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The Importance of Establishing Savings

February 2, 2017

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We’ve all heard that little voice in our head telling us to save our money, set up a “rainy day fund” or maybe even put a little something aside in case of an emergency. It always seems to talk to us at the most inopportune times, usually when our back is to the wall and we’re drowning in debt. At this point, it is usually too late and we’re left questioning how we ended up here.

With the rising cost of living and the tendency for young adults to live paycheque to paycheque, the choice between spending and saving is often overlooked. However, the unfortunate reality is that your priorities need to be more closely aligned with your financial goals and future if you want to build confidence, stability and be prepared for the unexpected.

While you aren’t always able to control when mishaps occur, you can control how you plan for them. First, you need to be realistic about these so-called “emergencies”. If you own a vehicle, it is not a reasonable excuse to consider car repairs an emergency. You need to be more honest with yourself and understand that if you own and operate a vehicle, these expenses are going to occur – it’s inevitable.

This is where a financial plan comes in handy. Try to think of things like car repairs as pre-planned expenses that will inevitably occur, because without some form of pre-planned savings, you may find yourself resorting to payday loans or credit cards to cover the shortfall. Although these methods may seem like a good idea at the time, they’re only a temporary solution and will end up costing you more in the long run after you add up the interest charges and fees.

That being said, it is important to note that you can’t plan for every emergency that may occur. A solid financial plan can help assist you in these circumstances, and will hopefully help to alleviate some, if not all, of the unexpected additions to your budget.

Where to Start:

Create a budget

Have a look at the last three months of your bank statements and categorize each expense. Average each of them out over the three-month period. This will give you a good indication of your average spending in each category. Analyze your spending. Are there any expenses that you can cut back on or even eliminate? For more on tackling your budget, click here.

Challenge yourself to live within your means

After figuring out your average monthly spending habits in each category, challenge yourself to stay below your budget. Is there any other expense you can further cut back or eliminate?

Make regular contributions to your savings account

By treating your savings contribution with the same level of importance as a bill payment, you will find a way to make it happen. Start small; even the smallest amount will add up over time. Starting with a large contribution when you’ve never planned a saving before can be overwhelming and possibly unsuccessful.

Roll with the Flow

You’ve created your savings plan and you’ve put it to action. Understand that it will not always be perfect or seamless. There still may be things that come up that you need to think about and this may require a slight adjustment to the plan. The idea for now is that you’ve got in the habit of saving a portion of your paycheques and you understand the importance of it.

Having an established savings account is your gateway to financial freedom.

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