4 benefits of automatic savings
By setting up automatic savings, you can save continuously to reach your goals without even thinking about it.
If you have a source of income, automating your savings is a highly advantageous financial strategy. And the sooner you start to save, the more you'll benefit! It doesn't matter if you're squirrelling away $20 a week or $50 a month. The important thing is to save regularly. Here are four good reasons to opt for automatic savings, whether you're a full- or part-time salaried employee, self-employed worker, seasonal worker, or tip employee.
01 Get into the habit of saving
There's no magic formula for saving. You just need to take that first step! Determine a realistic amount that you can easily put aside every two weeks or every month, depending on your income. You can then automate your savings by setting up automatic bank withdrawals. This savings method will also help you develop good money reflexes. As you get into the habit of saving, you'll also boost your financial health.
02 Put money aside without thinking about it
Saving automatically also means saving without thinking about it. Everything is pre-scheduled so you can relax while making regular transfers. Your savings will grow and before you know it, you'll have enough to turn your plans into reality. With automatic bank withdrawals, the amount you choose is set aside weekly, bi-weekly, or monthly. Since the money is automatically transferred to your savings account, you don't have the opportunity to spend it. With this method, your savings become a regular expense, like your rent, groceries, and cellphone bill.
03 Manage your savings according to your needs
With automatic savings, you control how much and how often you save. You can always make changes depending on your needs and financial situation. Has your income taken a hit? Don't worry—you can save a smaller amount instead. The important thing to remember about automatic savings is that you're in charge.
04 Optimize your investments
Depending on your needs, you can also choose to invest your savings in a registered retirement savings plan (RRSP), for example. The amounts you routinely contribute can help you save for retirement, buy your first property, or go back to school.
Spreading out your contributions—and therefore your investments—throughout the year is also a good strategy for managing market volatility. Investing periodically throughout the year allows you to take advantage of market downturns and upswings. When prices drop, you get more units for the same amount of money; when they rise, your existing units go up, too. It's win-win!
Plus, saving automatically reduces your chances of being impulsive when it comes to making financial decisions or when the markets fluctuate. It's a great savings strategy if you're looking to accumulate capital for a particular project.
What's more, your investments will benefit from the effects of time. Evidence shows that it's more beneficial to save over the long term. And since time is your ally when it comes to growing your savings, contributing a small amount as soon as you can rather than waiting to deposit a large sum will put the odds of reaching your savings goals in your favour!
Figuring out how much to save
The best way to determine your ability to save is to make a monthly budget. By keeping track of your incoming and outgoing funds, you'll be able to ascertain how much you can realistically put aside each month and plan for this new expense. You can also include a specific savings goal in your budget.
Alternatively, you can calculate your average annual savings over the past few years and divide that amount by 12 months or 52 weeks.
The important thing is to save. But the amount you save depends on your needs and financial situation. Don't hesitate to consult a personal finance specialist for advice tailored to your situation.
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