Do you pay yourself first? Count yourself among the lucky few. While the majority of Canadians have a savings goal, few are heeding to the advice given by most financial experts: make those savings automatic.
Financial pundits like the Wealthy Barber often preach the power of making savings a priority over spending by putting money aside from every paycheque – yet only 14 per cent of us are using automatic withdrawals, according to a CIBC poll.
Set It and Forget It
Why can’t Canadians get their automated savings act together? Perhaps many are thwarted by the psychological barrier of affording to set aside on each paycheque.
“Our CIBC poll shows that Canadians want to save but they don’t always have a plan on how to achieve their specific savings goals,” says Veni Iozzo, senior vice-president of Deposits & Client Solutions at CIBC. “Knowing what you’re saving for and how much you need is a good first step, but having a financial plan to determine how much you can put aside and how often is important to help reach your goal faster.”
Separate Savings from Everyday Spending
Unless you’ve got iron-clad willpower when it comes to saving, it’s best to keep those funds separate from everyday spending. However, this advice appears to be falling on deaf ears – almost a quarter (23 per cent) said they are saving from their regular everyday banking accounts. Not only does having a separate savings account make it easier to monitor your progress towards your savings goal, it reduces the temptation of raiding your account for frivolous purchases.
“While it is great to have savings goals, the risk in keeping all your money in a single account makes it more likely that you may use the money for everyday living expenses and may not attain your specific savings goal,” says Iozzo. “A TFSA is a good option for longer-term goals as you can save tax on any interest earned.” For shorter-term goals, Iozzo suggests an interest-earning savings account.
The poll found that those who do separate their funds use TFSAs (32 per cent), or a savings account in addition to their everyday account (29 per cent).
What Are We Saving For?
With summer finally here, it should come as no surprise a lot of Canadians are looking to take advantage of the sunny weather and are saving towards a family vacation; 25 per cent said saving towards a trip or holiday is their top savings goal. That’s followed by saving for an emergency fund (17 per cent), home renovations and repairs (14 per cent), their child’s education (10 per cent), and a car (10 per cent).
Saving for a down payment, however, surprisingly appears at the bottom of the list with only 8 per cent. With home price reaching the stratosphere in many parts of the country, perhaps some Canadians are ready to throw in the towel on their dream of home ownership.
Do you automate your savings? Do you find it challenging to do so?