At some point during the last several decades, Canadians fundamentally shifted how they treat debt. In the past, we used to save money for things like cars, trips, and furniture, and pay for it with cash. Unfortunately, that is no longer the case. Whether it’s cars (the fastest growing category of debt in Canada), trips, or furniture, Canadians have shifted to a strategy of borrowing money for these purchases instead of saving for them in advance.
Even bigger ticket items like weddings or home down payments. Average home down payment sizes as a percentage of home price have shrunk, and many newlyweds start out their new lives together with a pile of debt.
All of these effects are coming from one cause: Canadians are losing the skill of saving. Saving money for purchases in advance is becoming a lost art, but you can still master it.
If you’ve never saved before, the task can seem daunting. But it’s a skill that can be learned, just like anything else. If you don’t know where to start, start here. Here’s my step by step guide to getting started as a successful saver.
Set A Savings Goal
The first step towards learning to save is to figure out what you want to want for pay for with cash. Is it a trip? Furniture? A wedding or a car?
First decide what you want to save money for, and how much. If you’re a first-time saver, choosing a smaller goal in the $1,000 - $2,000 range is a good baby step. You can move on to bigger goals later.
Set A Savings Schedule
Once you know how much you want to save, it’s time to determine when you’d like to achieve this goal. Setting a due date will help you forecast how much you need to save. For example, if you’d like to save $2,000 for a trip to New York next summer, you now have a limited period in which to save that money.
For this trip to New York, you’ll need to save $2,000 in 15 months or $133 per month to meet that goal.
Find Room in Your Budget
Now that you know how much you need to save per month to meet your goal, you should figure out how you are going to save this money. Look at your current budget and take any excess cash and put it towards your savings goal. If you don’t have any extra room in your budget for this $133 monthly savings goal, you’ll need to either cut your expenses or increase your income to make ends meet.
Designate a Place for Your Savings
When you save money, it’s important that you set it aside in a savings account that is separate from your regular spending accounts. You’ll earn bonus points if you put your savings in a separate account at another banking institution, or put it in an account that isn’t linked to your debit card. Keeping this money separate is important because you are less likely to spend it on impulse buys. Out of sight, out of mind.
Ramp Up Slowly
Once you have successfully saved for a few smaller goals like a vacation or purchasing some furniture, you’ll be skilled enough to tackle bigger savings goals like a house or a car. Don’t try to tackle these big savings goals in the beginning. The payoff takes far too long to achieve for a beginner saver, and you’re likely to give up part way through. Successful saving takes repetition to build up the habit, but once you become a solid saver, you’ll love the feeling of taking a vacation that you can pay for with cash, of not having a car payment and of not owing any money to creditors.