Saving money isn’t easy, and Canadians know this fact well. Unfortunately, the average Canadian household only has $857 in savings, which is getting lower by the year.
Fortunately, with the right financial habits, you can make a big difference in your financial health. Let’s talk about the importance of saving money and some tips on how to get started!
Preparing For Emergencies
Believe it or not, more than 40% of Canadians say they cannot handle an unexpected financial emergency. Unfortunately, the hard truth is that emergencies come, and they shouldn’t surprise you. With the right preparation, you won’t have to spend your life worrying about these situations.
Emergencies are one of the most important reasons to save money. Otherwise, you could find yourself in a storm without an umbrella, which can lead to serious debt or financial hardship. Ideally, your emergency fund should be separate from your savings account, but that’s up to you!
Financial mobility is freedom in the truest sense of the word. If you want to buy a car in the future, stop renting your living space, move to a better neighborhood, or start a business, you need money. Saving money in the long run is the best way to do this.
Having money in your reserves will help you acquire loans when you need them, reduce your debt, and ensure your credit score remains high. Of course, these effects are indirect, but having money saved will allow you to continue making payments during any financial period.
Saving Money Saves Money
In many cases, having money saved will directly save you money. On a small scale, having money saved up will reduce the amount of interest you have to pay when you take out a car loan, as you can make a larger down payment. On a larger scale, buying a house can save you hundreds of dollars a month on rent while you build equity.
The ability to pay for items in full when the time comes can also save you money. Even more, you can let your saved income work for you through investments.
Placing your money in stocks or bonds, investing in REITs or investment properties, or making new investments can help you build wealth over time. This passive income will have a compound effect on your savings. Basically, the more you save, the easier it is to continue saving.
Also, investments are a great way to protect yourself from inflation, which is the topic of the time we live in. Savings accounts can quickly get eaten by inflation, so protect your hard-earned money
Developing Better Habits
On that last note, the more time and effort you put into saving money, the easier it becomes. Once you develop the right financial habits, you start looking at money through a different lens. Like any skill you practice, proper financial habits get easier over time, allowing you to save more efficiently.
After a while, it becomes second nature, which will boost your confidence and offer a greater peace of mind over your financial future.
Prevention is the best way to reduce debt, but paying down existing debts is also important. Working hard to save money can help you eliminate high-interest credit card debt or other loans. Paying off your loans early can directly save you money and reduce the amount of debt you owe.
For most situations, we would recommend putting saved money into debt reduction before a savings account. If you do the math, it’s easy to see that a 2% yield in your savings account isn’t as important to receive as a 25% APR on your credit card balance is to end.
If you currently have a balance on your credit card, minimum payments can send you into a serious trap that’s difficult to climb out of. After one year, a $10,000 balance can turn into a $12,500 balance when only making minimum payments. Sometimes, a personal loan is the best solution for steady, predictable payments at a lower interest rate.
The less debt you take out in your life, the more you save, and the more you build equity, the easier it will be to retire. Owning a home instead of renting is a sure indicator of retirement.
Believe it or not, fewer than 6 million Canadians have a registered retirement fund. If you don’t have a plan for retirement now, it will never get easier. Give yourself as much time as possible to prepare for your golden years!
How to Save Money
Finally, let’s talk about some simple tips for saving money. Just remember that everybody’s financial situations are different, so you will have to do what’s right for you.
There are plenty of options to choose from for saving money, but the real key is simply doing it. Try having a portion of your check automatically put into your savings account so you don’t have to think about it. If you receive tips at work, try saving up all of your cash.
Most importantly, to maximize your savings, take a look at your current financial habits. How much money is coming in, and where is it going? Sometimes, simple switches like making coffee and lunch at home can yield big savings each month!
Small changes in your habits, taking on a side hustle, and asking for a raise can go a long way. See what works for your situation and get started right away!
What Is the Importance of Saving Money?
The importance of saving money is simple; security. We all stress about money from time to time, so imagine how relieving it must feel to look ahead to a bright and secure future. Whether your goal is to retire by 60, own a home by 35, get out of debt, or send your children to the university of their choice, saving money is the first step.
Stay up to date with our latest financial tips, and don’t hesitate to contact us with any questions or for help with your financial strategy!