We get our paycheque deposited into our account… then what? If your paycheque seems to disappear into the abyss that is real life, then this article is for you. We’re going to be covering tips on how to save money and generally what you should be doing with your money in your 20’s.
If you don’t have a plan for your money in advance, I can guarantee that you’ll be able to find a way to spend it. But, are you actually being mindful about where the money is going or does it just seem to disappear month after month?
Creating a payday routine is a great way to take control of your finances and find extra cash that might be slipping through the cracks. Let’s get into it.
Step 1. RRSP
The first thing you should figure out, even before getting your paycheque deposited into your account, is whether or not you get a company RRSP match.
Many companies will offer you, the employee, the option to contribute a portion of your income to an RRSP and they will match your contribution up to a specific percentage (usually around 2-6%). It’s important to remember that this perk is associated with your employment and you should almost always take advantage of it. Some call it free money, but I’ll leave that up to you to decide for yourself. Think about the fact that you’re saving for future you!
Keep in mind that your employer’s contribution also counts towards your contribution for that year. You do not want to over contribute!
Don’t have a company RRSP match? Don’t worry about it. You can still contribute to an RRSP you set up yourself. Whatever gains you make with your investments in that account will be tax sheltered. Plus, your taxable income will be decreased by the amount of money you contribute into your RRSP. Less taxes for you! Read more at What Is The Registered Retirement Savings Plan (RRSP)?
Step 2. Fixed Expenses
Now, your paycheque is deposited into your account. Let’s make sure that you have all of your bases covered.
Many people have secondary chequing accounts where they send a portion of their paycheque to cover their fixed expenses like subscriptions, gym memberships and rent. I love this idea and will definitely be incorporating this into my personal finances later this year. Let’s also make sure you have enough to cover things like utilities and food, then once you’re certain you can cover your basic expenses, we can move on to find the savings somewhere.
Step 3. High Interest Savings Account
This is one of the most important tips on how to save money. It’s so important to distinguish the difference between a traditional savings account and a high interest savings account. Traditional savings accounts will often offer low interest rates around 0.05%, while high interest savings accounts offer higher interest rates closer to 1.50%. That’s 30x more money. With $10,000 in the bank, thats $5 vs. $150. Which would you rather? $150? I thought so.
As a Canadian, my favourite high interest savings account is EQ Bank’s High Interest Savings Account. If you choose to sign up with another bank, simply ensure they have CDIC coverage first. Be sure to use this link to sign up with EQ Bank and get $20 when you deposit your first $150. Now, whatever money you already have and whatever else we find to save in the next steps will be making us interest every single month. All we’re doing here is trying our best to keep up with inflation.
Step 4. High-Interest Debt
A great way to save money is to tackle high-interest debt. In the long run, you’ll end up saving tons on interest payments.
There are three main debt payoff methods are:
- The snowball method – you pay minimum payments on all debts while starting to put any extra money towards the smallest debt you have
- The avalanche method – you pay minimum payments on all debts while starting to put any extra money towards the debt with the largest interest rate
- The “whatever debt you hate the most” method – you pay minimum payments on all debts while starting to put any extra money towards the debt you hate the most
Some other tips on saving more money:
- Talk to your bank. If you’ve been making your payments on time, make sure they know you’re a loyal paying customer and ask them to consider lowering your interest rate
- If you have credit card debt, consider a balance transfer to a 0% interest balance transfer card
- Consider consolidating other high interest debt with a personal loan with a lower interest rate
With each of these options, you need to get serious and make a solid payment plan that you can actually stick to. That 0% interest balance transfer card won’t stay at 0% forever!
Read more at The Ultimate Guide To Credit Cards
Step 5. Tax-Free Savings Account
We love to see you paying yourself first! You work hard for your money, why not let your money work hard for you as well? We all know that the earlier we start investing, the better and that’s all thanks to compound interest.
With the Tax-Free Savings Account (TFSA) you won’t get a tax break like you would with the RRSP, however, your investments are also tax-sheltered and you can withdraw the money at any time without the money being taxed as income. If you’re sitting around on a bunch of cash in your chequing account or even your high interest savings account, consider whether or not you should be investing this money instead. You don’t have to be rich to invest, it’s investing that’s going to make you rich! As a Canadian, I personally use Questrade for my investments.
Read more at What Is The Tax-Free Savings Account (TFSA)? and Saving vs. Investing: What Should I Do?
Step 6. Spending Money
You’ve reached the fun part in the payday routine. Now, whatever is left in your chequing account is yours to spend however you see fit. It’s important to think about what you can spend your money on that will make you the happiest.
Even though you’re here to get tips on how to save money, I will never be the one to tell you exactly how to spend your money. However, if you really need to save money and your only option is to cut down on your spending, think about what can you swap to be able to contribute more into your high interest savings in step 3?
Would you consider:
- Shopping at a cheaper grocery store for some basic items while still buying the staples at your favourite fancy grocery store?
- Asking all of your friends that use your Netflix account to actually contribute to the monthly fee?
- Changing your Spotify account to the group plan and splitting the fee with 6 friends?
- Reselling the clothes you no longer wear?
What can you shift in your day to day life to still do all or most of the things that bring you joy, just maybe in a different way? If you want tips on how to save money, you need to start prioritizing spending on the things you value the most but ultimately finding somewhere to reign it back in.
Step 7. Taxes
A very important aspect of saving money I would like to cover is taxes. More specifically, your annual tax return. Most of us are excited to get a tax refund right? Yay! A little extra money coming our way each year, right?
What if I told you that getting a tax return is not a good thing? I’m so sorry but it’s true! Getting a tax return means that you’ve been loaning the government money interest free. That money is much more valuable to you in your bank account.
Getting a tax refund is a nice surprise, but it’s not the smartest money decision. If your circumstances have not changed over the past few years and you continue to get big fat tax refunds, you can fill out the Request to Reduce Tax Deductions at Source (T1213) form from the CRA website. This will result in less money being taken from each paycheque and more cash flow for you throughout the year.
Before you go with this route, you’re going to want to double check your math and stick to the plan you make. The last thing we would want is for you to expect a small tax return and instead end up owing thousands to the government come tax season next year. Think this one through!
Step 8. Increase your income
If you’ve made it this far and you’re still not finding any money to save, you need to start considering the fact that you can’t cut your expenses down anymore. There are only so many tips on how to save money out there and this might be a sign that you need to start increasing your income. Whether that’s asking for a raise at your current position, getting a new job that pays more or simply getting an additional part-time gig on the side, you need more money, honey!
Step 9. Continue to set goals
Goal setting is a critical step when it comes to saving money. When we don’t have anything to look forward to or work towards, we get sucked into the feeling of instant gratification. Setting goals for yourself is important so that you can always think back to your “why” when times get tough and you feel like the only option left is giving up. You can do this!
Disclaimer: I am not a certified financial planner or investment advisor. The ideas posted on this website are my own opinions on how I manage my personal finances. The content is specifically for educational and informational purposes and is not considered professional financial advice. Everyone’s finances work differently and you will have to do your own due diligence before making any financial decisions.
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