When savings rates are low, long term growth prospects begin to fade
How often do you tell yourself: “I’m going to better with my money and try to save this month.” Yet in the blink of an eye, you’ve overspent and now you’re dipping into your savings. Does this scenario sound familiar?
Dipping into your savings month after month indicates you’re having trouble adhering to your budget. Here are a few ways you can stop dipping into your savings and finally start growing it:
1. Automate – Set up preauthorized payments or transfers into sub accounts for all of your expenses, bills, and savings. Make it in accordance to your paycheques, for example, if you receive a direct deposit every second Friday, set up an automatic transfer to occur simultaneously. Personally, I prefer having sub accounts for all major expenses e.g., insurance, cable/cellphone, strata, rent/mortgage, education, emergency savings etc. This method allows for easy reference to specific transactions. Find what works for you and stick to it!
2. Pay Yourself First – Now that you’ve automated your expenses, you need to ensure you’re paying yourself AKA saving. Try to put at least 20% of your paycheque into a savings. Paying yourself is essential, building a savings means one day you won’t have to exchange your time and energy for a pay check. After your expenses have been accounted for and you’ve paid yourself, the amount remaining is yours to be spent freely.
3. Emergency Savings – If you don’t have one, the next step is to build one. This savings account is apart of your overall financial strategy, however, it is not the end all be all for your savings. You should have other goals outside of this such as thinking about retirement. On average, you need to have 3-6 months of income set aside e.g., your take home is $3000 per month x 6 months = $18,000. An emergency savings acts as a cushion for situations that cause panic such as job loss or car expenses. According to Murphy’s Law, the opportune time for such an emergency to occur is when you’ve maxed out your credit cards and need to wait two weeks for a paycheque.
4. Bank Elsewhere – Yeah, you heard me right. You don’t need to keep all of your eggs in one basket! Consider putting your money into an account you don’t see each time you login to online banking. Why? You’re less inclined to touch it. The out of sight out of mind principle applies and your savings will accumulate. Many financial institutions have promotions where they’ll give you anywhere from $200-$500 to start a relationship. Do your research, open a savings, if you receive an incentive be smart and don’t spend it.
The greatest obstacle when it comes to saving is you. Make a commitment to be better, at the end of the month reflect on what worked well and what didn’t.
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