Helen Burnett-Nichols
Beth Buczynski
Saving money — whether it’s for a potential emergency, much-needed vacation or far-off retirement — is a must-do for good financial health. But budgeting for such things doesn’t come easy to everyone.
If you don’t revel in spreadsheets or love the idea of tracking every nickel in a budgeting app, there’s good news: A simple adjustment to the way you deposit money into your bank accounts can ensure you’re planning for the future without having to spend much time thinking about it.
How many Canadians have a budget?
A 2022 Payments Canada survey conducted by Angus Reid Forum found that while 55% of the employed Canadians surveyed had a plan for how they would spend, save or invest each paycheque, the other 45% said they had no plan for their wages before receiving them.
“There is lots of data out there indicating that more than half of consumers in this country do not have a budget created to guide them and saving in any form, for emergencies or otherwise, is not really a habit for a lot of people,” Anne Arbour, Director of Strategic Partnerships at the Credit Counselling Society in Toronto, said in an email. “And now, with everyday expenses like groceries being so [costly], saving can feel even more difficult.”
Setting a savings goal
According to Arbour, the optimal amount of savings for each person is different, based on their goals, priorities and needs. While savings can be put aside for anything from a new car to a house down payment, ideally, everyone should also have a separate emergency fund with three to six months of basic living expenses tucked away.
“That can be a daunting number if you’re starting from scratch, so setting a target of $500 or $1,000 and working up from there is a great way to get started,” Arbour said.
But how do you start saving if budgeting isn’t working for you — or if even that “starter” number of $500 seems out of reach?
The trick to saving more: automation
If budgeting for savings is something you typically avoid, automation may be the answer.
Sometimes referred to as the “paying yourself first” approach to saving, a move as simple as setting up a regular transfer from your chequing account to a savings or investment account — your RRSP or TFSA, for example — can take the pain out of building a nest egg.
Why does automation work?
Setting up automated contributions to your savings or investment accounts takes the decision-making out of budgeting, eliminating the chance that you might find other uses for the money before it’s allocated to your savings. This approach also treats your savings like any other bill — you don’t have to remember to pay it every month.
“I’m a big fan of the ‘set it and forget it’ benefit of automated transfers/deposits for savings,” Arbour said. “The less we have to think about setting money aside for savings, about taking money out of our day-to-day resources, the better the chance that it will happen.”
Automating contributions to your savings or investments also allows you to benefit from compounding interest over time. Once you start contributing, your money can start earning interest, which is added to your account balance. This larger balance will also earn interest, allowing savings to accelerate on their own.
What do automatic savings look like?
Most banks offer pre-authorized debit services that can be used to move money from your chequing account to your savings or investment accounts on a regular basis.
You’re typically able to choose the amount and frequency — whether that’s bi-weekly or monthly after your direct deposit from your employer lands, or even every six months or once a year. In some cases, there is a minimum contribution amount, although that requirement may be as little as $25.
These arrangements are usually flexible, so if your circumstances change and you’d like to increase or scale back your contributions, you can adjust both the amount and frequency of your automatic transfer.
Some accounts also offer the option to automatically transfer as little as $0.50 to your savings account each time you use your debit card or withdraw money from an ATM.
Beyond bank offerings, apps like Moka can provide a bite-sized way to automate savings. The app works by linking to users’ debit or credit cards, rounding up everyday purchases to the nearest dollar, and then investing the difference — along with any additional recurring contributions — in an investment portfolio.
How to automate your savings
Start small
You don’t have to make a large contribution to start setting aside some money. Instead, choose a percentage of your pay or a dollar amount that fits within your income and expenses. Some financial institutions have minimum automatic contribution amounts, but you may also be able to switch to a bank or account type that doesn’t, allowing you to save within your budget.
You can start even smaller by using rounding-up apps or banking options to round up purchases.
“Every little bit helps. You can start small by activating the rounding up feature on your debit card, if it’s available, to direct the ‘spare change’ for any purchase into a savings account. It’s relatively painless and like the old-fashioned way of collecting spare change in a jar,” said Arbour.
Be strategic about when to transfer
“Out of sight, out of mind” is often the best approach when it comes to automatic savings plans. Setting the automatic transfer for the day, or the day after, you get paid can ensure that the money isn’t used for another purpose first.
Explore the best ways to save
Consider your goals and set up your automated banking in a way that works with your plans and risk profile. For example, if you’re saving for a rainy day, consider directing your savings into a high-interest savings account. Or, if you’re planning for a specific purchase, automatic contributions to a TFSA might make sense. And, for retirement, it may be best to contribute automatically to your RRSP. Ensuring your goals align with the strategy you set up for your funds will help you get the most bang for your buck.
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