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Saving money can be tough, really tough. Over the last decade shopping online has become more popular than ever. COVID has propelled that pace, moving much of our world online. It’s never been easier to spend money online. Saving money is harder than ever because the temptation is literally in every app on our phones.
In a world where it’s easier than ever to spend money, any tips and tricks to help someone save money are becoming more valuable. There’s a lot of ways out there to spend less, or save more, but here are my top tips.
1. Pay Yourself First
The easiest way to save money is to make it automatic. There’s a concept of paying yourself first. Simply what it means, is every time you’re paid you take a portion of that money and put it towards your future. Like paying a bill.
If you treat saving for your future as a regular obligation, then you’ll make that payment every single time. A good goal is to aim for 5% to 10% of what you make, but don’t be afraid to start small, every bit makes a difference.
If someone contributes $100 biweekly for 40 years and earns a 7% annual return, they’d end up with just over $571,000 after those 40 years. That is a ton of money, especially considering the small regular payments. If you have to start small, then start small. It’s all about building a good financial habit and moving in the right direction.
2. Take Advantage of Group Plans
Group plans can help you in a lot of ways. Participating in a group plan means you’re saving towards your future, your employer usually matches contributions to a point (free money), and contributions can help limit your tax obligations.
Contributions come off your paycheck every time you’re paid, so it’s automatic. If your employer matches contributions, you’re doubling your money right off the bat, which usually takes about a decade to do in the markets. If your employer offers a group plan and you’re not signed up, it’s like declining a portion of your salary (which you wouldn’t do).
It’s really a no-brainer to save towards your future. The sooner you start, the better. If you’re not signed up yet, do it. And if you’re currently looking for a new job, a good group plan should be something you consider when comparing opportunities.
3. Focus on Paying Off High-Interest Debt First
Credit cards usually charge somewhere around 20% interest. which means over a year, you’d pay $200 in interest for every $1,000 of debt.
When people make the minimum monthly payment, a majority of their payment goes just towards the interest. Instead of running closer to their destination, it’s like running on a treadmill. They’re working hard, but they aren’t really going anywhere. That’s why if you look at your ‘time to pay off paying the minimum payment’ on your statement, it seems like forever.
Focusing on paying down high-interest debt (and keeping it down) will mean less money being thrown towards debt. It won’t only minimize your money wasting away towards interest payments, but it’ll free up your cashflow. Strict spending and budgeting isn’t a lot of fun, but it’s definitely worth it once you’re debt-free.
4. Use an RRSP to Pay Less Taxes
Tax-deferred accounts like an RRSP are a great way to pay less taxes now, and increase your tax refund. When you contribute to an RRSP, your contributions lower your taxable income. Meaning, if you pay taxes throughout the year you would get some of those taxes back, and if you pay your taxes all at once you will owe less taxes.
Let’s say you’re in a 30% tax bracket, if you make a $700 contribution, you should receive $300 back. It’s a great way to maximize your money. You’re essentially creating money with what you wanted to save in the first place. A win-win.
Talking to an Advisor to figure out the most efficient ways to reach your goals can help you save money and ensure your money is working as hard as possible for you. Avoiding those dreaded ‘I wish I knew that sooner’ thoughts/conversations.
5. Make Sure Your Money Is Working for You
Most people have a substantial amount of their money sitting in bank accounts that will never make them any money. Savings accounts should be renamed because far too many people believe savings accounts are good for saving money. Maybe idling accounts would be a more accurate description.
Savings accounts earn next to nothing, so although your money is safe, it’s not going anywhere. In fact, it is most likely losing buying power because inflation increases at a higher rate than savings accounts.
If you prefer your money to be sitting safe, that’s okay! Everyone should have an emergency fund exposed to little or no risk. But far too often people have no idea what their money is doing for them. At the very least, take the time to understand where your money is, and what it’s doing for you.
About the Author
Winnipeg based Financial Advisor focusing on investments, financial planning, and mortgages. I prioritize education, because I believe the more we know, the more we all benefit. It allows me to help people make the most of their financial future.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.