Put it into savings before you have a chance to spend it

It sounds simple but it works amazingly. Having a portion of your paycheck put directly into a savings (rather than your primary chequing account) will go miles towards meaningful saving. This way you will be much less tempted to spend it if the funds are not in your primary chequing account. You can even change the name of your savings account(s) to “Travel”, “School”, “Investing”, “Car”, etc. I recommend putting away one third of your paychecks into savings each time you get paid. And this means right when you get paid, not after you have already spent most of your allowance! This is known as the thirds rule of saving. Of course, you can put away more or less depending on what you expect your typical expenses to be per month. Most Canadian banks even have a feature where they will put away a predetermined amount from your chequing to your savings each time you get paid automatically. Talk to your bank’s customer service today to get it set up.

Max out your TFSA (Canadians)

The Canadian government has set up a unique savings option for Canadians over 18 known as a Tax-Free Savings Account. Essentially, you can contribute up to $5,500 per year to the account for each year from when you turn 18. Then you are allowed to invest the savings into any type of investments you want and the capital gains are completely tax free when withdrawn. To check your current personal contribution room and to learn more details about your TFSA and how to use it, please visit the Canadian government’s website at cra.gov.ca. In my opinion, the TFSA is the greatest savings tool available for Canadians and as far as savings go should always be the first account to maximize the use of. Second to a TFSA, maxing out your RRSP (Registered Retirement Savings Plan) is also a great idea. The difference is that money you take off your paycheck and contribute to an RRSP is not counted towards your income tax at the end of the year. It makes it so that you are deferring the tax payment until you withdraw from the RRSP. Smart people will withdraw from their RRSP when they are making less or no money since it is taxed based on your current tax bracket. Talk to your employer or your bank about setting up an RRSP. When putting your savings from a TFSA or RRSP into a savings vehicle, consult with a financial advisor as they will be able to help you choose the proper aggressiveness for your portfolio.

Put your savings into an ETF for low management fees and proven results

Warren Buffett & Tony Robbins both agree that the most consistent and safe way to protect your money long term is by putting it into an index fund. I would recommend placing your savings into an ETF which trades on the ticker “SPY” and is comprised of the S&P 500 companies. The fund returned an average of 6.7% per year over the last decade and is overall pretty stable. Don’t forget the last 10 years included the 2008 financial crisis which hit stock markets incredibly hard. The S&P 500 recovered from that bruising quite nicely, regaining all of its losses for investors within 2 years. So place your savings into an ETF that tracks the S&P 500 index for long term and you will reap the rewards. Make sure to contribute consistently to take advantage of low priced entry points, which you will not be aware of at the time but will evidently seem like good buys in the future. For Canadians, I still recommend the S&P 500 over the Canadian S&P TSX index because of the much more stable and juicy returns. The S&P TSX returned an average of just over 1% over the last decade. That doesn’t even keep pace with inflation! So yes, converting to USD to buy the SPY ETF will cost more, but there will always be opportunities if you contribute consistently for the exchange rate to come more on par. Do not keep your money on the sidelines waiting for the perfect moment to buy in, due to the unpredicatable nature of the market and the relative safeness of holding for long term. Short term savers (3 years or less) should consult with a financial advisor for more conservative portfolio options.

Always pay off your credit card in full and make sure you have the funds to do so

This tip is pretty self-explanatory. Credit card debt is one of the costliest types of debt you can hold and one of the easiest to rack up since it is always a payment option when you shop. Pay off the full balance on your credit card every month to avoid paying the annual interest charge of 20% or more. There is no purchase you should justify paying for before you can afford it besides a car or a house. Please try to live within your means as well. This means if you are low on funds do not make extravagant purchases and generally spend more than you are bringing in. Be mindful of your credit card spending and the savings from not having to pay interest will add up greatly over time. Pro tip: register for a no fee rewards credit card to gain cash back or other perks simply for spending on necessary things. Just make sure to always pay off the balance on time otherwise the costs will outweigh the benefits.

Be frugal and follow a budget

Being frugal means to be mindful and smart with your spending and come up with creative ways to get more bang for your buck. It requires a little effort but you can do things like use coupons, buy store brand items from the grocery store, pack lunches instead of buying them, only drive when necessary to save gas, use a credit card that offers rewards based on spending, minimize your bank fees, and the list goes on and on and on. It is up to you to identify the changes you can make in your everyday life to be more frugal. For example, I am a student at a University. My bank offers a no fee bank account for students. The only catch is that you have to ask for it. They don’t apply it automatically nor do they advertise it, because they are not incentivized to do so. So be proactive and look for opportunities to save money. It really adds up!

Go one step further and create a budget in excel. Account for your income after tax, and then input your monthly expenses so you know how much leeway you have per month. Also make saving a static cost and prioritize setting aside a set amount for saving. What you are left over with after expenses and savings you can use for more flexible expenses such as entertainment.

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