Swing into Savings

Get into the swing of saving

Some months, do you get the feeling there’s a hole at the bottom of your bank account, and your savings are falling through it when you’re not looking?

Of course, there’s no hole — not literally, anyway. But there probably is a debit card, a credit card, a few automated monthly debits, rent or mortgage payments, groceries and utility bills. There might also be your inclination to buy books and movies rather than borrowing or renting them, or buy your lunch every day rather than taking leftovers to work. To save more of your hard-earned money, you need a plan.

Think ahead and save accordingly
Look at where your money goes. Do you have a category for savings or investments, or do you just save whatever is left at the end of the month? To save effectively, some part of your income every month should be deliberately allocated towards your future, whether that means your retirement, a chance to go back to school someday, a new car or that exotic vacation you’ve always wanted to take.

To make saving easier, pay yourself first. Set up your savings or investment vehicle — such as a mutual fund — so that every month, a portion of your paycheque is contributed directly into the fund before the remainder is deposited in your bank account. Then use your reduced pay cheque as your baseline monthly income for budgeting purposes.

Another useful idea is to set up a high-interest bank account. Whatever savings product you choose, it doesn’t have to be much — as little as $50 or $100 a month can really add up over time.

If your savings goal is a trip or a major purchase, set up an investment vehicle specially ear-marked for that goal and make regular contributions to it. That way, when you’ve saved enough, you won’t feel too guilty using the money, since it won’t be coming out of your bank account.

Be strict with yourself
If you’ve already created a budget and identified a way you can cut back, find out how much you can expect to save from that measure and start putting the entire amount away every month. For example, you may decide not to buy your lunch anymore, and calculate that you can save $5 a day that way. That’s $100 a month that can go straight into a savings account.

You might also make a deal with yourself to deposit any cash gifts into a savings account, whether it’s a holiday bonus, a birthday cheque or a GST credit.

Did you know that 46% of Canadians are unsure they can save enough money to live comfortably in retirement?

Do you feel that way?

I can help.

There are 4 easy steps…

Step one is to determine your short and long term goals and understand your risk tolerance. As an investor, you are unique. Your financial goals, current financial situation, investment experience and attitude towards risk all help determine the mix of assets that’s just right for you. You need to be honest with yourself about your investment experience and your attitude towards risk. Only after defining these factors can you start on the path to developing a plan for your savings and/or income needs. Do you feel comfortable taking chances in your investment portfolio or would you like to travel the safer path? I use a proven process called asset allocation, which strategically designs the best combination of funds for you and identifies your tolerance for risk. It can then examine your overall portfolio to determine if it’s correctly aligned for your needs.

Step two is to set reasonable expectations. Some may think that the double digit returns, negative or positive, that we have witnessed over the past few years are expected long term. But long term double digit returns may be a thing of the past. Using a reasonable rate of return when planning your retirement may give you a more accurate financial picture of where your savings might be at retirement, increasing your chances of achieving your goals. If the returns on the investments fare better than expected, you’ll have more savings for your retirement.

Step three is to rebalance your portfolio. Once the asset allocation process has helped you identify your comfort with risk and the right combination of investments for you, you may find that you need to rebalance your portfolio. Rebalancing can also ensure that you have the right mix of funds in your portfolio. If some investments are outperforming others, your portfolio mix may no longer be properly allocated. By rebalancing at least annually, you can be sure you have the right long term asset mix recommended for your level of risk.

Step four is to invest in your plan. You may be feeling reluctant to invest during the current market conditions, but it’s the perfect time. You can take advantage of the ‘buy low’ directive of the old adage “buy low and sell high”.