The first thing you need to do is figure out how much money you’re working with: what you’re spending, where it’s going and how much you’re actually making. In other words, you need to make a budget. Find out how much money you take home after taxes. Then, tally up all your monthly expenses (utility bills, rent/mortgage, transit costs, subscriptions and more) so you know how much you’re spending every month. Remember to include any debt payments, like student loans or credit card debt.
Once you know where your money is going, you can figure out how to lower those costs. Could you get takeout once a week, instead of two or three times? Do you really need Netflix, Amazon Prime, Apple TV, and Disney+, or could you make do with one or two? You don’t have to cut out all your fun and entertainment, but think about where you might be able to save.
It’s also worth taking a hard look at your bigger expenses like rent and car payments. Could you get a roommate, move to a smaller place, or sell your car and take transit?
Once you have your budget figured out and know how much you can afford to save every month, automate those savings. Set up automatic transfers once or twice a month — or every time you get paid — from your chequing account to a savings account. Automating this step means you can save without any extra effort. Plus, moving the money before you see it in your chequing account can help reduce the temptation to spend.
Creating an emergency fund as a safety net should be your number-one priority when it comes to saving money. Ideally, you’ll want at least three months’ worth of income as a safety net in case you lose your job or have another kind of worst-case scenario. Automating can make it easier to set this money aside.
Setting your money aside in a savings account is smart, but making your money work for you is even smarter. Consider a high-interest savings account for short-term savings goals, which allows you to earn a little bit of interest with no risk. The rate won’t be super high, but you can occasionally find slightly higher promotional rates.
Another option for short-term goals is a guaranteed investment certificate (GIC), which holds your money for a predetermined amount of time. GICs are a good option if you’re saving for a specific goal (like a car or a dream vacation) and want to avoid dipping into your savings. A GIC locks up your money for a specific amount of time (usually 6 months to 5 years), and you’ll be penalized if you take it out early.
For longer-term goals like retirement or your children’s post-secondary education, look into opening a Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP) and a Tax-Free Savings Account (TFSA). These plans come with tax advantages and extra benefits, and you can invest your money for faster growth.
Once you’ve built up your emergency fund, it’s a good idea to start prioritizing your debts. Paying off your debt as quickly as possible helps you save money on interest and dedicate those monthly payments to a different financial goal. Two common debt-payoff strategies are:
Have you ever looked at something and thought, “Oh, it’s only $20, it’s not a big deal”? Almost everyone does this at some point. However, that mindset doesn’t do you much good if you want to save money. Instead, compare that value to a part of your savings goal. What else could that $20 buy you: a nice takeout meal, a night at a homestay in Thailand or a step closer to paying off your student loans?
It’s ok if you decide to spend the money instead of saving it. But taking that extra couple of minutes to consider an item’s value and how you could use it differently will help prevent impulse shopping.
Chances are, as you move through life, your income will grow. This is great, but it’s easy to get caught up in the idea that now you can afford to spend more money and buy more expensive things. While that might be technically true, it can also keep you from making progress towards your savings goals. Before you splurge, think about why you’re doing it and whether you could use that money more effectively elsewhere. For example, do you really need a brand-new smartphone if last year’s model still works?
Knowing why you’re saving money can help motivate you to keep saving money, even when it feels challenging. Start by saving for emergencies, retirement and to pay off debt. After taking care of these essentials, it’s entirely up to you and your personal goals and lifestyle. You may want to save for a house, a car, a wedding or even a dream trip around the world. Divide these into short-term and long-term goals, and include them in your budget. When you’re struggling to stick to your budget, think about how good it will feel to book that plane ticket or make that down payment.
Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.