For many Canadians, it is becoming increasingly difficult to save. Even worse, many are relying on debt to survive. There is more to saving money than spending less and putting a little away each month (although that is a good start). If you are struggling with paying your basic bills, where do you start? At MoneyProblems.ca we recommend you follow a 5 step approach to being a better saver.
1. Reduce Your Debt First
The fastest way to free up money to increase your savings is to eliminate debt. The sooner your pay off your debt, the less interest you will pay each month. Money that would otherwise be used to pay this interest can easily be redirected into saving or into paying off other debt faster. Dealing with your debt should be your number one priority. Start by paying off your plastic. If you carry a credit card balance of just $1000 at 18 percent, you will reducing your ability to save by almost $200 per year. If you have a large number of debts, consider consolidating your debts so that you are not paying as much interest. If you need more help, learn about more debt relief options.
2. Create An Emergency Fund
The only time saving money should come before getting out of debt is to create an emergency fund. This fund does not have to be huge, just enough to cover off unexpected events such as a car repair or cover your living expenses for a short period (3 to 6 months) if your lose your job. An emergency fund is important because crisis borrowing is very expensive. Relying on credit cards and payday loans to get by for day to day living expenses will only increase your debts, not reduce them. Take advantage of Tax Free Savings Accounts (TFSA’s) to save faster.
3. Try Something New: Pay Yourself First
For most, it seems no matter how much money we earn each pay we seem to run out by the end of the month. One of the best strategies to saving money is to pay yourself first.
4. Keep Track
Start by setting some savings goals. For short term items like buying a TV or furniture, figure out how much the item costs and start setting aside some money each week. Avoid using debt to pay for items that will not hold their value. For longer term goals, like buying a home, determine how much of a down payment your will need and what your mortgage payment might be. Keep a record of your expenses and use it to create a budget. Trim your expenses. Take a look at your budget each month and think about your priorities. Make cuts where you can, learn some money saving tips. Calculate how much money you can save by cutting out some items and you will be more motivated to save.
5. Get Your Financial House In Order
Your debts are under control and you are working on managing your personal finances. Now you need to be prepared for the long term. Start investing in your retirement by increasing your RRSP savings.