With the financial climate of our world today, saving money has become more of a priority for many Canadians across the country. Whether you’re saving for a down payment on a house, vacation, or just an emergency fund. It’s important to take a look at your finances and see just how much you can save from your income, without depriving yourself of necessities.
Last month, DebtReview’s blog was all about budgeting! Budgeting and savings go hand in hand. Most of the time a budget is created to see just how much money you can allocate to savings! If you want to learn more about budgeting, check out our budgeting blog post here.
However there are many other options besides budgeting to help your savings grow. You can make different lifestyle changes, try different saving methods, or utilize saving tools available to get the most out of your money.
Ways to Save – Mindset & Lifestyle
One of the best ways you can start your saving journey is by changing your lifestyle and mindset around it. It might be hard at first to deny yourself of things that you regularly spend on, but when you are trying to save and get your money to work for you, it’s definitely worthwhile to look at your finances and how they are being used. To start, it’s important to start looking at saving as a priority in your budget, something that happens before you start spending on wants and supplementary expenses. However you are budgeting your money, start looking at saving as paying yourself first, make it a necessary expense. Furthermore, cutting down on wants and frivolous purchases can really impact the amount of money you have to put towards your savings. Some expenses that tend to be overlooked are unused subscriptions (perhaps to streaming service), spending over budget during grocery shopping, small purchases like coffee every morning or dining out for lunch every day while you are at work. These are all things that could be curbed by some small lifestyle changes. A great way to motivate yourself into investing in your savings is to see just how much you could save during the year from expenses like these, so here are some examples!
Coffee every morning
Many people tend to spend money on a drink every morning to start the day, but this can rack up a lot of money over time, though it seems like a small and insignificant purchase:
• $2 x 365 = $730
• $5 x 365 = $1,825
• $2 x 260 (works days in a year) = $520
• $5 x 260 = $1,300
Whether you are spending on the lower end or the higher end of this spectrum, you can see how much you would be able to save each year by switching to a home made drink every morning
Lunch every day
Many people tend to buy lunch everyday if they work outside of their home every day. Not everyone will, but if this is a purchase that you find yourself making regularly, then you will be able to see just how much money you could save by bringing a packed lunch everyday:
• $10 x 365 = $3,650
• $20 x 365 = $7,300
• $10 x 260 = 2,600
• $20 x 260 = 5,200
Not only can you cut out purchases like these but you can also change the way you purchase items. Try to be more considerate when buying, give yourself time to think over items you want and if they will be useful and needed in the long run. Additionally, when you do decide to spend, spend on quality items you know you will get good use out of.
A quality lifestyle change you can make to help you save is by setting goals for yourself. Whether it be a big savings goal, like saving for a down payment or education, or a smaller goal like going on vacation or purchasing a luxury item, setting a goal is a great way to keep you on track and remind you of your commitment to your journey. When setting goals, be realistic, tailor it to your income/disposable income. It can also be significant to track your progress and inspire yourself with the advances you make.
Short term goal: Save $1500
|Over 1 Year||Over 6 Months|
|$1500 ÷ 12 = $125 a month||$1500 ÷ 6 = $250 a month|
|$1500 ÷ 26 = $57.70 twice a month||$1500 ÷ 12 = $125 twice a month|
|$1500 ÷ 52 = $28.85 a week||$1500 ÷ 26 = $57.70 a week|
|$1500 ÷ 365 = $4.10 a day||$1500 ÷ 183 = $8.20 a day|
|Savings Goal||365 (Days in a year)|
|52 (Weeks in a year)|
|12 (Months in a year)|
Ways to Save – Methods & Objectives
Planning a budget and prioritizing savings can be a daunting task, especially when you are trying it out for the first time or if you are worried about being able to stick to it. However, there are different tricks and methods you can use to start saving, even just a small amount. Nothing is too insignificant when you are looking to better your finances! There are different objectives you can set for yourself to start:
52 Week Savings Plan
Start by saving $1 in the first week of the year and add one dollar to the amount you save for every week that passes. Week 2 – $2, week 3 – $3, adding all the way until week 52 – $52. By the end of the year it accumulates to $1,378.
Here, is a link for a 52 Week Savings Plan chart so you can track your progress – https://www.pinterest.com/pin/165155511311345887/
$1 Daily Savings Plan
This plan is straightforward, everyday save $1. By the end of the year it accumulates to $365. You can tailor this plan to your liking by saving $2 or $3 dollars a day if you prefer. Whichever way you want it to work, it is a great way to start building a lump sum.
No-Spend Time Periods
This method you can use to start pushing yourself when it comes to saving money. You can start with smaller periods of time like a weekend or a week where you have no extra purchases besides necessities. Once you are comfortable enough with short periods of selective spending, you can work your way up to weeks and months at a time. It can be a superb way to save more and reach goals faster.
For even more spending plans and objectives, you can visit this site that lists 21 different savings challenges to try: https://inspiredbudget.com/money-saving-challenges/
Ways to Save – Using the Right Devices
There are many different tools and devices you can use to get your money to work for you while you’re saving. Many banks offer different accounts to help you gain interest and save your money wisely.
TFSA – Tax Free Savings Accounts
A Tax Free Savings account is an account you can open once you are 18 years of age in Canada and have a valid SIN. It is an account where all contributions made to it are exempt from income-tax deductions, even when withdrawn. Not only that but any income earned through the account such as capital gains or investment income, are also normally non-taxable. TFSAs also have yearly contribution limits, and earn varying interest rates based on the institution.
To calculate the interest your TFSA earns, you can use this free Canadian TFSA calculator: https://www.wealthsimple.com/en-ca/tool/tfsa-calculator
RRSP – Registered Retirement Plan
A Registered Retirement Plan is a different account that you can use to contribute to your retirement savings. It works as a tax-advantaged account, meaning that the money you contribute to the account is not taxed on your end-of-year assessment. They continue to accumulate interest tax free as well, until you start using the funds. RRSPs also have yearly contribution limits, depending on the annual RRSP contribution limit and your income from the previous year.
To calculate the amount you can contribute to your RRSP, use this free calculator: https://www.ratehub.ca/investing/rrsp-contribution-limit
RRSP Interest Calculator: https://www.wealthsimple.com/en-ca/tool/rrsp-calculator
RESP – Registered Education Savings Plan
A Registered Education Savings Plan is a bit different from a TFSA or an RRSP where you are saving for yourself or your retirement. An RESP is actually a tool you can use to save for your child’s future education. To be able to receive the money, the beneficiary must be related by blood or adoption. Contributions made to an RESP are not taxable, but government incentives and investment earnings on the account are. RESPs also have contribution limits, but it is a lifetime contribution as opposed to a yearly limit.
Free RESP Calculator: https://www.educatorsfinancialgroup.ca/resp-calculator/
Ways to Save – Debts
While there are many ways to save as much as you can and add it towards your goals, or cut down on unneeded purchases, one of the best investments you can make towards your savings journey is to pay off your debts. When you carry the amount of an outstanding loan, interest is charged as the payment for your loan. Not only are you paying back the amount owed, but the amount the bank or credit union is charging you to borrow their money. Loans can have varying interest rates. Banks have generally lower interest rates, while credit unions and payday loan offices tend to have higher interest rates. Whatever way you go, the longer you carry a loan, the more money it costs. To calculate how much interest you will be paying over the entire term of your loan, you can use this formula:
Initial Loan Amount x Interest rate x Term of Loan = interest
Example: A loan of $5,000 with a 5% interest rate, with a full term of 2 years
$5,000 x 0.05 x 2 = $500
So at the end of your term, you would end up paying back $5,500 for your $5000 loan. This is also an example of a lower interest rate, but interest rates can be much higher:
Example: A loan of $5,000 with a 15% interest rate, with a full term of 2 years
$5,000 x 0.15 x 2 = $1,500
At the end of the term you would end up paying back $6,500 for your $5000.
Interest rates can climb even higher than 15% and the longer it takes to pay back a loan the more money you would end up paying to borrow it.
Saving money might seem like an impossible task at first, but there are always different methods you can use, and changes you can make, to reach your goals! Whatever you are saving for, remember to stay positive and keep track! Motivation may just be the most important part of your journey.
If you’re looking to start investing in yourself and saving towards your goals, you may want to start by eliminating your debts! Give us a call at 800-335-8176 to see if you qualify for our program, where we can save you money on your debt repayment.