We all know that saving money for our future is very important to help us prepare for emergency situations that can have a financial impact on us: the roof needs changing; the car needs new tires, you got sick and can’t go to work, or you got laid off. Even what should be happy moments of our life turn to make you sweat due to financial reasons: your child starting college or your daughter getting married.
We need to save up to be able to handle life events, whatever they may be. However, most of us don’t think having savings is important until we need to tap into it. Some are lost as to how to start with their savings plans. Here is a list of ways to help you start:
Pay off your debts first.
Focus on paying off your high-interest debts first. This refers to your credit cards and store cards. These companies charge you between 8.99% to 24.99%. If you have bad credit, they can charge you as high as 36%. For a $5,000 credit card debt with 24.99%, you are paying over $100 monthly on interest alone. Imagine if you maintain a $50,000 credit card debt, that’s a monthly interest of over $1,000.
Set a goal.
Set SMART (specific, measurable, attainable, relevant and time-bound) goals. Think about how much money you will need for future life events: children’s college education, destination wedding, travel, emergency fund, and retirement. Write this down, then put a dollar value and timeline beside each of these events. This will be your guide on how much money you need to save. Go back to this written goal daily if you can. The more tangible your goals are, the more motivated you become to achieve them.
The most difficult part of starting a saving plan is to start. I always hear excuses like: with loads of debt I need to pay off, there is nothing left at the end of the month, with too many responsibilities. I was one of those who used these excuses. I knew I needed to save, but after all my bills are paid there is just nothing left.
I forced myself to start small. How small? I started with $25.00 per payday. I was thinking that I now could no longer make ends meet since I will be losing that $50 worth of spending money. After a couple of months, I realized that I survived without that $50. I got determined to save more. I increased my plan to $50 per payday and I still survived. Then I opened more savings account: RRSP, TFSA, emergency fund, social fund, and Christmas fund. This is the true essence of what Warren Buffet said: “Do not save what is left after spending, but spend what is left after saving.”
Look into your daily spending habits and figure out what you can give up. Can you live without your daily $5 latte? That’s about $300 right there.
Join your company’s savings plan.
Joining your company’s savings plan already allows you to grow your savings in a lot of ways. In my company, we are encouraged to save from 2% to 4% of our salary into a retirement savings plan. The company will then match our contribution. That’s a 100% increase in savings right away. On top of that, you will earn tax-deferred interest on your investment. This is income that will not be taxed until you withdraw your money.
Putting money into your retirement fund reduces your current taxable income. This results in a lower tax owing to the government for that year, thus resulting in an increase in your tax refund or decrease in tax payable to the government.
This kind of savings plan is set up for your retirement and you are discouraged to withdraw any money anytime before that. The restriction in place guarantees you a little nest when you retire.
Save for the rainy day.
As a Financial Advisor, I always advise my clients to have at least three months’ worth of living expenses in their emergency fund. If your monthly expenses is $3,000, then you need at least $9,000 in your emergency fund account. Please do not consider your available line of credit or credit cards as part of your emergency fund. A lot of people think that having a line of credit is enough to take care of future emergencies. I am one of those people who used to think that way. I always avail of any increase in my credit card and lines of credit limits because it was my preparation for any emergencies. with also tapped into these debts when unforeseen events happened that costs money: car repair, financial help to parents, and being laid off work. It took me quite a long time to finally get them paid off.
What can $5/day do for you?
As with mentioned, you can always start small. As soon as you see the benefits of saving, you will now be ready to look into your expenses. Saving just $5 daily can result in financial freedom in the coming years. A $5 daily, or $150 monthly, savings at 7% interest can give you at least $1800 a year. This can be a part of your emergency fund. Having your car’s oil changed for $150 can’t be a burden anymore.
The Importance of Saving
Savings is an integral part of reaching your financial goals. No matter how small you start it with, the important thing is that you do. Remember that every goal is achieved by that first step. Discipline yourself to put a certain amount into your savings on a regular basis for your future and to reach your money goals.
Having a small nest egg to lean on can make wonderful life events joyful, not dreadful. You will look forward to your future with enthusiasm and joy. As Robert Kiyosaki, author of “Rich Dad, Poor Dad” has pointed out: “It’s not about how much money you make, but how much you keep.”