Stop Puzzling Over How to Build Savings

When every scroll or tap brings with it the chance to add to cart, and the price of self-care seems to rise with each Goop newsletter that lands in your inbox, the temptation to spend is real. Figuring out how to save money might not feel like the sexiest or even most pressing task on your ever-growing to-do list (my fiddly fig tree isn’t going to prune itself, after all). And yet, it’s a necessary (if sometimes pesky) step towards inner calm and one day joining the elusive “debt-free” club.

As a financial coach and planner, the one thing I can say with total certainty is that saving money is something you need to incorporate into your daily life, like brushing your teeth or hitting the step count on your Apple Watch. For the first two years after graduating, I managed to blow all of my paychecks (on god knows what) and had nothing left to my name. I realized that to save money, you need some type of system. It’s just too hard to say no to that Uber ride across town or another round of dark and stormies when you have money sitting in your bank account.

First, you need to realize that it’s ok to be behind.

Having some debt or less than perfect spending habits doesn’t mean it’s not worth trying to save. Tiny changes now can mean huge results down the road, so get used to the daily practice of saving. Your future self will thank you when you can finally buy that adorable labradoodle you’ve always wanted.

Second, it’s time to start setting aside money regularly.

By far the best method for stashing away money without even realizing it is setting up automatic payments. Use our budget template to figure out how much of your paycheck you can commit to savings or debt. 15-20% of your after-tax income is ideal, but if that’s unrealistic you can certainly start smaller. Then set up pre-authorized debits (PADs) from your spending account into your savings account on payday. That way you don’t have the option not to save. If you prefer to move your money manually just make sure you’ve got a calendar reminder set, and then stick to it!

What to do with the money you’re saving?

Prioritize setting up an emergency fund and tackling any nasty, unwanted debt. Once that’s done, you’ll want to contribute to both medium-term and long-term savings simultaneously:

Money you’ll need in the near-ish term (for life goals):

Do you want to save up for a down payment on a place? Dreaming of starting your own artisanal candle shop? Work backward from your goal to figure out how much you need to set aside. If you don’t have a specific goal, 10% of your income is a great start.

If you’re planning to use the money in the near term, keep it in an account that’s earning you interest but doesn’t put your savings at risk, such as a high-interest savings account. You can also look into guaranteed investment certificates (“GICs”), but your money will be locked up for a period of time and you won’t have instant access to cash. If the money is for something beyond a 2 or 3-year horizon, go for a conservative or balanced investment portfolio. A tax- free savings account (“TFSA”) is the most flexible, tax-efficient account to use for this. If you’re saving for your child’s education, an RESP is your best bet because you can take advantage of the government matching program.

Money you won’t need for a long time (a.k.a. retirement):

Time is the friend of savings and the enemy of debt, so the longer you kick saving for retirement down the road, the more it’s going to hurt. It’s estimated that without a government pension, most people need about $750,000 or $1,000,000 (in today’s dollars) to retire. That’s definitely not going to build itself.

If you have an employer match program (also called a registered pension plan or “RPP”) max it out. This is free money! It will come right off your paycheck and be invested for you, killing two birds with one stone. Many people don’t sign up because they think they’ll leave the company within a year or two, but that doesn’t matter. You can take your contributions (and any contributions from your employer that have vested) with you.

If you don’t have an employer-match program (or if you’re lucky enough to have maxed it out), open an RRSP and start setting aside money regularly with automatic payments. 15-20% of your after-tax income is ideal. If you have low-interest debt or are still building up your career – you should still be saving for retirement but can lower this goal. Choose a realistic % of your paycheck (say 5-10%) and set up automatic payments into your RRSP. If you get a bonus, you can always chip in some of that too!

If you have the luxury of maxing out both your TFSA and RRSP, move onto a taxable account. Not sure which financial institution to choose for your TFSA and RRSP? Hop on over to the next section on investing to find out.