If you lost your job tomorrow, how long would your current savings last? Do you have any savings at all, or did your mind go straight to available credit? Or did you just have a panic attack at the thought of this fictional financial situation?
Don’t worry, you’re not alone. Saving money has gone out of style with Canadians who have a habit of relying on credit card and loans to cover day-to-day expenses. But as you probably just imagined, things can go from bad to worse if you have to go into more debt to handle emergency expenses.
Current attitude toward saving and spending is “foolish and dangerous”
In a recent video report from the CBC, personal finance reporter Rubina Ahmed-Haq discusses Canadians current attitude toward saving money, nothing some alarming facts:
- Steep decline in savings rate: Canadians currently save less than five per cent of their monthly income; the average savings rate in the 1980’s was 20 per cent.
- Fragile financial future: Almost 50 per cent of Canadians would not be able to afford their day-to-day life if their bill went up only $200/month.
- All in the attitude: Canadians look at saving money as old-fashioned and quaint, “something your parents did”.
Save money for emergencies and irregular expenses
Despite the current trend, saving money is still essential. Even if you’re juggling several debts, you should still be saving up some money in an emergency fund, in case you lose your job or have unexpected expenses, such as home or car repairs. Experts recommend saving enough money to cover three to six months of living expenses.
You also need to plan for irregular expenses, anything that’s not part of your usual monthly expenses. This includes Christmas and birthday gifts, annual property taxes, and insurance payments for your car or home.
First steps towards good savings habits
- Set you savings goal – whether it’s three months living expenses, or another fixed amount, choose an exact target number for what you’re trying to save.
- Don’t stop paying your debts – Continue to make at least the minimum payments on your debts and set aside as much as you can toward your savings account until you reach your savings goal.
- Make a plan – There are different ways to decide on your monthly savings contribution:
- Option A – Start with five per cent of your monthly net income. Automatically set that aside each month, so long as you’re able to cover all of your other expenses and debt payments. Increase the percentage as your situation allows.
- Option B – Choose a date for when you’d like to reach your savings goal, then divide the number of months between now and then by the total amount to see what the monthly contribution needs to be.
- Option C – Figure out how much you can save monthly, and divide that by your savings goal to see how long it will take. Adjust as you can to meet your goal within the most reasonable time-frame.
Practical tips for saving money on a weekly basis
- Track it – Keep your receipts, look through your credit card and bank statements (printed or online) and highlight or track every item you could live without. Weekly or monthly, you’ll probably be surprised at how many non-essential purchases you make.
- Make a budget – List your total income after taxes and all of the expenses you’ve tracked through receipts and bank statements. Include all of your monthly debt payments and how much you’d like to set aside for savings. Check out some of these budgeting tips to get you started.
- Use cash only – making purchases with cash only can help you stick to your budget and avoid non-essential purchases.
- Plan your meals – make a weekly meal plan (that includes packing a lunch every day) and a grocery list based specifically off your plan. Avoid ALL impulse purchases at the grocery store that aren’t on your list.
Tips for maintaining a savings mindset
- Much like how when you start to exercise more, you become more aware of your diet, saving money will help become more aware of your spending habits. This awarness will shift your attitude in a way that will also help you pay off your debts.
- Pay yourself before paying anyone else. Set up a savings account to make a direct deposit from your chequing or regular account each month.
- Consider the contribution to your savings account just as important as any of your debt payments.
Bring saving back in fashion
In the end something is better than nothing and you need to start somewhere. Even $500 in an emergency fund can make a huge difference, so do what you can.
And if someday you make it up to three or more months of living expenses saved, then you can get really aggressive about eliminating your debt. But no matter how things improve for you financially, always be diligent about saving money for future purchases so you don’t find yourself back where you started.
As Ahmed-Haq notes, no matter your financial position, the same financial sense applies:
“Whether you rent or own, are a student or full-time employee, making $30,000 or $3 million a year, the basic remain the same: save money and pay your bills before spending on anything else.”