After paying expenses, set aside some income. This is the most basic and effective way to maintain your financial health.
Saving is necessary, not optional. It will help “save” you during unexpected events — such as the need to replace a broken laptop the day before an assignment is due. Once you start saving, you can plan ahead and use Your Money to reach future goals.
How to Save in Three Steps
Step One: Reduce expenses
Maximize the amount of money you can set aside by spending less on unnecessary items. These are called variable expenses, which you have some control over. Ask yourself: “Do I really need to buy that pair of jeans, now?” In all likelihood, the answer is no. Take a critical look at your variable expenses and reduce spending accordingly.
Step Two: Make saving a habit
Deduct a small percentage from every paycheque. A good starting point is 10 per cent of your income. Ask your bank to make automatic transfers to a savings account. Chances are, you won't even notice the deduction, and after a while you'll have a tidy sum saved.
Step Three: Get Your Money working for you
Believe it or not, banks actually pay you for depositing money in your savings account. This payment is called interest. The amount of interest received usually depends on an annual percentage rate attached to your account as well as the “principal,” which is the initial amount deposited.
To get the most out of Your Money through interest, don't withdraw! Hold off buying that new television for your room. Leave savings unspent for as long as you can. By doing this you'll earn interest not only on the money initially set aside (the principal), but also on the interest previously earned. This is the magic of compound interest — and it is a great way to make your money work for you.
Another way to help make your money grow: make sure you are getting the best interest rate. Check out the savings account interactive tool from the Financial Consumer Agency of Canada.