How to save money - tips on how to save

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April 28, 2020

Thinking about your savings might not be the most exciting or fun topic, but it is important to start. No one can predict the future (especially now) and your savings can help you weather whatever storm arises, whether it’s a pandemic, job loss, or unexpected expenses. Savings can also help you avoid debt and give you the freedom to explore new opportunities.

It can take discipline and patience to save money, but the sooner you start, the sooner you’ll have a safety net to help deal with whatever life throws your way. After you’ve made a budget, use the tips below to start moving closer toward financial independence.  

Open a Savings Account

Opening a savings account is a great way to create both a mental and tangible distinction between the money you’re spending and the money you’re saving. There are different account options that you can choose to earn interest and help you save.

High-Interest Savings Account (HISA)

A HISA pays higher interest than a standard savings account. HISAs usually have higher transaction fees than accounts meant for everyday transactions (like your chequing account), but you can find HISAs without these fees. However, if you are dedicated to using your HISA to increase your savings, your transactions for the account should be minimal, since you won’t be making many withdrawals or transfers. You can open an HISA with any bank, even if you use a different financial institution for your everyday needs.

Tax-Free Savings Account  (TFSA)

The interest that you earn from a savings account is taxable, just like your income, unless you use a TSFA. With a TSFA, you don’t pay tax on the interest you make or the money you withdraw, so it can be a savings option. Because you don’t pay interest, there is an annual limit on what you can contribute (for example, it was $6,000 for 2019), but the TSFA gives you the ability to earn higher interest with the flexibility to move your money in and out of the account whenever you’d like.  

Registered Retired Savings Plan (RRSP)

A RRSP is a great way to save and invest your money for a longer term. Your money is placed into a plan of your choosing and you can select higher or lower interest rates, depending on your appetite for risk. Your money earns interest and RRSP contributions are essentially tax sheltered. You can deduct your contributions from your income, reducing your income tax. For example, if you make $50,000 a year and contribute $5,000 to your RRSP in 2020, you will only pay income tax on $45,000 for that year. Furthermore, you don’t pay taxes on your RSSP until you withdraw funds, earning interest on the pre-tax amount that you deposit until (ideally) retirement. If you wait until you retire to withdraw, your marginal tax rate will be lower than when you are working, so the plan incentivizes you to save your money for the long term. An RRSP can be a good option if you don’t need your savings to be as accessible as a TSFA or HISA.

Automate Your Savings

Many banks allow you to set up automatic savings within your accounts. You can schedule automated transfers from your chequing to savings account to coincide with your payday, and some workplaces also allow you to split your paycheque between two accounts. You can automatically send a portion of your paycheque straight to your savings. By automating the process, you won’t even have the chance to miss the money you’re setting aside.

Workplace Matching Programs

Some workplaces also offer matching savings programs, like matching your contributions to your RRSP or pension, that they can deduct straight from your paycheque. If you have student loans, some organizations even offer a student loan repayment program that can help offset your monthly costs. Chat with your company’s HR department to find out what’s available at your workplace.  

Cut Down Spending

The most obvious suggestion to save more money is to cut down on your spending. What can you do without? Maybe you don’t always need to use Uber or Lyft, and could take public transit, walk, or bike instead. Things like eating out, getting an extra coffee, or buying new shoes can really add up over the year. 

Try limiting your spending to things you really need. If you’re feeling the urge to buy something new, try the 30 day rule: don’t purchase the thing you’re thinking of buying and wait 30 days. If after waiting 30 days you still think you should buy it, go ahead. You’d be surprised at how many things you realize you don’t need if you give it a little bit more time and let the urge pass.   

Easy Ways to Help Save Money

Find Cheap Activities

If you’re in a city, there are likely a number of free activities available if you look for them. Small art galleries don’t usually charge for admission and you can use public parks to organize activities with friends, like walks, softball games, or just being outside. Your local library or community centre is a good place to start for activities. The Toronto Public Library offers free museum passes if you have a library card, as well as speaking events and their online streaming service.

Save Your Spare Change

While you might not be carrying around much cash, you likely still have “spare change” that you can save. A number of apps help you make frequent small savings from your purchases. Wealth Simple’s Roundup app rounds your purchases to the nearest dollar and saves the difference for you. 

Take a Break From Instagram

Sometimes it’s the intangible things that make saving difficult, like feeling like you’re missing out on things that everyone else is doing. While you’re starting to save, you might want to take a break from social media. Taking a break from looking at other people’s photos of restaurants and vacations can help you deal with your urges to indulge in a fancy meal or do some Insta shopping, at least until you get into the habit of saving.

Saving if You’re Already on a Tight Budget

If you’re living paycheque-to-paycheque, saving can be difficult but it’s not impossible. When getting started, the most important thing to do is to make saving a habit, no matter the amount you’re putting aside. Even if it’s just $20 a month, the more you can incorporate saving into your regular routine, the easier it will be and even small amounts add up over time.

Try and follow the 50:30:20 rule with your spending. Limit your needs to 50% of your income, your wants to 30%, and save the remaining 20%. If you start making more money, it’s all too easy to let your good habits slide and to also start spending more. When this time comes, it’s important to enjoy your hard work, but it’s also important to redo your budget. An increase in income also means an increase in savings.

Find a system that works for you that you can stick to. Even small changes matter, and eventually, saving can help you become financially independent and make decisions based on what you want, rather than what you need. Whether that’s helping you stay out of debt during an emergency, deciding to change careers, start a family, move to a new country, or take a vacation, having some money to fall back on can give you the freedom to choose what’s best for you.  

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This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.

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