Struggling to save money for a home, car, or dream vacation? Here are some ways to get the financial ball rolling.
Pay off Your Debt
In 2012, a study by Statistics Canada revealed that 35% of families had an overall debt level twice that of their annual tax income. Before you start any saving plan, your first priority should be eliminating high-interest debt. Trying to save money while you’re in debt is like trying to swim with a ball and chain around your ankle.
To pay off your debt as quickly as possible, start by making a list of all of the creditors you owe from the highest-interest monthly payment to the lowest. Next, figure out how much extra money you can apply to the minimum payment of your debt with the highest interest. Even if you can only increase your minimum payment by $20 per month, you’ll pay the balance off faster than you would with minimum payments. One the first debt on the list is paid, apply the monthly payment (your minimum payment from the first debt plus $20) to the next debt on your list. Keep doing this until all of your debts are paid.
Consider Refinancing Your Home
Review your mortgage terms to make sure you’re getting the best loan at the most competitive interest rate. Private lenders like Freedom Mortgage LinkedIn may offer better rates and shorter repayment terms. Refinancing your home may free up some cash that you can save, invest, or use to pay debt.
Pay Yourself First
Open a savings account and have a portion of your paycheck automatically deposited into it. Use this account to save your tax refunds, work bonus, or any other extra money you receive. With the compound interest you receive from the bank, these small but regular contributions will really start to add up. Automated saving lets you “set and forget” your savings plan. You quickly become accustomed to living on less money, and you know your rainy-day fund is there if you need it.
Create a Budget – And Stick to It
Having a budget is the key to maximizing your savings. A budget lets you know how much money you have, what your expenses are, and – most importantly – how much money you can save or invest. Regardless of your income level, you need a budget to maintain maximum control over your money.
- Stop buying “designer coffee.” Instead, invest in gourmet coffee beans, a good percolator, and a set of insulated travel mugs. You won’t miss that $5 Starbucks latte when you see an extra $1200 in your savings account at the end of the year.
- Take care of your clothing. Save money by buying barely-worn designer items from thrift stores. Buy a sewing kit and buttons for quick repairs. Choose classic pieces that can be easily incorporated into your existing wardrobe. Keep an eye out for sales of name brand clothing.
- Don’t dine out. You’ll save money on convenience food and restaurant meals by making your own healthy meals at home. Buy some cookbooks that inspire you and learn to make dishes with natural, inexpensive ingredients.
- Take public transportation. Studies show the average person can save $9,370 annually by taking public transportation instead of driving. Most major cities offer a weekly or monthly transit pass, which can save you even more money.
- Keep the change. Keep the change. Collect spare change in a jar that you keep near your front door. Whenever you come home, empty your pockets and place any loose change into the jar. When the jar is full, take it to the bank and have the money deposited into a high-interest bearing savings account. Those small amounts of loose change will start to add up fast.
- Buy a bike. Riding a bicycle reduces not only your commuting costs, but your carbon footprint as well.
- Keep more than one savings account. Many banks offer savings accounts at no monthly charge, so open up as many as you need. Ideally, you should have at last three types of savings accounts: A retirement account, an emergency savings account, and at least one account for major purchases. You’ll use the third account to save for a car, an expensive vacation, or a down payment for a home. Other types of savings accounts to consider ore Tax-Free Savings Accounts (TSFAs), mutual funds, and term deposits.
The key to saving for any big purchase is to automate the savings process so you don’t have to think about it. Follow the above tips, and you’ll be amazed at how fast the money seems to pile up.
Madeleine Murray is the chief personal finance manager in her home! Having paid off the mortgage 5 years early, without being brutally frugal, and still managing to raise 2 happy kids, she enjoys sharing her wisdom by writing on personal finance blogs.