Let’s face it, saving money is hard. If it were easy, the savings rate among Canadians would be higher than 5.8%. But like it or not, saving money for the long term is an incredibly important part of financial prosperity, and mandatory if you want to spend your retirement playing golf, and not eating ramen.
I’ll let you in on a secret: the physical act of transferring money from your chequing account to your savings account isn’t the hard part. The hard part is getting into the habit of saving money. Once you establish a savings pattern, saving comes naturally and easily. In the next 500 words, I’m going to teach you how to save your first $100, $1,000, and $10,000 so you can get into the habit of saving money for a prosperous future.
Saving the First $100
Saving your first $100 is all about finding room in your budget for savings. Take a look at your budget and find something to cut to free up extra cash in your budget. It could be $50 per week, $20 per week, or even $5 per week. Once you do that, open a savings account and deposit that money after every paycheque. Simple!
Saving the First $1,000
Once you have your $100 saved, look back and consider how long that took. If you’re saving $50 per week, saving $100 will take you no time, and that’s a good starting point for larger amounts. If you’re only able to put $15 aside per week for savings, it will take you a long time to accumulate $1,000, so you should consider cutting your budget again or bringing in more money to increase the amount you put away every paycheque.
If you’re able to save at least $50 per week, saving $1,000 is entirely doable. To help you determine when you’ll reach your savings goal, start a spreadsheet showing your weekly contributions, and map out when you’ll reach your aim. For example, if you are saving $50 per week, it’ll take you around five months to save $1,000.
Saving the First $10,000
While taking five months to save $1,000 is considerable progress for a beginner saver, if you are going to get serious about saving $10,000, you’ll probably want it put away more than $50 per week. At $50 per week it’ll take you over four years to save $10,000! Fortunately, there are several ways you can speed up your savings rate.
First, you can keep cutting your budget. You could reduce your fixed expenses like rent or cable, or your variable expenses like groceries or restaurants. Eliminating debt is an excellent way to free up extra cash for savings. You could also work on increasing your income. Ask your employer for a raise, work extra hours, or start a side hustle like dog walking or house cleaning.
All of these activities will help you increase the your available cash for savings. I know it sounds basic and boring, but it really is that simple. The key is consistently improving your budget and income to steadily increase your savings rate
I have been consistently using these strategies for five years and it has made a huge difference in the amount of money I’ve been able to save. I started with just $200 extra per month to put aside. Then I paid off my debt, which freed up another $500 per month. Then every time I got a raise I put most of it towards savings, and now I save at minimum $1,500 per month.
Here is a chart showing how long it takes to save $10,000 using the different amounts I just listed:
• $200 per month: 4.16 years
• $500 per month: 1.6 years
• $1,500 per month: 7 months
Just goes to show that saving more per month does make a difference!
Another important source of revenue for your big savings goal is windfall money. Windfall money includes income tax returns, birthday money, inheritances and extra paycheques. If you put this money towards your savings, you’ll reach your goal of saving money much quicker.
For example, let’s say you are saving $400 per month towards a $10,000 savings goal. It should take you about two years to reach this aim. But if you receive a $1,500 tax return a few months into saving for this goal, you’ll shave almost three months off your achievement date.
While that may not sound like much, you’d be surprised how motivating it is to reach your savings goals ahead of schedule.
Photo Credit: olivierterrier