Fundamental Savings Guidelines: Set up a savings strategy
Set up a savings strategy that works for you and your family
Prior to the recent global economic crisis, easy access to credit had many homeowners (particularly in the United States) following the buy-now-pay-later philosophy, and purchasing more than they could really afford.
While Canadians were less affected than our U.S. neighbours, the risk of overleveraging has certainly been made clear. Many people are rediscovering fundamental saving guidelines and strategies such as having money set aside for a rainy day, and saving up for a major purchase (instead of buying now on credit).
An overall saving strategy plays a key role in seeing you through economic downturns and helping you stay on track to your long-term goals. What constitutes an effective saving strategy? While the specific approach will be different for every investor, successful saving consists of five essential components.
1. Identify what you are saving for
Saving is easier when you are motivated and that means having clear objectives in sight. Are you saving to buy a new television 6 months from now? For a family vacation next year? Perhaps you plan to take a sabbatical 2 years from now, and need extra cash for the time youll be away from work.
To help you stay motivated, write down each objective with the amount you want to save and a target date for reaching your goal.
2. Determine how much you can save
The next step is to create your household budget or review your existing one. How much do you currently have allocated to saving? Can you increase that amount? A CIBC advisor has the tools and advice to assist with budget planning, and may be able to help you find ways to save that you hadnt thought of. For example, you might restructure debt to reduce your interest costs.
3. Choose the appropriate solutions
Your savings choices might include savings accounts, guaranteed investment certificates, and money market funds. The solutions that are best for you will depend on a number of factors: how much you have to save right now, how frequently and how much you plan to add to your savings, and how quickly you may need access to your money.
4. Make it automatic
One of the most effective ways to make saving a priority is to commit to a regular investment plan. Choose one that automatically withdraws money from your payroll account and transfers it to your savings account.
Even small amounts saved in this manner grow effortlessly month after month. For example, $200 a month earning 2% annually will grow to $2,426 after 1 year, $7,424 after 3 years, and $12,625 after 5 years.
5. Monitor your progress
Once every few months, you may want to take a few moments to review your progress towards your savings goals. This gives you an opportunity to increase your regular deposits if, for example, your salary has increased or your expenses (such as your car insurance) have gone down.
A CIBC advisor can help you set achievable goals, calculate how much to set aside, and recommend savings solutions that are right for you.