How much money is in your savings account? If you answered $3 dollars or something similar – you’re not alone. It’s probably safe to assume there are hundreds of thousands of savings accounts with balances under $10.
Most of us have a savings account – the hard part is putting money in it and keeping it there, especially if you are trying to manage your debt. But how do you start saving money?
Start small and simple. Speak to your financial institution about regular withdrawals that happen automatically on your paydays. That way the money goes out before you’ve had a chance to spend it. Depending on your situation – try having $25 a pay taken out. Or $100 or $10. Whatever the amount – make sure it’s not too much or you may need to access it again before next pay day. Sit down and work with your budget to determine how much you can afford to save each month. If you don’t want to do it automatically – do it yourself online and try to increase it by $1 or $5 each pay.
Some financial institutions have programs like “Bank the Rest” where they round up to the nearest $1 or $5 on your debit transactions and put the extra in a savings account for you. That’s a relatively easy way to build up savings.
What do you need savings for? There are the short term things that you already know about like debt payments, car repairs, Christmas, oil in the winter, summer camps for kids, vacation, house repairs and more. There are also the longer term things like education, car replacement, bigger vacations, moving out, etc. But what about all the things we don’t expect like dental work, losing wages because of illness, motor vehicle fines, child expenses, someone needing glasses, or unexpected health care costs? There are lots of things to save for and you may want to consider having more than one savings account. One could be just for longer term items such as tax refunds, bonuses, even the Universal Child Care Benefit or unexpected windfalls.
What kind of savings account should you have? It really is an alphabet soup sometimes: RESP, RRSP, TFSA, and CSB. Keep in mind you may want to have a savings account that is simply available to you without any tax implication. When you have a savings account, it’s sometimes helpful if you don’t have debit card access. There are some virtual banks where there are no cheques and no debit cards yet you can set up an automatic deduction. That way you don’t even see the balance in your savings account so you won’t be tempted. Out of sight, out of mind, but it’s there when you need it.
Registered Retirement Savings Plans (RRSPs) is the only savings account with significant tax implications. When you put money in – you can deduct those deposits from your income and not pay tax on that money. However, when you take the money out – you will pay tax on it. You simply defer when you pay the tax.
Registered Education Savings Plans (RESP) are a great way to save for children’s education. The Government of Canada will add 20% to each deposit (up to certain limits). So, you immediately earn 20% plus any interest or growth depending on what the investment is. This money is specifically for post-secondary education and is withdrawn in the child’s name when the time comes.
Tax Free Savings Accounts (TFSA) allow you to earn interest on your savings without paying tax on the interest. There are limits to this as well. If and when you withdraw the interest; you still do not pay tax on it.
Canada Savings Bonds (CSB) are an investment in your government. The Government of Canada pays interest if you invest in (or buy) a bond. These are most commonly done through payroll deduction at workplaces. The great thing about these is that you do the saving before you even get your paycheque. Often people will do this year round and then take the money out in December to pay for Christmas.
And then of course there are piggy banks. Of course, now we are not getting any more pennies to put in them. So, let’s start with nickels. The savings will only grow that much faster.
No matter how you do it – just start somewhere. Check out our money saving tips for more ways to cut your spending and keep more money in your pocket. Worried about saving when you’re dealing with debt? Contact Credit Counselling Services of Atlantic Canada. We can help you create a plan to manage your debt and start saving money.