Establishing a savings routine is the foundation of successful financial security planning.
Have you ever noticed that your wallet manages to empty out no matter how much you put in there? Sometimes it feels like $80 lasts no longer than $40.
It may explain why that emergency $20 is hidden in one of your shoes. You just can’t trust your wallet.
Okay, you’re the one actually emptying your wallet, but the point remains: we tend to spend whatever is in our pockets. This offers an important lesson for the way we handle all of our finances.
Perhaps the most well-known mantra in financial security planning is “paying yourself first.” It endures because it usually works. Another well-known guiding principle is that paying down debt trumps all. But this one isn’t quite so indisputable.
The value of creating a clear spending plan
People living paycheque to paycheque are bound to feel shackled by their financial responsibilities. Even some people making a decent living think they’ll never get ahead. They need a formal process that will slow things down and allow them to put money away.
Creating a simple budget or spending plan is the first step. Make sure to pay your bills on time – especially those that keep the lights on and the water running. Preauthorized payments are a great solution. You also need to pay the rent, buy groceries, get to work and cover other day-to-day expenses.
If you have debt, you’ll need to devise a realistic schedule to repay it. But make sure you leave money aside for savings, even if it takes longer to repay your debts.
The importance of creating sensible spending habits
Putting money aside every month establishes a useful routine for efficiently managing your money. First, it creates an emergency fund for a rainy day. Second, treating your savings as a priority allows you to start a financial security plan, the key to getting money to work for you.
Carrying non-mortgage debt is not a good thing. But even more alarming is holding that debt while not having any savings. The debt may cost you more in interest charges than your savings account is generating, but that cash gives you much-needed options.
Why setting money aside is a no-brainer
Setting aside a share of your monthly income needs to become routine. The best way to achieve this is by setting up automatic transfers. If your pay is deposited into a bank account, arrange to have a set amount transferred right away to a separate place – perhaps a high-interest savings account. Once you have an ample emergency reserve, transfer some to a longer-term investment.
Your workplace may also offer a seamless way to save. Some employers will put a fixed percentage of your gross pay into a group registered retirement savings plan (RRSP). You can also tell them to deduct a certain amount of your pay. These programs may even provide a bonus amount if your contributions hit a certain threshold.
Growing your savings with automatic transfers
When your net pay increases, automatically boost the amount you transfer into savings. If you’re prudent, you may hit a point where your earnings allow you to increase your overall savings rate. The sooner you reach it, the faster your wealth can grow.
Flying under the radar
Building savings isn’t easy – after all, there are plenty of fun things to spend your money on. But watching your savings grow can be motivating. And as long as the process is automatic, your wallet won’t notice the money is missing.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
Please read the original article here: https://www.freedom55financial.com/ff/advice/growing-your-money/why-monthly-saving-is-just-as-important-as-paying-the-bills