How to Save: Strategies for Saving Money Each Month
The Traditional Methods
There are many tried and true ways of how to save money each month.
- Every day put all of your loose change into a jar. Every once in a while deposit the money in your savings account. In time the money will grow into a little nest egg.
- Try to set aside a certain amount of money each month or each paycheque for your savings. People have been doing this for years, but it takes discipline.
A Newer Method: Pay Yourself First
How It Works
One of the best saving strategies is to pay yourself first. What this means is that you designate a certain amount of your paycheque as your pay (how novel) and you pay that money to yourself before you pay your bills or anyone else. This amount can be $25, $100 or maybe 10% of your paycheque. It can be any amount that you decide. The important part is that you pay yourself first rather than last. Most people pay all of the bills first and then save anything that might be left over. For most people, that method of saving doesn’t really work because nothing is left over to save.
If you pay yourself first, then money will get saved because paying yourself is now your first priority. The nice thing about this method is if your budget is a little tight, it forces you to make adjustments elsewhere and your savings continue to grow.
Paying yourself first also makes sense. Why are you going to work everyday anyway? To earn money for someone else? No way. You go to work to earn money for you and your family. That’s why you should pay yourself first—to make sure that your first priority is taken care of: you. It is not likely that anyone else is going to take care of you because they assume that you are taking care of yourself.
Pay Yourself Automatically
When you pay yourself first, you should set up an automatic way of doing this so that you don’t even have to think about it—it just happens. You can get your employer to deduct a certain amount and put it in your RRSP or you can set up automatic transfers with your bank (either online or at your local branch).
Most people who use this method find that they very quickly get use to living on a little less and soon they don’t miss the amount that they are paying themselves in their savings account. When you almost forget about automatic savings and let them grow, amazing things happen—automatically. Automatically saving $25 a week turns into $1,300 a year. Now if someone did this over a lifetime, they would get some fantastic results—automatically. If someone automatically saved $100 every paycheque (bi-weekly) from when they were 25 until they were 65, they would end up with almost $415,000 if they only received a 6% rate of interest. Of course someone could afford to save more once they got their house paid off. So their final amount could be much higher. Hopefully you can see how easy it can be to accomplish big things with just a simple automatic setup where you pay yourself first.