Over and over again, we keep hearing that Canadians just aren’t saving enough. According to reports, we owe too much, spend too much and don’t have a saving strategy in place to build a nest egg for retirement and emergencies.
So now that the expensive holiday season is over, what better time than the new year to put saving back on your radar? Presents and gift-giving are behind us, and now is the time to focus on goals of a new car or home, maybe even a vacation to escape the cold, an emergency fund or even retirement savings.
Here are tips to take your savings strategy beyond a mere resolution and turn it into an actual game plan in 2018, making your goals a reality.
Pick a number
… But not just any number. Pick a number based on your goals, and decide how much you’d like to save this year. As a ballpark, we should all be saving about 10 per cent of our incomes. So if you bring in $5,000 a month, that’s $500. When you get a bonus or inheritance or any extra money, sock away 10 per cent of that too! Even if you don’t have a regular income, calculate what you’ve made at the end of each month and put 10 per cent of that into your savings.
Strike a balance
How much you save is going to fluctuate based on your life. It might be very difficult to save if, let’s say, you have young children or you’ve just moved into a home that needs renovations. Or if you are dealing with a lot of debt, you should prioritize paying that down first. Still try to save accordingly, even if it’s less than 10 per cent, but focus on paying down what you owe and handling your responsibilities.
The key is setting realistic goals that account for your lifestyle. You’ve got to find a balance between saving, spending and paying off debt, and you’ll need to keep reassessing this balance. For instance, once you pay off your student loan, it’s time to save more. When kids stop needing daycare, same thing.
Never rely entirely on yourself
There are likely going to be times when you “forget” to transfer money to your savings, whether it’s on-purpose or not. Do yourself a favour by setting up automatic transfers to your savings account on a monthly or even biweekly basis, forcing you to save.
Make your money work for you
If you’re still using just a regular savings account, chances are that you’re not getting a lot of interest on your money. Or if you’re stashing your money under your mattress or in piggy banks, you’re obviously earning no interest at all. Look around and get to know more about some of the financial products available to help you invest and save. Don’t be afraid to even choose a mix of products from different financial institutions. Do your research and choose based on what’s going to get you a better return on your investment. Some great places to start include:
High-interest savings accounts
Regular savings accounts are not known for high returns, but most financial institutions have other types of accounts that can give you a decent interest rate, in addition to being flexible. In other words, you can take your money out of the account at any time, making these types of accounts great vehicles to save for vacations, renovations, or emergencies. For example, the EQ Bank Savings Plus Account currently offers 2.3 per cent interest – one of the best rates on the market – which is why it won Best Savings Account in the 2017 Best of Finance Awards.
Tax-free savings accounts
Tax free savings accounts (TFSA) are tax-sheltered, registered accounts that let you save money in a variety of high- and low-risk ways through a financial institution or investor service. In 2018, you can put aside as much as $5,500 in a TFSA. Whatever interest you make will never be taxed and when you withdraw the money – whether it be now, many years from now, or even in retirement – it won’t be taxed then either. There’s no penalty for taking money out of a TFSA, so you can use them for short-term savings, like for your next vacation, or as a retirement savings strategy. If you’re new to investing, a TFSA is probably a good place to start.
Registered retirement savings plans (RRSP) are typically what Canadians without pensions use to save money for retirement. The best thing about an RRSP is that you can get a tax break if you have one. The downside: you will pay tax on the money when you finally take it out. The money is not easily accessible, so it’s not that great if you need the money now or anytime soon, but with the right interest rate, it’s great for long-term investments. You can also take out up to $25,000 from your RRSP to use towards a down payment, tax-free.
Saving more money in 2018 isn’t really about making new year’s resolutions. It’s more about changing your attitude towards money completely.
This post has been updated.