Have you ever noticed that, at the end of the month, you don’t have any money left?
It doesn’t matter how much you earn each month; if you are a typical Canadian, you probably spend all you make each month. Without a savings program, you will never build up a nest egg for retirement, the purchase of a home, or spare cash to fund emergencies.
How can you create a savings plan that works for you?
Pay yourself first.
Why does “pay yourself first” work?
By paying yourself first, you put away your money before you have a chance to spend it. If you don’t have it, you can’t spend it. It’s that simple.
First, take a look at your monthly budget, and decide how much you can afford to save each month. Be realistic, but aim for 10% of your take home pay as your savings target. Thus if your net pay (after taxes and deductions) is $2,000 per month, try to save $200 per month.
Second, arrange to have your savings deducted automatically from your pay cheque or your bank account. Have your employer register you for Canada Savings Bonds purchases directly from your pay cheque, or ask your bank to set up an automatic withdrawal from your bank account. Various investment advisors can also set you up with a savings plan.
If your savings are removed from your pay cheque or bank account before you even see the money, there is no opportunity for you to spend it.
You can increase your savings by contributing to an RRSP. You save money, and Revenue Canada reduces your taxes.
What are the risks?
Savings programs are important, but you must also prepare for the unexpected.