“Opportunity is missed by most people because it’s dressed in overalls and looks like work!” – Thomas Edison
While most of us understand why saving money is a smart idea, most of us are also pretty terrible at actually saving money. In Canada, our savings rate has been less than 5% for the past 20 years: what that means is that people are saving less than 5% of their gross income. When you consider that most personal finance experts agree that we should be saving at least 10% of our gross income for retirement and another 5-10% for things like vacations, home renovations, vehicles and unexpected expenses, it’s not hard to understand why so many of us aren’t even close to being financially secure. Statistics suggest that the majority of people in Canada are two paycheques away from serious financial difficulty and that, for more than 80% of Canadians, their emergency fund is a credit card or a line of credit. When you put those two stats together, it’s not hard to see why debt is such a huge issue for Canadians: life throws curves and if we’re not financially equipped to deal with those bumps in the road, it’s all too easy to fall into a hole that can take an awful long time to get out of.
We know we need to save, but saving isn’t always easy. Having dug myself into a pretty deep hole financially, I’ve spent the last 18 months aggressively digging myself out and I’m very proud to say that I’m getting really close to being debt-free. It hasn’t been easy but, once I’d decided that enough was enough and I was willing to do whatever it took to turn my situation around, it became a lot easier.
In this post, I thought I would share three strategies that have worked for me when it comes to building savings and paying down debt. They’re not innovative or unique, in fact they’re pretty straightforward and simple, but they worked for me and I hope that they can work for you too:
- Earn More
This may sound simplistic, but it’s one of the most effective ways of getting ahead. The two easiest ways to boost your earnings are to either a) ask your employer for a raise or b) work more hours (either working overtime or taking on a part-time job). As soon as I present those options in a seminar, people are quick to point out all the reasons that they can’t do either. If that’s your gut reaction, then I’d encourage you to seriously think about whether there’s a way that you can make it happen. Chances are, there’s something that you could do that would increase your income and my guess is that, if you could earn an extra $200-$1000 a month ($50-$250/week), that would make a big difference to your ability to save and get out of debt. If you’re willing to give up a couple of evenings during the week and/or a day on the weekend, you can make that happen. If you’re not convinced, just take a look through the part-time job opportunities currently available in your area and see what’s out there. You might be surprised.
In the past one of my biggest obstacles to saving successfully was that I got in my own way. I would do all the calculations, figure out how much was coming in, how much was going out and identify an amount that I could comfortably save each month. Then my paycheque would hit my bank account and suddenly all sorts of things that I hadn’t anticipated would eat away at my “extra” dollars until there was such a small amount left that it didn’t seem worth saving. Month after month, the same thing would happen until eventually I’d get discouraged and give up even trying to save.
Last year, I decided I was going to do things differently. I did all the calculations again and set up automatic payments from my bank account so that all the money I had earmarked for savings just disappeared from my account on payday, along with all my other bill payments. I’m fortunate to work for a company that has a group savings plan so I can contribute to my RRSP and my TFSA direct from my paycheque. That has worked really well for me because everything gets deducted from my pay before it ever gets to my bank account. Plus, it goes into an account that it takes work to access and that charges a withdrawal fee so there’s no temptation to just dip into it. I’m forced to live on whatever’s in my bank account which has made me much more conscious of what I’m spending on a daily basis.
Setting up automatic payments is easy. You can do it through your bank or financial institution (or through payroll if your employer has a plan in place). My one suggestion would be to make sure that your savings account isn’t linked to your debit card – it makes it too tempting to dip into it for impulsive purchases and that defeats the whole point of putting money aside!
- Bank Future Savings
In the past, when I was deep in the debt hole, whenever I would get some “extra” money from a tax return, a birthday or a bonus, it was always used to catch-up on a past-due bill, an unexpected expense or some other debt. Once you have a money management system in place and at least $1000 in your savings account, you find yourself in a spot where extra money coming in can be saved instead of spent. It’s a really nice feeling!! One strategy that has helped me save more over the past 12 months is to commit to saving all the “extra” money that comes in.
If I get a bonus or work overtime then I put the extra dollars straight in my savings account. If I get a pay raise, I increase my payroll savings by the same amount and, in the Fall when my paycheque increases because my CPP and EI premiums have maxed out, I increase my RRSP and TFSA contributions. This lets me increase my savings rate without feeling it because my take home pay is about the same and, for me, it’s been a really powerful tool for saving.
At the end of the day, it’s really easy to get caught up in all the reasons why we can’t do something, but if your brain is telling you that it would be too hard, too complicated or too much hassle to save more then I’d encourage you to think about ways to prove yourself wrong. When it comes to saving, what really matters is that you save something. Obviously the more you can save, the better off you’ll be, but saving something is far better than saving nothing and, most importantly, by saving something you’re starting a savings habit that will grow stronger over time.