My Fool-Proof Guide to Saving $5,000 This Year

Date posted: April 27, 2016
Canadian Loonies

Photo Credit: KMR Photography

As Canada’s household savings rate lingers around 5.4%, it’s clear that Canadians aren't saving enough. But in this financial climate, it’s also very clear why. Saving money is difficult. Whether it's high housing costs, low income, or too much debt, there are so many financial priorities pressing down on Canadians that saving money can feel like an after thought.

That said, saving money is important, and becoming a good saver takes patience and practice. As a veteran saver, (I’ve saved $10,000 so far in 2016) I’ve perfected a tried and true method to become an incredible saver. Here are my fool-proof techniques that will help you save $5,000 in one year.

Set Your Intention

Simply saying “I’m going to save $5,000 this year” isn’t enough. You need a reason to put your hard-earned money in the bank. Your reason should be powerful enough that you won’t give up on your goal.

If you are going to save $5,000, think about why you are saving that money. For example, perhaps you want to save $5,000 as an emergency cash cushion. That’s a great start, but to make this goal stick, go further than that. Add some emotional attachment to it. For example:

I want to save $5,000 for an emergency fund because:

•    I want to be able to repair my car without hesitation

•    I don’t want to worry about losing my job

•    I want to be able to book a flight home to see family at a moment’s notice

•    I want to be able to take my dog to the vet if she gets sick

•    I want to be able to afford a hotel in case my apartment burns down

These emotional statements add weight to your goal. They allow you to visualize these situations and understand how that extra money will ease your stress if the worst happens. When you add these emotional attachments, you aren’t just striving to save $5,000; you are striving for security.

Break Down Your Goal

Even if you’ve paid down a lot of debt in the past or accomplished other major financial goals; saving is another game entirely. It can feel impossible.

The easiest way to save a large amount of money is to break it down into small chunks. If your goal is to save $5,000 in one year, try breaking it down into a monthly commitment.

$5,000 / 12 months = $416 per month

Beyond that, you could even break it down into pay periods. For example, if your employer pays you bi-weekly, you would need to save:

$5,000 / 26 pay periods per year = $192

To save $5,000 in one year, you’ll need to dedicate around $200 of your paycheque to your savings goal every pay period. $200 sounds a lot less intimidating than $5,000.

Accelerate Your Progress

Saving is lame, but automatic saving is downright boring. That’s why when I have a savings goal I’m always looking for ways to achieve my goal ahead of schedule.

There are several ways you can do this. First, you can use windfall money like an income tax refund or a birthday gift. For example, if you receive a tax refund of $1,000, and you put that money towards your savings goal, you’ll save $5,000 in 10 months instead of 12.

Second, you can use any savings you find in your budget and funnel that money towards your savings goal. For example, if you get a lower car insurance rate and save $15 per month, you can put that money towards your savings goal, bringing your monthly savings from $416 to $431. If you add that to your income tax refund, you’ll reach your $5,000 savings goal earlier.

Finally, you can earn more money, and use that money to boost how much you save. For example, if you get a raise or start a side business, that money can go towards achieving your savings goals quicker. Just don't forget to hold some back for taxes if the money comes from a side business.

For example, let’s say you start a dog walking side business that brings in $200 per month after taxes. If you added that extra amount to the $431 you are currently saving and include the $1,000 income tax refund, you’ll save $5,000 in six months instead of 12.

Celebrate Mini-Goals

If you have a big, crazy savings goal that you are trying to reach, it's possible to lose your motivation before you accomplish this goal. To avoid losing motivation, celebrate mini-goals.

For example, if your goal is to save $5,000, you should reward yourself after every $1,000 saved. Your celebration could take the form of a dinner out, or a fancy coffee at Starbucks. It's your choice, as long as you reward yourself.

In my case, I am in the midst of saving $40,000 for a down payment on a home. This savings goal will take multiple years, and I need to reward myself periodically for my progress. Next month I'll hit the $25,000 mark, and I plan on treating myself to a nice bottle of wine as a reward. It won’t be too expensive, but it’ll still be a reward.

Practice Makes Perfect

Getting into the routine of saving money is hard, but the more you do it, the easier it will become. You’ll gain confidence in your abilities and eventually saving money will become second nature. A small goal like $5,000 is an excellent start, and before you know it you’ll be just like me – striving to save $40,000 for a huge home down payment. Just follow the guide above, keep practicing, and you’ll become a money-saving pro in no time.

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