One in four Canadians has no idea how they will be able to retire. In fact, they say that it will take ‘a miracle‘ to retire financially secure.
It’s safe to assume that these same Canadians often struggle with their financial health. Having a savings account can help you weather disastrous life events, surprise expenses, and more.
Whether your pet needs emergency surgery or you need to move out of province suddenly, a savings account lets you have options.
Savings goals are a crucial part of your overall financial health. That’s why we’ve assembled a guide to how you can set realistic and achievable savings goals. Let’s get started!
1. Track Your Spending
How much money can you realistically afford to save? In many cases, people set goals that aren’t feasible. Everyone would love to save $50,000 in a given year. However, if you’re only making $40,000 a year, you’re setting yourself up for failure.
Start by tracking your spending in a given month. This means everything—all your bills, recreational spending, tips. You may need to do this for a few months, depending on how much your spending rises and falls over time.
Once you know how much you spend, you know how much you can afford to save. Many recommend saving 10% out of every paycheck.
2. Automate Your Savings
One of the issues with building up a savings account is that something else will always take priority. In a given month, your money may seem to evaporate into thin air.
There’s always an emergency or a great sale that siphons away your dollars. You can automate savings based on one or two approaches.
Start by assessing how much leeway you have in your personal budget. If you’re living paycheck to paycheck, unrealistic savings advice doesn’t help. Instead, try setting up an automated incremental savings approach.
Many apps and platforms offer an incremental option. Here’s how it works. Say that you spend $4.82 on a coffee.
The app will round up to five dollars and save 18 cents based on that purchase. While that’s not a lot of money, some savings is better than nothing! When you automate savings, you’ll have more control over your personal finance.
If you have a little more leeway in your personal budget, set up automatic withdrawals into your savings account. Every month, you can set up a withdrawal of 10-20% that will deposit into your savings.
3. Set Specific Goals
What are you actually saving money for? There are so many types of savings goals that you can set.
The goal of savings is to provide options, prevent disasters, and give you peace of mind. Think of it this way.
If you lost your job today, what would happen? Some people would be able to live off their credit cards for a little while, but that won’t last forever. Others might need to borrow money immediately, or would be facing eviction and homelessness.
What if you had six months of living expenses saved? That’s a completely different mental space. You’d be protected financially until you can find another job.
Start by setting short-term goals. Common goals to shoot for within one to three years include:
- Emergency fund (three to nine months of living expenses)
- Down payment for a car
- Vacation
- Paying off credit card debt
What if you want to shoot for something long-term?
- Down payment on a house
- Retirement
- College fund for your children
When you know what kind of life you’re striving to achieve with these savings goals, it will get a lot easier.
4. Pick the Right Accounts
When you’re setting different types of savings goals, where should your money go? Depending on your habits, you may save money in an envelope at home. Or, you may prefer to put your money in a savings account.
Here’s what we recommend. If you’re saving for something short-term, put your money in a general savings account. Another option is a GIC.
A GIC will lock in your money. The interest rates on these types of accounts are usually higher than a typical savings account.
If you’re shooting for something long-term like retirement or a college fund, a different type of account might work. Here are some great options:
- TFSA
- RRSP
- Stocks
- Mutual funds
- RESP
These will generate a higher interest rate, which accumulates and adds to your savings over time.
5. Create a Personal Budget
How much money do you spend in a month? A better question is: how much money do you have to spend in a given month?
This requires tallying up all your recurring bills each month. This should include:
- Rent or a mortgage payment
- Cable or Internet
- Cell phone bills
- Gas
- Food
- Utilities (sewer, water, trash, etc)
- Electricity
- And more
Many experts suggest splitting your budget into 50/30/20. 50% of your income should be spent on needs, 30% on wants, and 20% on savings.
Of course, many people live in high-cost cities with low-income jobs. Spending only half your income on needs is the dream!
If that sounds like a challenge for you, try to stagger your budget differently. What about 85% needs, 10% wants, and 5% savings? If you’re frustrated by how slow your savings are accumulated, don’t be. Something is always better than nothing.
A budget will also help you identify where your money is actually going. Leverage your bank statements and credit card statements to see where you’re spending.
Sometimes you’ll uncover subscription services that you forgot about. Or, you’ll realize you were paying for two Netflix accounts when you only need one. This will help you eliminate needless or repetitive spending.
6. Eliminate High-Interest Debt
Many Canadians have a life founded on debt. In today’s high-cost society, it may seem impossible to avoid.
Car payments, student loans, mortgages, credit card debt … it all adds up so fast. What can you do about it?
Start by prioritizing the debt that you need to pay off. Eventually, the goal is to funnel your recurring debt payments into your savings accounts.
That’s easier said than done in many cases. Start by figuring out what you need to pay off first. In some cases, you’ll want to start with the smallest debt you owe.
However, many experts suggest starting with the debt that carries the highest interest rate. That way, your payments aren’t constantly going towards paying off the interest without reducing the actual balance.
Once your debt is paid off (or at least manageable), it’s easier to focus on hitting your savings goals.
7. Track Your Progress
A savings account isn’t something that you can set and forget. Even if you automate savings, it’s crucial to check in on your progress regularly.
After all, your life circumstances will change often. So does your income. This is especially true if you don’t have a steady income—which often happens if you work on commission, or if you work seasonally.
Your expenses will likely change month-to-month too. After all, even basic things like your electric bill will rise and fall depending on the seasons.
That’s why it’s crucial to iterate and change tactics whenever necessary. If you need to update your savings strategy, do it! If your previous tactics weren’t working, there’s no shame in changing them.
As you see your savings accumulate, it’s motivating to save even more. That’s the type of behavior that will get you to your goals even faster.
8. Join an Investment Group
You’ve heard the saying: there’s power in numbers. When you surround yourself with people who are focused on personal finance goals, you’ll naturally acclimate to that type of environment.
These types of groups are also valuable places to get advice. While it’s important not to follow peer pressure over the cliff, it’s a good place to see what’s going on in the financial world.
The core purpose of an investment group is to help people pool assets to make the smartest investments. Usually, a group of people get together and go in on joint investments.
Usually, these investments come in the form of bonds or stocks. The idea is that you can make more money when investing as a group. If you’re at a point where you want to shoot for long-term savings goals, this is a great place to be.
It’s also a good spot to learn more about the market. Many people in these clubs or groups have been investing for some time. That means it’s a valuable place to share ideas and gather information.
Setting Savings Goals
Setting different types of savings goals is a great way to get a handle on your financial health. If you’re looking to dig yourself out of a financial hole, automated or incremental savings are a great way to go.
While it may take some time to achieve financial stability, a short-term loan might be able to help until you can get your savings in order. If that sounds like something you’re looking for, contact us today! We can help.