Saving 101 - A Canadian Money Saver Guide for Beginners
Glossary
It Starts With Budgeting:
- Write down income and expenses: A first step to take for financial awareness.
- Understand fixed versus variable expenses: Fixed expenses help with predictability in the budget. Tracking variable expenses helps improve your discretion in spending.
- Divide expense items into wants and needs: Here you can put things in percentages and see if it makes sense.
- Find out what can be automated for both bills and savings: They key here is that it eliminates some of the decision making and ‘forces’ you to save.
- Make savings a ‘mandatory’ bill to yourself: This helps with getting into a mindset of savings more than anything else.
Essential saving concepts:
- Always have a goal (long-term focus).
- Always have a budget (short-term focus).
- Make emergency savings a priority.
- Be Intentional.
- Be Flexible.
- It’s all about habits.
- Don’t just save, invest!
- Try to enjoy life.
Always have a budget:
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Cash management in short-term (eg. monthly) is key.
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Reaching long-term savings goals consists of small wins (savings) every month.
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A few tactics to help save within a monthly budget:
- Delay discretionary spending to later in the month.
- Save as soon as you get your pay cheque.
- Reward yourself if you have extra room in your budget
at the end of the month.
Make emergency savings a priority:
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Unforeseen events cannot be anticipated but should be expected.
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Should be the first savings goal for most.
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Suggested amount: 6-12 months worth of living expenses.
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Eg. Monthly living expenses: $3000 → $3000 x 6 = $18,000 as a minimum savings goal for emergency fund.
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Allows one to save for other goals (eg. down payment on a home, vacation, etc) with more confidence.
Be Intentional:
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Budgeting is not just about tracking expenses.
- Need to have the will to stay within the budget and be consistent and disciplined.
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Having a specific savings target in mind helps with being intentional.
Be Flexible:
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What you save for and how much you save can change with life circumstances.
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Important when budgeting within a multiple person household where there are different views on priorities.
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If your approach to saving is not working over several month, maybe change approach and/or expectations.
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Your priorities for what you are saving for might change, and that’s okay. For example, you may have to put off a vacation by one year to do some home renovations.
All about habits:
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Habits take time to build, old ones die hard.
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Need patience and time to build better savings habits (with yourself and household members).
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Needs consistency until saving/spending habits become second nature.
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Sometimes small tweaks in everyday life can go a long way. For example, automating bills and savings, meal prep and eating out less frequently.
Don’t just save, invest:
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Investing and saving are the same thing if your time horizon is long enough.
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Compound returns over time from investing make withholding spending in the present much more rewarding.
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Saving for long-term goals without investing runs risk of savings losing purchasing power to inflation (~2-3% annually). Eg. Saving $300/month for 10 years = $36,000 in savings. Same amount invested at 8% annual return = ~$55,000
Enjoy life:
- Saving can be stressful and one may feel like they are sacrificing too much.
- Important to not lose sight of well-being and things we value most (family, friends etc).
- Find balance between sacrificing some things you can truly live without while being okay with spending on leisurely activities in moderation.
- Appreciating what you have also makes ‘sacrificing’ some things to save money a lot easier.
- Generally meant to be a ‘spending account’ where you do most of your transactions.
- Generally not ideal for saving money. Most carry a recurring monthly fee.
- Can be low or high interest accounts.
- Generally no recurring monthly fees, but may have fees for withdrawals or one free transaction per month.
- Deposited money is locked in for a fixed period of time.
- Penalties if funds are withdrawn.
- Pay higher interest than most savings accounts.
- Longer terms generally may higher rates.
- Great for short time horizons (i.e. less than 5 years) and making sure you do not spend savings.
- No guaranteed rate but offers higher return potential through the equity markets.
- Returns tend to be capped but bank guarantees you will not lose any of your initial capital.
- Terms are typically 3-5 years.
- Initial capital is not guaranteed like savings or GICs.
- Potential for higher returns and safer than investing in equities.
- Good for short-term time horizon (i.e. up to 3-5 years).
- Watch for non-essentials in grocery cart.
- Meal prepping can save you from eating out due to ‘being lazy’ in the moment.
- Communicate with significant other.
- Hold each other accountable and check in periodically on progress (eg. monthly).
- Learn to say “No”. No need to go to every event or activity you are invited to, especially if you don’t feel like it!
- Use separate accounts for different savings goals. Helps with staying organized and tracking progress.
- Use “windfall money” to give your savings a boost instead of spending it.
- Use bonuses and gift money as a way to get savings goals faster.
- Upgrade your monthly savings target when you get a raise.
- Contribute to RRSP when you reach a higher tax bracket.
- Bonus tip: save your tax refund!
- Take advantage of employer retirement savings programs and share plans.
- Employers often have very attractive plans that match contributions.
- Easy deduction from pay cheque that is barely noticeable.
- Take advantage of 20% (or more) government grants for RESP for children’s education. Where else can you guarantee a 20% return?
- Invest funds within RESP to further boost returns.
- Need a break? Try a ‘staycation’. No need to worry about expensive flights to far distances.
- List expenses and income.
- Track variable expenses and note monthly budget progress.
- Fixed expenses are known and are predictable.
- Automate bills and savings.
- Take the decision making and spending impulses out of the picture.
- Make savings a ‘bill’ you have to pay to yourself.
- Save water and electricity. Saves you money and the environment. Turn off the lights before you go to sleep!
- Continuously ask yourself if something is a want or a need.
- How much do you spend on wants vs needs. Put it into percentages.
- Negotiate monthly bills (eg. phone plan, insurance etc).
- Even $100 saved every month = $1200 per year.
- Reward yourself; Buy something or enjoy an experience you like if you have a surplus in your budget to help self-reinforce good habits.
- Cut the cord; Eg. With streaming options like Netflix and high internet speeds, TV and cable plans are becoming less needed.
- Remove unused subscriptions; If you don’t watch Netflix, considering pausing your subscription!
- Consider using a prepaid card instead of credit cards; This forces you to only use money that you have.
- Don’t compare yourself with others; It’s never a fair comparison. Focus on improving your situation at your own pace.
Monthly Budgeting Template
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