Do you have an effective saving strategy? Many of us don’t. By the time we pay all our monthly expenses, it can often feel like there’s nothing left over. Your savings account is usually the first to be neglected.
Is it important to pay yourself first?
Although you need to pay your monthly expenses, if you neglect your savings, you will find yourself in a tight spot the next time an unexpected bill arises. To avoid this, many personal finance experts recommend paying yourself first. A savings strategy in which the first bill you pay each month is the one to yourself.
Standardize your savings strategy
How paying yourself first works, is you decide upon a fixed amount to save each month and you transfer this sum into your savings account before buying groceries, paying rent, or settling your phone bill. This way you can guarantee that some money will make its way into your savings rather than hoping something is left over at the end of the month.
If you can only afford to save $20 each month, it can be easy to justify spending this sum instead of saving it because how much of a difference can $20 really make? While in the short-term this may not seem like a substantial sum, over time, your savings will accumulate and that $20 will become substantial.
At the end of the day, the idea is to start saving your money, even if it is a seemingly small amount at first. Over time, as your financial position allows, you can begin saving more and more each month. But start with what you can now!
Allocate your savings
Once you’ve decided upon a fixed sum to save each month, you can then further allocate it towards different saving goals. Let’s say you commit to saving $100 each month. You can then decide to allocate 20% of this amount towards an emergency fund, another 30% towards a vacation savings plan, and the rest for your RRSP.
Saving becomes easier when you have tangible goals in sight. So, when deciding how to allocate your savings, consider what you truly want to spend your money on. Maybe you’re saving up to buy a new home or for your child’s university tuition. With these firm goals in mind, you’ll be able to decide how exactly to allocate your savings. Once you have goals, you will be motivated to stick to your savings plan.
It’s important to note that your entire savings budget should not be allocated towards a purchase. Having a safety net for any unexpected future obligations is good practice. In addition, you should keep some money unallocated in your savings account.
Take care of debt
What are your current financial obligations? If you have substantial debt, begin by allocating your savings budget to paying down these obligations before saving for anything else. As your debt continues to collect interest and becomes more and more expensive, you don’t want your hard-earned savings to be directed towards paying off these obligations when it could be allocated towards a great vacation. Handle your debt first and then focus on reaching your savings goals.
Automate as much as possible
To help you stay on track with your saving goals, consider automating your saving process. Many financial institutions offer pre-authorized transfer services which will automatically deposit a set amount of your income into your savings account each month. This way, the saving process becomes seamless and you don’t have to worry about forgetting or accidentally spending your savings budget.
Reap the psychological benefits
A sizable savings cushion is not the only long-term benefit of paying yourself first. There are also considerable psychological benefits that come from this practice. When you pay yourself first each month, you are indicating that creating a desirable future for yourself is your number one priority. You are investing in your future self. This mindset will dramatically improve your sense of happiness and self-worth that will flow through to many other aspects of your life.
Staying on top of a strategic and effective savings plan is not always easy, but it is achievable. By starting small and making sure you pay yourself first, you can take the first steps towards building your savings and ensuring you set yourself up for financial success.
Be sure to tune back in throughout the month of November for more from all of us at Centum Home Lenders. We are always willing to help answer your questions directly. You can get in touch with us here!