Savings

Saving for something big can be a daunting task, so daunting in fact that lots of people don’t even bother. There are ways to make it significantly easier to accomplish. Shit happens from time to time. It’s pretty well inevitable. Whether it’s job loss, illness or injury, or ya know.. a global pandemic. Shit happens. Having some money stashed away can do so much to ease panic and let you focus on working on adjusting to the change or to ride out the temporary issue.

Having money in the bank also makes decisions like changing jobs or careers, leaving a relationship, starting a business, having a child, etc. A whole lot less terrifying too. Ideally we want to be making those sorts of decisions based on what is best for us and not on whether we will be able to eat or not. Having some money poked away is what can make that so.

Before we go further on the why’s and the how’s, I need to just clarify the word savings. You may have saved $50 on that new pair of shoes you bought, but that is not the kind of savings we are talking about here. The kind of savings that I’m talking about is where you put money aside for a specific purpose and time and then you don’t touch that money until that purpose or time arrives.

There are all sorts of reasons to start saving money. There’s the obvious reasons like emergency or retirement, but there are lots of others too that you may not have considered. Here are a list of some other reasons to have some money on stash:

• A down payment for a home. If home ownership is a goal for you, no matter how far off, this should be on your list.
• An emergency fund. This is a sum of money that you set aside that is ONLY to be used in the case of an emergency. Things like injury, job loss, the car’s engine dies unexpectedly, your kid has a medical issue and you need to take a few weeks off work. This should be your first savings account in my opinion. It makes me crazy when I hear banks and mortgage brokers advertising lines of credit as an emergency fund. It isn’t. The last thing you need after facing a big life event is to then have to start digging out of the debt hole. This account can save endless amounts of stress and worry. I can tell you, it is hard enough to deal with a true emergency. To not have keeping a roof over your head and food in the fridge added to that stress is worth it’s weight in gold. It takes a load off of an already heavy situation. Do this one for your blood pressure.
• Fuck you fund (term coined by the lovely Gail Vaz-Oxlade). This can be included under your emergency fund, but I think it deserves mentioning in it’s own right. This it is an amount of money that you keep so that you are never stuck in a situation that you can’t leave. If you are in a co-habitating relationship with someone you don’t want to be anymore.. fuck you. I’ve got money to stay at a hotel until I figure out a new place to live. If your boss is a dick.. fuck you. I can live without this paycheck while I find something less toxic. You get the idea. It’s intent is that you are never forced to stay in a situation because you don’t have the means to leave. Far too many people stay in jobs they hate or in relationships they don’t want to be in because of money. Don’t let that be you.
• Income tax account. This one is near and dear to my heart. I have had to be the bearer of the lousy news to people who didn’t think about taxes that would be owed on certain types of income. If you collect spousal support, have rental income, more than one job, are self employed, take out RRSP’s, etc. you will likely end up with a tax bill at year end. Do yourself a favor and save some money for that. If you aren’t sure how much this extra income affects your tax bill, consult a professional to help with the planning.
• Sinking fund, also called planned spending, is basically just saving up for a larger purchase like a vacation, a wedding, Christmas shopping, or a new couch. This is how you get ahead of debt. Get what you want, but have the money ready to pay for it first. It’s not a popular approach to buying a car, but this is a great way to cut out a monthly payment that many people consider necessary. Some people also use these for things like property tax and insurance too to avoid fees in having payment plans.
• Retirement. Working forever is not the plan for anyone I’m sure. If you don’t have a work pension, you should probably give this one some thought.
• Education fund (for yourself or child). Wouldn’t it be nice to start your kid off in life without student loans.
• Baby fund. Babies are expensive! Going on maternity leave will cut your income almost in half. If you’re pregnant now or plan to be, start saving now. A great idea is to cut your budget down to how it would look on your maternity leave income and save the rest for all the many things that baby will need.

Now that we know what we’re saving the money for and why it’s so important and empowering (or maybe you’re slightly panicking about how you don’t have any of these. That’s ok too.) we can look at how to go about getting some money in those accounts!

Tip #1 is to pick your purpose. Saving money really means that you aren’t spending as much now, so it’s important to have a motivating factor to do that. Saving money because you should, obviously doesn’t work, so give yourself a reason to get going. Pick your account type, name it, dream about what you’ll do with it when it’s full. Feel how great it will be to have made such good preparation and how much ease your future self will have. This will make the sacrifices you may need to make so much more tolerable.

Tip #2 Start! Simple. Whether you’ve got $5 or $500 to contribute, start! And do it now! Open an account and get going. Lots of banks allow you to open an online savings account along side your regular chequing account with no extra fees or application forms. Get a jar and take the change out of your purse or wallet if you need to, just start. Progress begets more progress. I started my first savings account with $10 every other week. I’m willing to bet that you piss away that much or more without even noticing. Why not put it to your peace of mind instead.

Tip #3 is to make your end goal very specific (if it’s helpful. If this causes panic, leave it be and just start with what you can for right now.) Decide, when you will want the money and how much. Then you do a little math. I promise it won’t hurt. Take your total money that you will need, divided by the amount of months or weeks until you need the money and that will give you how much you will need to set aside. (If the amount you come up with is too big, you need to find more money or change your end time to make it work) This works well for the planned spending accounts or home down deposit accounts.

Tip #4 Make it automatic. Once you got your number, go online and set the transfer to happen automatically. “Pay yourself first” is the first rule in investing.

Tip #5 Track it if that helps you. You can make a chart full of blocks representing a certain dollar amount and then colour them in with each deposit. Do a poster board full of pictures of your goal. A visual reminder can help keep you focused on the end goal instead of the small sacrifices. This one can be especially fun for big goal type savings. If you’re planning to start a business or buy a home or whatever the goal, this is really beneficial. Stick it on your fridge, in your wallet, or somewhere else you’ll see it. Let it motivate you to build that sucker up and get what you want!

Tip #6 Don’t track it if that works better for you. I purposely don’t check my savings accounts often, especially my emergency fund, kid’s savings and retirement money. In fact, I keep them at a different financial institution from my normal bank account on purpose so that I don’t see them often. This cuts any temptation to touch them. This is a do what works for you thing. Whatever helps you accomplish your goal is good.

Tip #7 Keep it simple. A piggy bank under your bed is fantastic. The habit of saving is so much more important than what kind of account.

Tip #8 Mind the fees. I’ve seen so many instances where people are paying more in fees each year than the returns their investments are getting. Make sure you understand the fees to any given account.

Tip #9 Don’t put your money into anything you don’t understand well enough to explain to a child. If you want to grow your money with investing I am all for that! Ask lots of questions and read the fine print though. Make sure you understand fully where your money is. If it’s a shorter term savings goals, stick to a plain ol’ savings account with the best interest rate, or in some other safe investment vehicle. If you’ve got more time on your side, look into more lucrative, higher risk investments. Don’t get too caught up in this part and definitely don’t let it intimidate you out of starting saving. You don’t need to be an expert in the stock market to start savings. Nothing wrong with a no-risk savings account. Don’t let anyone tell you otherwise.

Tip #10 Have separate accounts for each savings goal. Keep it neat and easy to track your progress. Some banks let you have many savings accounts and to name them for yourself.

Tip #11 This may sound obvious, but if your employer offers to match savings for school or retirement, do it! Max it out. Find the money somewhere because free money is great money!

Tip #12 Get excited! You’re making a goal happen right now! This is where you start looking after future you along side of current you. Be proud for any steps you make.

Lots of love

Dawn