Saving. We all know we should be doing it, yet a survey finds less than half of Canadians feel they are saving enough to make their financial goals a reality.
According to Ratehub.ca’s 2016 Digital Money Trends report, 87% of Canadians are saving at least some money every year, and many are saving at least 15% of their income. In Canada, the highest percentage of Canadians who save at least 15% of their income are in Manitoba and Saskatchewan, and the lowest percentage is in the Atlantic provinces.
While 15% is a good start, it probably isn’t enough to fund your retirement and save for a down payment on a home or other financial goals like a wedding, new vehicles, and an emergency fund. You’ll need to step up your game to adequately fund these demands on your finances without going into debt.
Besides avoiding debt, there are many other benefits to increasing your savings rate. When you save more of your income, life just gets easier. You’ll reach your goals faster, you’ll pay off your mortgage quicker, you’ll rely less and less on your income to meet day-to-day expenses, and you’ll be more flexible in case of emergencies.
That said, making the room in your budget to save is tough, especially in hot housing markets like Toronto and Vancouver where your monthly mortgage payments can eat up a significant portion of your income. The idea of increasing your savings rate might seem like a pipe dream.
But it doesn’t need to be. Saving more money is absolutely within your reach. I’ll go over my tried-and-true methods for increasing your savings rate below. These are the exact methods I used to get my savings rate up over 30% and often as high as 50%.
Negotiate lower fees
Lower your spending by negotiating everything about your budget—and I mean everything. From engaging a mortgage broker to help you find the best mortgage rate at renewal time, to calling your insurance provider and negotiating a lower rate, to switching to no-fee chequing accounts, everything in your budget should be scrutinized and cut if possible.
Maximize spending rewards
Do you still have the same credit card that you applied for as a new graduate? If so, odds are you aren’t being appropriately rewarded for your spending habits. An average Canadian spender can earn hundreds of dollars in cash-back rewards every year with the right credit card. Use a credit card comparison tool to determine which card is right for you and bank those rewards in your savings account.
Find the best cash-back card for you
Increase your income—and save it!
Earning extra money is how I managed to boost my savings rate from an average of 30% of my income to 50% or more—and I put every last penny of it into savings. There are many ways to earn extra money, from working overtime to picking up a side job. Once you have developed a second income stream, make sure the money you earn goes towards savings. Don’t use your hard-earned side income to finance consumer desires or lifestyle inflation. If you use that money to increase your savings rate, you’ll reach your financial goals much sooner.
Choose appropriate savings products
Once you’ve freed up more income for savings, make sure to maximize the money you’ve already saved by choosing the right financial products. You should choose different products depending on how soon you plan to use the money. For short-term savings goals (a down payment on a home or car), you’ll want to use a high-interest savings account. High-interest savings accounts will give you access to your money quickly but still allow you to earn a small amount of interest.
For short- to medium-term savings, it’s best to choose a savings vehicle with a slightly higher interest rate, and in this case, a GIC may be the right choice. GICs lock your money in for a set period, but you’ll earn a higher interest rate in return. Just be sure to research the best GIC rates because rates vary from lender to lender.
Finally, for long-term savings like retirement, you should buy riskier investments such as stocks. Investing in the stock market is one of the best ways to beat inflation and make your money grow faster.
Increasing your savings rate is an incremental process. Saving an extra $15 per month after negotiating your insurance may not seem like much but it adds up over time, and eventually, you could find yourself saving several hundred extra dollars per month. That may be enough to retire early or become mortgage-free sooner.