Smart saving habits can save you thousands of dollars a year while generating hundreds of thousands of dollars – even millions for your future!
So how can you save up tonnes of cash?
Especially when it feels like you're working just to pay for things like child care, kids' activities and other household expenses? Or like you can't stretch your dollar any further?
Well you'll be happy to know you don't have to be a financial genius, have a high-paying job or be "lucky" to save money successfully. Anyone can do it.
Successful money saving takes patience, consistency and discipline guided by some basic principles about money. That's it.
Smart saving is about adopting smart money behaviors. Consider valuable money saving advice from the ant in this wise proverb:
“…look at the ant. Watch it closely; let it teach you a thing or two. Nobody has to tell it what to do. All summer it stores up food; At harvest it stockpiles provisions.” Proverbs 6:6-8
Be patient and consistent like the hard-working ant. Save up cash with a steady, disciplined approach. Before you know it you’ll have a stockpile of your own.
What if you don’t trust yourself to be patient, consistent and disciplined? How do you make saving as easy and painless as possible?
Make Everything Automatic
Contributions to RRSPs, RSPs, RESPs, or other savings goals (e.g., saving up for a car), should be automatically withdrawn from your account on a monthly basis so you don’t have to think about it or lift a finger.
Think saving a million dollars is beyond impossible in your lifetime? Not if you understand the key to saving:
Learn the Power of Compounding
Compounding is when regular deposits of money grow exponentially over time.
For instance, if you consistently sock away only $200 per month, you’ll have over $1,000,000 in 25 years (assuming an average 10% interest rate).
Start saving as early as possible. Time is your greatest ally. Teach this principle to your kids. Their greatest advantage is time.
1. Set a family budget. Smart saving begins with tracking your household income and expenses and deciding on a budget. Do this together with your spouse and include your children if they're old enough.
Once you're familiar with your budget, you can determine your personal savings rate, which is the key to reaching financial independence.
2. Use cash only. Pay for everything in cash. If you don’t have the cash, don’t make the purchase. Following this simple rule can keep you debt-free.
3. Get a no-fee, high interest checking account. Find a bank that doesn’t have fees and pays a higher interest rate than others.
Personally, I love PC Financial in Canada. It’s completely online with no banking fees and pays higher interest rates for savings accounts than most banks.
Credit unions are another attractive option. They have banking fees, but offer a profit sharing program that pays members a share of their profits every year.
4. Pay down high interest debt first. If you have credit card debts or loans at high interest rates, pay them off first before saving or investing for the long-term. The 8% interest you earn on an RRSP simply cannot outpace a credit card debt of 21%.
5. Refinance your mortgage. This means replacing your current mortgage with a new one.
A drop in interest rates could save you hundreds or even thousands of dollars a year.
Keep your eyes on interest rates a few months before renewal time. If interest rates have taken a plunge, consider paying out a penalty to switch to a lower rate.
I once chose to pay a $5,000 penalty in favor of a new, lower interest rate. The switch saved me $700 per month and paid for the penalty several times over!
6. Have an emergency fund. Save up cash for emergencies. Expect the unexpected (e.g., job loss, health problems, unforeseen expenses, etc.).
Being prepared in case of financial hardship will help you live stress-free. If something should happen, you can focus on your situation without the worries of money.
I recommend having an emergency fund of 3-6 months of expenses.
7. Contribute to an RRSP plan. Get on a monthly retirement savings plan (RRSP, RSPs, etc.) as soon as you are clear of any debt (except your mortgage) and are making an income.
Aim for 15% of your income. Don’t worry if you can’t afford much to start. Even the smallest amount of $50 per month can grow into $220,000 in twenty years.
Make your contributions automatic!
8. Contribute to RESPs as soon as you have a baby. Likely the last thing on your mind if you’ve just had a baby, but the sooner you can start making contributions, the better.
Aim for a minimum contribution of $2,500 per year (about $200/month). In Canada, the government will match your contributions up to 20% or $500. That’s up to $500/year in free money!
From birth, $200/month can grow to $100,000 by the time your child goes to university at age 18.
9. Get a good financial planner. If you don’t want the hassle of managing your investment portfolio, leave it to someone who manages money for a living.
I use a knowledgeable financial planner who has my interests at heart. She tailors my investment portfolio to suit my changing life circumstances (getting married, having a baby, switching jobs, losing a job, etc.).
10. Learn about basic tax deductions and credits to get the biggest tax refund possible.
Oprah Winfreys’ Million Dollar Neighborhood TV show featured 100 Canadian families from the same town who collectively received $100,000 in unclaimed tax refunds because of missed tax deductions and credits. One family who hadn’t done their taxes in years got a $14,000 refund!
Don’t miss out. Make sure you get familiar with basic tax deductions and credits, or have a professional complete your taxes for you.
11. Know your company retirement plan and benefits coverage. Are you taking advantage of what your work place offers for benefits, retirement plans, pensions or stock options?
A recent study done by Sun Life Financial estimated that Canadians are losing out on $3 billion of free retirement money from company pension plans and their contribution-matching programs.
If you want to reach financial independence in less than ten years fast, you need to increase your personal savings rate - substantially. This involves taking on a mindset towards savings that is counter-cultural. But if you want big changes, here's 3 concepts you need to know to save more money fast.
Now that you've gotten through the chief saving strategies, here's a few more smart saving tips to really jump start your way to big savings!
12. Save Money on Groceries. Grocery expenses are a huge expense for families. Find out how much you can save on groceries just by controlling your food costs.
If you want to eat organic, but think it's too costly, use these strategies to save on organic food.
13. Declutter and Organize to Save Loads of Cash. Surprisingly, you can save more than $10,000 a year just keeping a clutter-free home. I show you how to do this here.
14. Look for New and Unusual Ways to Save. Be different from the masses and learn to be a shrewd shopper. You'll save hundreds of dollars with these uncommon ways to save.
These smart saving habits won’t just secure your future retirement. They’ll be the building block habits for your family to live well today.
Having some basic financial literacy and a plan to reach your goals will keep your life stress free and put you in a great position to pursue hobbies or dreams, whether that may be to start a business, travel more or reach some other financial goal.