After the holiday season, looking at your income and spending habits is always a good idea. Perhaps saving money or saving for something specific coming up this year is a New Year’s resolution of yours?
Whatever the case, a comprehensive plan to get you on track for saving your money can go a long way. This step-by-step guide to getting your finances in order can help you develop a simple and realistic strategy so that you can save for all of your short and long-term goals.
Track your spending
The first step toward saving is to figure out how much money you spend. Each week, track your spending – this means keeping track of everything – all your coffees, take out, groceries, bills, etc.
Once you have enough data (tracking for a month or two should be good), categorize all your spending. Categories can include (but aren’t limited to) gas, groceries, bills, entertainment and miscellaneous purchases. When you’re finished, total each category – it can be very eye-opening to see where your money is going and possibly even make you rethink that daily Starbucks order!
Pro tip: Try using an app to help get you started! BillGuard, Dollarbird and Mint are all great options.
Make a budget
Once you know what you’re spending your money on, you can figure out a budget that works for you.
First, identify the amount of money you have coming in. Keep in mind it’s easy to overestimate what you can afford if you think of your total salary as what you have to spend. Subtract your deductions, like taxes. Your final take-home pay is called your net income, and that’s the number you should use when creating your budget.
Next, outline how your expenses measure up to your income. This will help you plan what you have to spend each month and on what. You will have to play with the numbers and allow yourself a specific budget for each category.
Cut back on extras
If your expenses are too high and you’re essentially living paycheque to paycheque without saving as much as you’d like to, it might be time to take a look at what you can cut back on.
Revisit your spending tracker and identify nonessentials that you can spend less on or cut out altogether. Can you commit to only eating out once a month? Can you start making your coffee in the morning as opposed to buying it every day? Can you cut your clothing budget down a bit more?
Whatever the case may be, reevaluate what’s important to you and your lifestyle and make adjustments where necessary.
Set savings goals
Speaking of savings, one of the best ways to start is by setting a goal. Whether you’re saving for a short-term goal like a down payment, wedding or vacation, or a long-term goal like retirement or your child’s education fund, it’s great to have a reason for saving.
From here, figure out how much money you’ll need to accomplish the goal and how long it would take you to save.
Pro tip: If you’re saving for something long-term like retirement, consider putting money into an investment account such as a registered retirement savings plan (RRSP) or tax-free savings account (TFSA). Investing your money into an account like this can create the opportunity for growth.
Make it automatic
Banks offer automated transfers between your checking and savings accounts. You can choose when, how much, and where to transfer money. Each month or each paycheque, have your money automatically deposited into your savings account – this way, you don’t have to think about it!
Chartered Professional Accountants Canada has created a large volume of resources to help with financial literacy. Check out the many great tools available on their website.