use that don’t charge you fees? 
• Coffee: Can you cutback on how much you’re spending on takeout coffee? 
• Data overage: Are you going over your cellphone data limit? Are you utilizing all the services on your plan that you are paying for? 
• Gym memberships: Are you using it? Are there cheaper membership options? 
• Brands names/labels: Are you a brand name junkie? Think about thrift shopping or consignment stores before buying new.
• Subscriptions: Are you utilizing all your subscriptions? Are you overpaying for features you don’t use? 
• Landline phone: Do you need it if you have a cellphone? 

What are some of your biggest tips for saving more and building your savings?