Saving money is not natural; here are seven tips to help you save

BY CLEVE DeSOUZA

We know saving and investing money are the keys to building wealth, yet the rate of which Canadians save is low. It wasn’t until COVID-19 hit in 2020, that the savings ratio of Canadian households improved to 6.1%. In previous years, we saved as little as 1.9% of our income. The saving ratio has been coming down steadily from 20% since the early 1980s. We have become spenders and borrowers rather than savers and investors. One benefit of COVID (if there is such a thing) is we have proven to ourselves we can save and invest.

Why don’t people save, money and how do you overcome the typical obstacles? I have seven suggestions.

1. We don’t save money because we forget. Saving money isn’t natural. You have to acknowledge that saving money is important enough to deny yourself the immediate gratification that comes from spending. Before COVID-19, we racked up debt. The pandemic forced us to stay home, reducing our fuel expenses. Stores closed, giving us fewer shopping options. Day cares closed, reducing our childcare expenses. After COVID ends, try continuing some of those cutbacks.
2. Set a goal for how you’ll spend what you save. Saving for something specific gives you the motivation to deny yourself immediate gratification. Set short-term and long-term goals.
3. Set a goal for how much you will save. People are more likely to save if they have a target amount in mind. Without a target amount, you can’t measure your progress.  Remember, all goals need to be SMART – Specific, Measurable, Attainable, Relevant, and Time-Bound.
4. Create a household spending plan and stick with it. You can’t save if you don’t know where your money goes each week. A budget quantifies your earnings and details your expenses. As an added benefit, when you create a budget you’re sure to find something you mindlessly buy. The classic formula calls for saving 20% of your income. Then, allocate 50% for your needs and 30% for the things you want.
5. Pay yourself first. Don’t put what’s leftover into savings every month. Instead, put money into savings first. Remember, you work the hardest for yourself and deserve to be paid first.
6. People complain they don’t have enough money to save. But we say anyone can save money. You may save only a dollar or two a week, but that adds up over time. If you make $50,000 a year and contribute $1 a week to a Tax-Free Savings Account (TFSA) in Canada, it grows to $156 in three years, according to the CIBC (Canadian Imperial Bank of Commerce.) While you’re saving, start looking for a new job where you’ll make more money.
7. Debt consumes too much of our earnings. Use your savings to crush your high-interest debt and your wealth will skyrocket. Maybe you really don’t need that car loan or lease payment. Sell the expensive vehicle in your driveway and buy a more affordable one.

While savings of any kind is good, I suggest you talk to an expert about your options. Savings can take many forms; employee-sponsored registered pension plans (RPPs), tax-sheltered registered retirement savings plans (RRSPs), and tax-free savings accounts (TFSAs). According to Statistics Canada, only about 65% of Canadians contribute to at least one of these types of accounts. As income drops, so do contributions to registered savings accounts. Only 39% of households earning less than $50,000 contributed to an account.

There’s a good option for savings for all income levels. Talk to an expert today and find out what type of account is right for you.