When it comes to saving money, it’s easier said than done. Most people actually suck at saving, with most households only socking away a pitiful 4% of their income. We used to be better at it, but easy credit, high debt loads, stagnant wages, and giving into our temptations to buy everything in sight has eroded our once good money habits and left little but spare change in their wake.
You know you should save more, but you’re not sure how. Here are 5 hacks to save more money, faster, and easier than ever.
Throw out ‘savings challenges’
There’s a popular chart that’s gone viral on the internet, as much as personal finance advice online can go viral. It outlines saving incrementally more each week, beginning with $1 and working up to $52 per week.
It made its most recent rounds in January, when people were setting their New Year money resolutions, which is the worst time of year to start this 12-month savings challenge. Why? Because it sets you up to save the most each week during the month you’ll likely be spending the most on Christmas gifts. Saving $2 per week in January is easy, saving $50 per week in December is hard. If anything this challenge should reverse itself and get progressively easier as the weeks go by, but if you don’t already have strong saving habits, it won’t be easy to find $200 extra in your budget to tuck away the first few months of the year.
Saving a small amount weekly (or daily, like I do!) is an excellent way to get in the habit of saving, but make it a small, consistent amount or increase it enough that you can take December or any other super-spendy month off. For example, saving $21 per week (only $3 per day) for 48 weeks will give you over $1,000 AND 4-weeks of not having to save a dime!
Savings challenges are great if they work for you, but ideally you don’t want saving to be a “challenge”, you want it to be so easy it happens in your sleep.
Don’t calculate how much you need for retirement until you’re at least 45
Responsible 20- and 30-somethings want to tuck away the right amount of savings to ensure financial security in the years they eventually stop working. This is something everybody should be doing, but it’s also something people frequently are doing wrong.
Conventional personal finance advice tells you to choose your retirement age, then determine how much you’ll need to live on each year, subtract any government payouts plus employer pensions, and from what is left over, calculate how much you need to save and invest each month for the next few decades in order to reach your target. A few lucky millennials with ample cash flow have even emailed me wondering if they’re saving too much.
When you’re young, it only matters that you’re saving as much as you can for retirement, rather than if you’re saving the “right amount”.
A good rule of thumb is you should be saving at least 10% of your net income for the long-term, but if that’s too much of a stretch, most math suggests you will be ok setting aside as little as 6% in your 20’s. Of course, the more you save, the better. So if your debt is paid off and your emergency fund is fully funded, go ahead and boost your retirement savings.
Don’t worry about the target number until you’re closer to your actual retirement age. Trying to calculate what age you’ll retire and how much you’ll need when you’re 24 years old is a virtually impossible task. After all, the future you are saving for doesn’t even exist, how are you supposed to plan for it? You don’t. Instead, you work towards stashing as much as you can, and then once your retirement edges closer, determine how much you really need.
If you intend to retire at or around 65, then do your retirement income calculations at age 45. This is still far enough away from your target retirement age (20 years!) that you have ample time to rearrange and rebalance, but near enough that you have a better idea of the actual number you’ll need. If you were diligent about saving in your 20’s and 30’s and are on track to have more than you need, you can slow down or stop saving.
You might not want to! After all, 20 years is still a long time for unexpected financial catastrophe to crop up and throw all your plans off track. No matter what happens, establishing a firm financial foundation gives you choices and flexibility.
Take your high-interest out of sight, out of mind
The best way to stash your savings is to set up a high-interest savings account at a different bank than you primarily use, so you don’t see the amount when you do your day-to-day banking. This way the balance will continue to grow without you feeling tempted to raid it for an “emergency”, like a sale at your favorite store or a spontaneous vacation with your best friend.
The less you look at this account and the harder it is to get the money out of it, the better.
This is why once you amass $1,000 or more in the account, you might want to move it to invest it in an investment vehicle that generates a higher return than a simple savings account, like a GIC. To do this, you have to know when you’ll need the cash so you can choose the right term, but if you’re saving for a mid- to long-term goal that will take you 2 years or more, this is a great option.
Rising interest rates will hurt people carrying debt, but the upside is it’s awesome for helping your savings grow. Now is a great time to take advantage of bank promotions boasting extra-high rates on savings accounts, GICs, and term deposits. I’m now seeing GIC rates over 3%! It’s been a long time since you could get a guaranteed return on a no-risk investment like that.
Right now you can find the best interest rates with EQ Bank. Their savings accounts are offering 2.30%, and they offer up to 3.50% on GICs!
Use even small amounts cash-back and extra income towards your goals
If you’re using a cash-back card but keep your spending relatively tame, you might not be super impressed with getting $3.27 in cash-back each month. But don’t forget that a dollar is a dollar is a dollar — and a dollar saved has a tendency to become more dollars over time.
Take your small change from all random cash-back sources and redirect it to your out-of-sight-out-of-mind savings account. I’m still an avid user of eBates for exactly this purpose: every quarter I receive a cheque for a small amount of cash-back from my online purchases (basically all Amazon and Sephora), that I immediately deposit to my savings account. You’d be surprised how fast $4 here and $29 there adds up over time. If you’re receiving $50 per month in cash-back from various sources, this will add up to over $600 per year.
Saving money isn’t optional, but there are ways to make it as easy as possible!
Good suggestion to leave the exact amount until you are closer to retirement. However, I like having a ball park number that I am working towards to make sure I am on track. I also love seeing how much larger my savings can grow due to compound interest!
Is there a free online tool where I can put in my retirement savings goal, my age, and a reasonable interest rate, and it will calculate how much money I need to save per year? Ideally, it would factor in compound interest.
You mentioned in your video that there is a link to some “side hustles.” Where can I find that? Thanks! Great video.
Hey Jacquie, it’s here https://www.youtube.com/watch?v=MDVDHfYDRF4 =)
Great video. I’m a junior in college and I have been trying to save up money before graduation. I will definitely try to follow some of the tips you mentioned. Thanks! You also have a new subscriber!
That’s awesome Catherine!! So glad you found it helpful =)
I really love this post. I have been so torn about saving for retirement because I’m struggling with about $60k in debt right now. I’ve gone from putting 20% in my TSP (401k alternative) to 0% to 10%. I can’t make up my mind. I’m almost 28, so I feel like I need to be saving something.
I think I’ve finally settled on 5% because we just started receiving an employer match of up to 5% – so now it’s like I’m putting 10% in. But still, the investing question while in debt continues to keep me up at night.
Some great tips Bridget! Thanks for sharing! Cash back does seem minimal at first, but over time it can really add up!