Saving money has been top of mind for many Canadians during the last year and a half. In fact, 46% of Canadians said they've been able to save more money during the pandemic than in a typical year, according to a recent Scotiabank survey.
But how will you know if you have saved enough money? Everyone's life is unique, and so are our incomes, expenses and financial goals. The target number you need to put away in savings depends on your budget and goals.
Let's focus on how to start saving.
What are your goals?
Knowing how much you need to save depends on your financial goals. Think about:
- Identifying the goal, such as saving for a rainy day (emergency fund), your child's education, your dream vacation or your retirement.
- Considering how much you will need to make each goal happen.
- Setting a time frame for each goal.
The Financial Consumer Agency of Canada has created a worksheet to help you set your goals for the short (2 years or less), medium (3-5 years) or long (6+ years) term.
Revisit your goals whenever you experience a significant life change such as having a child or buying a house.
A Scotia advisor can help you map out your goals as you create your financial plan.
Having a budget helps you live within your means, save for emergencies, and reach your savings goals.
A popular guideline for budgeting is the 50/30/20 rule, which allocates 50% of your monthly budget to your fixed costs, 30% to discretionary spending and 20% to your savings.
Watch the video: What is a budget?
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Setting up an emergency fund
Financial curveballs inevitably come up in our lives, whether it's an unforeseen job loss, illness, or major home repairs. The first place to put your savings is in an emergency fund, which provides a safety net for financial emergencies.
A general guideline is to have enough savings to cover three to six months' worth of expenses. Review your bank and credit card statements to calculate how much you need to pay your bills. Account for only essential expenses such as mortgage payments, insurance, childcare, groceries, utilities and transportation. These expenses cover the bills you need to pay without going into debt.
Using a high interest savings account for your emergency fund is generally a good practice because it's a safe place for your money (the Canada Deposit Insurance Corporation covers savings accounts up to $100,000). You can also withdraw money easily and in most cases, without any sort of fees or tax implications when needed from a savings account.
How do you start saving each month for your emergency fund?
Calculate the monthly total you need, then multiple by three to six. You can also choose to save more than six months of expenses depending on your personal situation (for example, if you think your job search might take longer than 6 months). Alternatively, you may want to save up to 12 months of expenses if your income is irregular or if you want to pay for extra expenses such as dining out or entertainment.
Check out Scotiabank’s Money Finder Calculator to help you determine if you have additional funds available to put toward your goals by comparing your income to your expenses.
How do I save for retirement?
When it comes to saving for retirement, figuring out how much you will need depends on current income, when you want to retire and how much money you need to live comfortably in retirement.
Creating a retirement plan is an important first step. How much you need in savings — your magic number — will depend on your lifestyle goals and personal spending habits. A Scotia advisor can help you calculate this number.
Watch the video: How to plan for retirement?
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A general guideline says you should be saving 5% to 15% of your pre-tax income for retirement. If you can't save that much, aim to save as much as you can with the goal of eventually saving 15%.
How much should I have in retirement savings in my 30s?
Ideally you want to aim to have the equivalent of one year’s salary saved for retirement by the end of your 30s. That may not always be possible if you're paying off student loans, saving for a down payment to buy a house, or paying off other debt. Then, calculate what percentage of your income you can save and how much you can increase your savings each subsequent year. Figure out what you can save while paying off debt or saving for other goals.
One great way to do this is with a high interest savings account. You can earn interest, while saving towards your different financial goals. An advisor can help you map out a plan that will work for you.
How much should I have in retirement savings in my 40s?
You may be entering your peak earning years during this decade while balancing childcare expenses, mortgage payments, and saving for your children's post-secondary education. The rule-of-thumb is that you should want to aim to have three times your income saved for retirement by the end of your 40s.
Finding your savings number
Ultimately the amount you want to have saved at different stages in your life will be dependent on your financial goals and how you can achieve those goals. Book an appointment with a Scotia advisor to help you map out a personalized financial plan that will work for you.