What Are The Best Saving Methods?
Fee-for-service financial planner and founder of PlanEasy.ca
This is the time of year when personal finances are always top of mind. Whether that be spending or saving… many of us are looking to make improvements to our personal finances.
Often spending and saving go hand in hand. A reduction in spending can mean more money for savings each month. A new savings method can mean it’s easier to avoid excess spending.
It doesn’t matter what age you are, or what stage of your personal finance journey you’re in, it’s often helpful to review spending and saving on a regular basis. Even for those of us who are natural budgeters, it can still be helpful to review spending and saving from time to time to ensure we stay on track. This type of regular “check in” can be very beneficial over the long-term. (We like to do a “check-in” every four months)
There are some common saving methods that we feel are best practices. They make saving money easier to do. These strategies may not work for everyone but they are some of the best saving methods we’ve come across.
In this post we’ll cover a few of the best methods for saving money on a regular basis.
Pay Yourself First
By far the simplest and most effective saving method is paying yourself first.
The concept is simple, as soon as your paycheck arrives, pay yourself! Before you pay your hydro bill, rent, mortgage, Netflix etc, set aside a certain percentage of your income for savings or long-term investments.
The best way to do this is to make automatic withdrawals the day you receive your paycheck.
These savings could be for a down payment, a new car, a vacation, to pay off student loans, or something long-term like investing for retirement. Paying yourself first means to prioritize your longer term wants and needs above your day-to-day expenses.
The big benefit of paying yourself first, and why it’s one of the best savings methods, is that when you pay yourself first you naturally adjust your spending to fit that left over amount. It helps make managing money very easy.
Out of sight, out of mind.
Of course figuring out exactly how much to set aside can take a lot of calculations (and estimates). This is where a financial plan can be helpful. The goal is always to balance saving for tomorrow while still living today.
It might even be necessary to increase your savings rate if you’re not saving enough today, this is where some of the next saving methods can be helpful.
The 52 Week Challenge
The 52 Week Challenge is a popular money saving technique where you increase the amount you save week after week for a whole year.
For example, for the first week, $1 gets put aside, for the second week, $2 gets put aside etc etc. By the last few weeks, you will be putting $50, then $51, then $52 into savings each week.
At the end of a year you will end up with $1,378 in savings but more importantly you’re now in the habit of saving $52 per week.
The reason the 52 week challenge is so effective is that it starts out slow, saving just a few dollars per week, and then grows slowly over time. This provides enough time to change spending habits (provides you stick with it!).
Some people take this to the extreme and continue the 52 week challenge into the next year. By the end of year 2 they’re saving $104 per week. By the end of year 3 they’re saving $156 per week!
The No Spend Challenge
The no spend challenge is a great way to save. It’s like going “cold turkey” for your budget. It’s a great way to “reset” your spending habits very quickly.
The concept is simple, just stop spending money. This could be on one spending category like alcohol… or restaurants… or clothing. Or it could be for your whole budget. It could be for a week, a month, or a whole year.
The idea behind the no spend challenge, and the reason why it’s one of the best savings methods, is that it helps “reset” your spending habits.
A no spend challenge is like a detox for your budget.
After a no spend challenge you’ll have a much better appreciation for what spending is truly important to you (trust me, some spending you’ll miss dearly, but some spending you won’t miss at all).
A no spend challenge gives you a much better idea of where you can save money in your monthly budget without impacting your lifestyle too much.
Track Your Spending
Spending and savings go hand in hand. Its much easier to save money when you have a good handle on your monthly spending. This is where a spend tracker can come in handy.
Tracking your spending can be automated using tools like Mint or YNAB, but you can also set up a free DIY spend tracker using Google Forms and Google Sheets. We even have a free template that you can download in the Resources section. Or you can build your own spend tracker from scratch and customize it to your needs.
Spend tracking helps provide much needed visibility to your day-to-day spending. It can be hard to prioritize different types of spending when it’s unclear where that money is actually going. A simple spend tracker provides the detail you need to really evaluate your spending and make changes.
Once you know where your money is going, it becomes much easier to reprioritize spending and make room for monthly savings.
Without tracking your spending, and making informed decisions, it can be very easy to succumb to budget fatigue and give up entirely.
Employer Matched Contributions
The last and probably the best way to save money is through employer matched contributions to a long-term investment account. This could be a retirement vehicle like a defined benefit pension, a defined contribution pension, or a group-RRSP. Or it could be something else like a Deferred Profit Sharing Plan (DPSP) or an Employee Share Purchase Plan (ESPP).
Either way, if your employer is offering to match your contributions, take advantage of it!
Taking advantage of employer matching should typically come before other financial goals like paying off debt. It’s very hard to beat a 50%, 75%, or 100% match on your monthly savings.
For most of us this seems obvious, after all it’s “free money”. But the fact is a decent percentage of employees who are eligible for employer matched contributions don’t take advantage of it.
Financial planner, personal finance geek and founder of PlanEasy.