The desire of gold is not for gold. It is for the means of freedom and benefit.
Ralph Waldo Emerson
Regularly saving a portion of your earnings seems like it should be simple, but it's not. There are always emergencies that take up the extra money - like car repairs or dentists bills. Or there are temptations, like a nice dinner out on the town, or that antique chest of drawers you've been eyeing at the store down the street. While you work hard and deserve to treat yourself, the extra treats and unexpected expenses can derail even the best-intentioned savings plan.
Ever looked at your salary and then at your paltry bank balance and sworn you would stash away at least a third of your next pay cheque? Many of us have, but few of us actually are able to meet such a tough goal. We just end up feeling rotten about ourselves, throw in the towel and decide to try again next month. The truth is, you've got to be easier on yourself. Most savings plans fail because we set unrealistic goals. If you're having trouble saving now, set a savings target you know you can hit. Then, once you get used to the reduced level of spending, you can gradually increase your monthly savings target. Pretty soon you'll be putting away more than you ever thought possible.
You may have heard of the old saying, "Pay yourself first." If you deduct your savings directly from your pay cheque or bank account, you are treating your savings like a bill you have to pay. The money is already gone so you can't be tempted to spend it. And you'll be surprised at how much money you've saved without even missing it. You can set up an automatic withdrawal plan that deposits money directly into a mutual fund, Canada Savings Bond, or even a special savings account. But remember to make your monthly withdrawal a realistic amount-about 10% of your salary. Start small because if you take too much money away from your monthly income, then you risk having to halt your savings plan to make ends meet.
No matter how disciplined you are with your spending habits, cash emergencies tend to pop up when you least expect it and suddenly you are short on cash. To make sure you are covered for these situations, it's a good idea to have some "liquid" funds that you can withdraw quickly. A rough guideline is to have the equivalent of three months' salary available in case of an emergency. Money in a savings account, Canada Savings Bonds, cashable GICs, or in a money market mutual fund is generally liquid and can be easily accessed.
Buying on credit is extremely easy and many people have several cards - maybe two from banks or trust companies, one from a gas station, and a few from department stores. There are many advantages to using credit cards. You don't have to carry around a lot of cash and you can take advantage of bargains when your cash is limited. Then, there are those emergency situations when a credit card saves the day.
But unfortunately, having credit cards at your disposal can also lead to bad buying habits. You can whip a card out and buy that new leather jacket before you pause to think about whether you can really afford it. Now, maybe that new jacket isn't really a bad buy if you can pay off your credit card balance each month. But the truth is, many of us don't, and now you are incurring hefty interest charges. You end up spending even more money - money that you might have been able to put into a mutual fund or a savings account.
Let's say you've embarked on a monthly savings plan and somehow managed to save a little more than you expected. Or you've saved up for a new bedroom suite, and you have a bit left over. Spend some of those extra savings. The positive reinforcement you will get from treating yourself will help you save successfully in the future.