To have a secure future, we must have savings. It’s just a plain fact about life. You can’t work your whole life, so when the time comes to put the tools down, it is vital to have savings to support yourself. Saving money isn’t just about the future, though. Whenever emergencies arise we must have savings to cover ourselves. Currently, there is a pandemic going on around the world, and wouldn’t it be nice if we all had emergency savings for a situation like this?
Unfortunately, not everyone has savings for times of need. Instead of wishing did, you should start planning out your savings strategies for the future. There are numerous options on things you can cut back on to save money. Some strategies work better than others, but here we will present a list of options on how to save money each month.
Money Saving Strategies
There are countless strategies to save money which range from adding coins to your piggy bank or placing some amount of your paycheck into a separate account. Regardless of your chosen method, it will only work if you prioritize your savings.
By making this choice to save, we’re setting up our future self for security and comfort. It doesn’t matter the method or effectiveness at this point. It’s important to put your savings first. Now the question of how to save money from a salary comes.
1. Make your Budget
While making your budget prioritize your savings. This doesn’t mean write off 50% of your paycheck to save. Rather, add your necessary expenses first like rent, utilities, groceries, phone bills, car payments, etc.
Once you have all your necessities, see how much money you have left from your income and decide how much you’re willing to save each month. The amount you choose can be resultant from a goal you make or another savings method.
For example, the 50:30:20 method. 50% of your income goes to bills, 30% to desires and 20% to savings.
2. Establish Savings Method
By automating your savings, you won’t have to think about taking a certain amount out of your paycheck each week or month. Rather, your bank or your employer can do that for you. Speak to your employer about savings plans they offer and figure out how much you want deducted and placed in your nominated account.
If your employer doesn’t offer benefits such as an RRSP, set up automatic transfers with your bank. This way as soon as your paycheck appears in your account, your chosen amount transfers to whatever nominated savings account you use.
If you think you’d rather manually transfer the amount each month, that’s fine. This may give you some sense of reward in making the transfer yourself. However, if you choose to do this, you must keep it as a habit.
Going back to the budget, to effectively save money, you must follow your budget. Be completely aware of every dollar you spend and you’re sure to come out on top. Having your finances organized is the single most important step to saving money. Use a budget, track your spending, and watch your savings grow!
Where to Put Your Savings
There are many options when it comes to where to place your savings accounts. You can stick with a traditional high-interest savings account, you can play your hand in the stock market, invest in mutual funds, or open an RRSP. Whatever you choose, consider the following advice.
Having multiple savings accounts may seem unnecessary, but they’re very useful. As mentioned previously, it’s crucial to have money saved for emergencies. Additionally, you may find yourself needing to make some big purchases, such as a down payment on a car or home repairs. Of course, you need to have your retirement savings as well.
1. Emergency Savings Account
It’s standard practice to have enough money for at least three months of living. This means if you require $2000 a month to cover all your expenses, keep at least $6000 saved up.
The downfall of having an emergency savings account is that it needs to be accessible. To be accessible it will most likely sit in some high-interest savings account where you can withdrawal at any time without fees. At absolute best you’ll find yourself with 2% interest a year on it, which means your money won’t gain much principal over time. Determine how much money you need and how long you want to be prepared and stick with it.
2. Large Purchases Savings
Rather than take money from your retirement savings, keep a separate account for any large purchases you need to make. Doing this gives you more control over your finances. By separating money based on different needs, you’ll always have money to cover yourself.
Just like your Emergency Savings Account, this needs to be accessible. If your bank offers savings accounts with no fees, you might as well keep these separate. However, if you find it too much a hassle, or your bank charges fees, you can keep them in one account. Just be aware of how much to always keep for emergencies.
Saving money for retirement is what we all are looking to do. We want to know we’ll be financially secure when we can no longer work. That’s why retirement savings options are so diverse. Let’s look at some of those options here.
1. Registered Retirement Savings Plan (RRSP)
An RRSP is a high-end savings account where your income is deposited pre-tax. If you make $60,000 a year before taxes and you nominate 10%, $6000 goes straight to your RRSP. Whenever you decide to take that money out, it gets taxed based on your income at that point.
The benefit and idea here are that if you’re making more money in your middle years compared to the time you would take the money out; it makes more sense to use an RRSP. When you’re making less money later in life, you have lower income taxes, and therefore your RRSP withdrawals will be taxed at a lower rate. Additionally, as an RRSP takes advantage of compound interest, you’re getting that interest on your pre-tax contributions.
2. Tax-Free Savings Account (TFSA)
Although not necessarily for retirement, tax-free savings accounts are often used that way. TFSA’s are accounts that act as little tax havens to hold your investments and savings. Opting for a TFSA benefits you by allowing contributions, withdrawals, interest earned, dividends and capital gains to all go tax-free.
Like an RRSP, anything can go into a TFSA. You can add mutual funds, bonds, cash, etc. However, as of 2020, the yearly contribution to a TFSA is capped at $6,000.
One other notable aspect of a TFSA is any foreign investments you have are subject to a non-resident tax.
3. Guaranteed Investment Certificate (GIC)
Somewhat similar to a savings account, GIC’s are commonly used for retirement purposes. As noted by the name, purchasing one of these guarantees you a set interest rate, meaning you’re guaranteed to have positive cash flow. This is a low-risk investment intended to act as an alternative to purchasing other high-risk investment options.
Besides these three options, there are numerous other methods for saving and investing money for your retirement. You can purchase index funds, ETF’s, high-yield bonds, and many more. Some come at higher risk than others but also offer higher potential gains. It’s important to talk to a financial adviser if you’re looking to do some serious investing.
Finding Extra Money to Save
Now that we’ve covered the importance of budgeting, setting aside money to save, and places you can save your money, let’s see about finding extra money to save. These tips will help show how to save money fast. Adding additional money sources on top of your nominated savings amount is a sure way to increase your savings quickly.
Money-Saving Tips Around the House
1. Sell Unused Items
Garage sale, anyone? Go through your closets, attic, storage space or anything you have where items may be collecting dust. Finding old electronics, furniture, or clothes is a quick way to earn a little extra cash. No matter how much you get rid of, it’ll make you feel good to declutter and find money to put to your savings.
Back to the all-important budget. If you track your spending and notice your purchasing unnecessary kitchen equipment, decorations, clothes or anything of the nature, try cutting back for a month. Track your spending and before purchasing an item, decide if it’s needed. You may just find you save yourself $50 a month.
3. Grocery Shopping
Whenever you go shopping for food, create a shopping list beforehand. This allows you to go to the store and buy everything you need. If you stick to the list, you won’t walk out of the store with $20 extra worth of junk food. Additionally, try shopping at bulk stores, use coupons, buy on-sale items.
4. Review Loans/Debts
Check all your loans/debts you’re paying off. Some of these may qualify for interest readjustment, and you may just find you can knock off 2% interest.
Saving Money from Work
A great way to find additional money comes when you get a raise. If you were living off your previous salary just fine, why not put that raise directly towards savings? Depending on your savings method, that money might make more of an impact in the future after gaining interest than it would now anyway.
If your company gives out yearly bonuses consider putting that straight to savings. The same goes for any overtime you may have earned. It’s tempting to spend that money, but by thinking about the interest earned you can motivate yourself to save!
3. Extra Commission
Same scenario with the commission. If your income is primarily from commission this may be harder, but if you make an abnormally large sale, you’ll get a larger check. Play the investing cards and move some of that commission into your savings and reap the rewards in the future!
4. Side Hustles
Think of some creative ways to make money in your free time. You can check out our article here about how to make money online in Canada.
Government Based Money
Tax return season is always a favorite time of year. Unless you have a specific need for that money, say to pay off a hospital bill, choose to put that money into savings. Next time you file taxes, consider using an agency for assistance. Although it cost money upfront, it could end up saving you hundreds of dollars in the long run. You may be missing out on deductibles you were previously unaware of.
Another option is getting a tax assessment on your property done. You may find you’re paying higher taxes on your home or other property. Upon completion of a successful tax assessment, you could end up saving a substantial chunk of change.
Other Creative Ways to Save Money
Saving money is like a game for some. Over the years people have found countless ways to save a dollar. Although investing money is not possible for everyone, there are always ways to save money. And no matter how much you save, it’s better than nothing.
“A penny saved is a penny earned”
Here are some more ways to save money on a tight budget.
- Become a single-car household
- Only purchase used cars
- Use public transportation
- Take advantage of free events and services (libraries, concerts, etc.)
- Ditch Cable television
- Set monthly savings goals
- Price match items purchased from participating stores
- Stay clear of brand name items
- Save all your coins
- Use a “rounding up” up app like Acorns
- Create your own 24/48 hour rule for nonessential purchases: if you want to buy something you know is not essential, wait 24-48 hours and then decide if you still want it.
- Home cook all your meals
- Buy used items/clothes/furniture online or in second-hand stores
- Learn to fix/build things yourself
- Learn to insulate your house to save on heating/cooling bills
- Start a garden and grow your own produce
There are numerous ways to save a dollar here and there. A little creative thinking can go a long way!
After going over savings strategies, methods, finding money, and other tips, there is still one important factor. This essential point forms the backbone of saving. You must be persistent. Saving money is easy to do if you’re aware of your finances and disciplined enough to know what you should and should not buy. Being persistent in saving each month will secure your future. Not everyone will be able to save the same amount of money, but having some savings is better than none.
Saving money sounds to many like something they could never do. After all, there are bills to pay and children to raise. This article will include some wonderful tips to help you save funds for a rainy day no matter how much money you make each month.
How Much Should You Save?
How much you save is heavily dependent upon what you see as your goal for doing so. What are your long-term goals and needs?
The first question you need to consider then is what it is you need. Needs should always come before wants and the biggest need any household, no matter how large or small needs is an emergency fund.
Saving an Emergency Fund
Many emergencies can put a strangle on a family’s finances. The loss of a job or a critical illness is only a few of these nasty surprises. If your car breaks down not having the funds immediately available to do the repairs can devastate your ability to work, so having that savings can be a life-saver.
Having an emergency fund set back gives you fluid funds that you can use to pay bills or get the compressor on your central heating system fixed.
A savings fund is a separate account at your bank designated to cover unforeseen emergencies only. It is not a vacation or college fun; it is strictly for use to help keep your family on their feet in a crisis.
How Much Should You Put Back?
The size of your emergency fund varies by where you live. If you live in Hawaii, you will need a more substantial amount than if you live in Indiana. However, Wells Fargo strongly suggests that you put back three to six months of your current expenses.
They go on to state that the best place to save your money is in an interest-bearing account but using one that is easily accessible without taxes or penalties. You want to keep the money liquid to use immediately upon the occurrence of an emergency, so placing your funds in a different type of account would make them more inaccessible.
Setting Goals for Savings
Setting goals for your money is a vital part of saving funds. Making a list of long-term and short-term goals can keep you on track but remember they don’t need set in stone. As you and your family age, your situations will change, and your goals may change as well.
A crucial short-term goal would be to reduce your debt. Paying off credit cards or even your mortgage may be the goals you place in this category. These goals take, by definition, a few years to a year to complete and pay off with the lowering of your monthly expenses and a heightened sense of security should the economy turn sour.
Critical long-term goals may be saving for your retirement or your children’s college education. These goals usually take many years to reach and require dedication but pay off huge in the long run.
Saving Money on a Salary
The biggest keys to saving money no matter how much you bring into your household are not to spend more than you make. That may sound very fundamental, but it is sometimes much harder than it seems. The discrepancy is because people, especially in the United States, are more into convenience than practicality. We would much rather eat at a fast food establishment than cook our meals at home.
So, the first thing you will want to consider is making a budget and sticking to it.
Making a Good Budget
The definitions.net website gives this definition of a budget:
“A detailed, specific, accurate and transparent record of every form of income and expenditure recorded by an individual, couple or partnership to manage and monitor their accounts for each of their household bills and all forms of income and expenditure so they know accurately what their monthly income and expenditure total is and have the ability to change and update the data when needed.”
There are mainly three steps to making a budget to fit the needs of your household.
Step One. Identify all the incomes you have from wages, salaries and any other money that flows into your household monthly. Don’t use the gross amount, the amount before taxes, but the net amount that shows how much is being brought in.
Step Two. Write down your spending. There are fixed expenses that must be paid every month such as utilities, a mortgage or rent. However, there are other expendable expenses such as entertainment, gas, and groceries.
Putting each of your expenses into its own category will help such as needs or wants. Food and gas are essential, so they are a need, but going to the movies or eating out are wants.
While it is okay to put some money into the budget for entertainment, always set aside money in your budget for the needs first.
Step Three. After you have your income and spending lists added up, subtract the latter from the former. Any money left over goes into your savings. If you have used any of the emergency funds, that should take priority and then you can decide as a family which of your other goals to place the remaining amount towards.
The 50/30/20 Rule
To help determine how much of your salary should be budget for all your needs and wants, there is the 50/30/20 rule. First, decide how much you bring home net, that is after all the taxes and deductions have been removed. Then follow 50/30/20 formula that was invented by the United States, Senator Elizabeth Warren. This rule states that 50% of your net income should be budgeted for the needs of your household such as utilities, 30% of your net income to your wants such as shopping and entertainment and 20% of your money after-taxes should go to repaying debts and enter into your emergency fund.
It may seem strange that there would be a higher percentage going to entertainment than the emergency fund, but that’s not so. The 30% you may spend dining out and shop for fun can be adjusted to help fund other parts of your budget.
There is an important thing to remember when defining what a need or a want means. If you pay extra money on a credit card each month, that amount is neither a need nor a want but in its own class. However, spending a minimum amount due on a credit card is different. That amount would be designated a need and paid from the 50% of your income.
Likewise, a car or mortgage payment is a need from the 50%, and extra payments are considered part of the 20%.
Saving Money Quickly
According to an article taken from a blog written by Dave Ramsey, the Internets savings guru, the first rule to saving money quickly is to work with what you have. A few ways to accomplish this are to keep to your budget, eat out less and use cash instead of credit cards to make purchases.
The second thing he states is to save more money you may need to bring in more money. You can do things like have a garage sale, take on extra work on the side or selling stuff on eBay. You can also find one of the highest paying jobs in Canada to earn quickly, pending you meet the requirements.
Some other suggestions from Dave Ramsey are to shop around to see if you can get a better deal on life, home, health, and car insurance policies. The premiums on insurance policies can vary from one car insurance company to another. Consider buying from a smaller company as often the costs of advertising a big-name brand are incredibly high, and they pass on those costs to their customers.
Consider changing the withholding exemptions on your pay-stub at work if you are consistently receiving a big check at the end of the year. Although that large lump sum looks good in February, you can have more money coming in each paycheck to cover the household expenses throughout the year.
Something else you can do is stop wasteful spending when it’s not needed.
Remortgaging Your Home
A more dangerous way to save money and pay off some of the highest items in your budget like credit cards is to remortgage your home. The idea is to take advantage of any equity you have built up in your property and take advantage of lower interest rates.
This move is not right for everyone, and there are some significant drawbacks to taking out a new mortgage.
Chief among these is the danger of losing your home because you cannot keep up with the payments. This isn’t as big a problem for those who still owe money on their house, but if you have paid it off and are living mortgage free, this is a sizeable consideration.
Also, you would be stretching the length of your loan longer, and that translates into more substantial overall costs. There are fees attached to remortgages that may lessen any benefit you might have received by obtaining one.
Also, remortgaging your home will not help if your immediate need is for quick cash. It takes several weeks to complete the remortgaging process, and you will need to be able to see the process through while still meeting your other financial obligations.
Some Easy Tips to Help You Save
Saving money for a rainy day or a vacation doesn’t have to be a drudgery that only the adults are in on. Finding new ways to keep the cash you waste can be made into a household contest with teams to see who can save the most.
An easy savings trick that any member of your household can do is to collect and save spare change. Pennies, nickels, dimes, it doesn’t matter what denomination, place all the spare change your household receives into either individual piggy banks or a massive household jar. Then at the end of a predetermined time take the change to the bank to be counted. You and your entire family will be amazed at how much money you would have saved together.
Some other tips are to subscribe to the Sunday paper and switch to cloth napkins. The Sunday paper is full of savings ads that can pinch off dollars from your shopping budget. Switching to cloth napkins instead of paper ones can save your family money as well as reduce your footprint on the environment.
You can learn how to save money on groceries and shop at the Dollar Store for household items such as cleansers. The prices in dollar establishments are often discounted, and that means you can place these savings back into your budget for other needs.
You can save on your power bill by doing a few easy and simple steps. One is to switch to more efficient light bulbs to brighten your home. Although the initial cost of LED light bulbs is significant, running one of these appliances will only cost $12 if you run it five hours a day for two years. By comparison, running a single incandescent light-bulb for the same length of time will cost you $32.
Also, train your children and yourself to turn off lights when they are not needed. There is no reason to run a light in the daylight nor when a room is unoccupied.
Creative Ways to Save Your Family Money
The sky is the limit when it comes to using our imagination to save money as a family. Below are some suggestions that are fun and family friendly.
Learn to Sew
Sewing isn’t as difficult as many people may believe it to be. True, it takes as much time to learn as any skill, but the satisfaction of making something beautiful with your own hands can’t be matched.
Typically there are local places that offer either free or low-cost sewing lessons to help you get started. You might begin with sewing drapes and then dare to branch out into clothing for your children. You don’t need to be an economist to understand how much sewing your kid’s clothes will save in the budget.
Make and Decorate with Your Own Art
The fun family activities involved in making your own art are limitless. Figure painted masterpieces, and your favorite family photos placed in frames makes your memories into wall art that money can’t buy.
Another fun and easy way to decorate the walls and save money is to make collages. Get the entire family involved in gathering up old photos, scraps of poems and motivational sayings then pasting them onto wallpaper scraps. You can then frame these new artistic creations and decorate each child’s bedroom or any room in the house.
Try framing frames. Go to the thrift store and spend a few dollars on frames of graduated sizes. Then stack them inside one another and either glue or nail them together and hang them in the kitchen or bathroom. You can embellish them with pressed flowers from your yard. Even dandelions look fantastic when they have been pressed and had a coat of sealant applied.
Do What Is Right for Your Family Needs
No matter how much money you have coming into your house monthly to pay your bills, saving money is a necessity for any family. Saving doesn’t have to be a stressful experience and can be made into a family project for which the rewards will last a lifetime.