How Much of Your Income Should You Save?
Saving for a rainy day isn’t just a good idea, it’s a must if you want to accomplish your financial goals. But how much should you save? It all depends on what you are working towards in the short, medium and long term. Saving money is personal and it’s hard to find a one-size-fits all rule.
Saving 20% of your income is a good place to start. If you’re saving 20% of your pay cheque, ideally, 50% of your money should be spent on need-to-haves — like shelter, food and utilities — and the remaining 30% can go towards nice-to-haves, like a new pair of sunglasses.
Here’s the saving goal topics this post will explore:
1. Saving goals for the short term
2. Saving goals for the medium term
3. Saving goals for the long term
4. Tips for saving more money
5. Why it’s important to save money
Saving goals for the short term
What are your goals for the next six months to a year? Maybe it’s time for a new laptop or you’d like to go on a vacation this winter. Short-term goals cost more than you can afford with one paycheque, but are relatively small purchases in the grand scheme of things.
Strategy: Estimate the cost of your short-term goal and make a timeline. Save a high percentage of your income to hit your goal sooner.
Saving goals for the medium term
The medium-term goals cover anything you’d like to accomplish in the next decade. This could include saving for a new car, a wedding or a down payment on a house. These are big purchases that, in most cases, will take longer than a year to save for.
Strategy: Open a high-interest savings account and set up automatic deposits for each pay cycle.
Saving goals for the long term
Long-term goals can be hard to save for because the future seems so far away. Retirement and an emergency fund should always be in the back of your mind. Before you make arrangements for short or medium term savings, make sure you have a strategy for the eventual and the unexpected.
Retirement strategy: Aim to save 10% to 15% of your income for retirement while you’re working. Make contributions to an RRSP on top of what your employer invests through your pension plan.
Emergency fund strategy: Set enough aside to cover 3 to 9 months of living expenses in case you’re unable to work.
Four tips for saving more
1. Change your spending habits: Shop in the no-name aisle at the grocery store, bring lunch to work, buy your clothes at a thrift store.
2. Make some extra money: If your budget has no wiggle room, consider getting a side job and dedicating that income to savings.
3. Start investing: You don’t need to be a stock market expert to make money investing. Set up a meeting with a financial advisor at your bank to find out what your options are.
4. Sell some belongings: Harness the power of online classified sites and sell some of your unwanted goods.
Why is it important to save money?
A healthy savings account is kind of like a good insurance policy: you’re covered regardless of the financial hurdle. There isn’t a rule that works for everyone, but you should aim to set aside at least 20% of your income and have a strategy for each of your short-, medium- and long-term saving goals. Boost your savings by spending less, making more, investing or selling some of your belongings.
When it comes to purchasing a vehicle, the more money you have saved up the less you have to borrow from a lender. You’ll save on interest and be debt-free sooner. Birchwood Credit Solutions is different than other dealerships. We specialize in bad credit car loans and take your whole financial situation into account when determining approvals. Give us a call today or stop by one of our three Winnipeg locations.
