If there’s one bit of advice we think absolutely everyone should hear, it would be saving money. Whether it’s in the form of an emergency fund, an RRSP, or a TFSA, everyone should have a certain amount of money put aside.
Of course, this can be a pretty major challenge for anyone who’s already struggling to pay all their bills every month. While it’ll require a shift in spending habits, it’s not impossible to start saving. Here’s how.
Use the 50/20/30 Guideline
We found this breakdown on Learnvest and think it’s a great way to view your finances. The breakdown is simple to understand: Put 50% of the money you have coming in each month towards fixed costs that stay fairly constant like credit card bills, car payments and your rent. The key is not to let your fixed costs amount to more than half of your monthly income. This is an excellent place to start when you’re looking to reduce how much you owe every month; do you really need to pay for a landline, cable, Netflix, and an HBO account or can you cut a few of those costs?
Next, put 20% of your income towards your financial goals. For some people, it might be reducing their credit card debt or getting their student loan paid off as soon as possible. For others it might be contributing to their retirement fund, saving for their mortgage down payment or to adding to their travel account. If you have more than one financial goal, split up that 20% according to what matters most to you (for instance, 15% to credit card debt, 5% to mortgage down payment or travel fund).
The last 30% should be allocated to flexible spending. These are the everyday costs you encounter that tend to change every month. Among these variable costs are grocery money, car maintenance and upkeep/gas, going to the movies, getting take out/going to a restaurant, and shopping. Ultimately, it doesn’t matter what you spend this money on specifically, so long as you don’t exceed your allocated 30%. The best way to figure out the exact amount of that 30% is to subtract your fixed costs and financial goals from your gross monthly income (what’s left after taxes, etc) and see what’s leftover.
Prioritize Essential Costs
Make sure you have all of the completely vital bases covered before you start putting any money towards your savings. There’s no use putting away 20% of your income if you’re struggling to pay your rent and feed yourself. Make sure housing, utilities, and food are taken care of before doing anything else (though, as was mentioned above, this might be a good time to take a look at your monthly bills and prioritize what you absolutely need and what expenses you can cut).
Think about ways you can increase your income (be it with a part time job, temp work, opening up a room in your house for rent, selling things you no longer use, or [if you’re artistically inclined] creating an online shop or service [some great sites to look into are etsy, red bubble, and fiverr].
Reduce Unnecessary Spending
For a trial period of one month, reduce your spending to only things you absolutely need. Keep track of everything you bought and what category it falls under. Put any extra money you kept in your wallet into your savings account. See how many of the extras you normally spend money on you actually missed, and see if you can reduce (or even completely cut) them from your budget.
While you’re at it, try to focus on doing more little things each month that will help alleviate the strain on your budget like eating out less often in lieu of making your own food, walking or taking public transit rather than driving everywhere, and waiting for at least 24 hours before making any large purchases to cut down on impulse shopping.