Reaching Your Savings Goal
No matter how carefully we plan, there's no guarantee life will unfold the way we expect. Job loss, illness, loss of a spouse or partner — some things are simply beyond our control.
Be prepared for the unexpected by creating a separate fund for emergencies.
Here are three guidelines you can follow to set up your own emergency fund:
- Calculate how big your savings 'cushion' should be. A common rule of thumb is to maintain a cushion of at least three months worth of living expenses. So if your household and day-to-day living expenses total $1,500 USD a month, you should maintain a cushion of $4,500 in your emergency fund.
- Don't touch it. An emergency fund is for emergencies, not luxuries. Think of your emergency fund as a fire extinguisher: The only reason to use it is if there's a fire.
- Keep it liquid. An emergency fund should be held in a high-interest Savings Account or cashable investment that will earn a reasonable rate of return.
Now, how do you set aside enough to build an emergency fund? Scotiabank's Automatic Savings Plan (ASP) can help. The ASP automatically makes payments to your Savings Account at set intervals, typically the same day you receive your pay cheque, so you don't even notice the money's gone.
We can help set up your ASP and calculate how much you should put aside, so that you can start building your rainy day fund sooner rather than later. Contact us, we'd be glad to help.
Planning is the most important step to realising your financial goals. We have strategies that can help.
Write down your goals
Your first step is to clarify and define what you want in your future and write it down. Putting your goals in writing will strengthen your commitment and push you to start thinking seriously and realistically about how to achieve them.
Start saving now
Financial goals often seem distant and less important than our immediate concerns. But if you want to increase the likelihood of realising your financial dreams, it's critical to start saving now. The passing of time has a dramatic effect on the growth of your savings due to the power of compound interest.
In fact, if you start saving in your 20s, you could see your money double several times over before even reaching retirement. No matter how old you are, starting to save today will pay off significantly over the years.
You might think the small amounts you save each month are too trivial to have an impact on your future. But everything in life starts out small. If you make more contributions, say on a weekly or bi-weekly basis, you'll put more of your money to work sooner, accelerating its growth through the power of compound interest.
An Automatic Savings Plan (ASP) can help you make regular savings contributions by setting aside a set amount at regular time intervals. Most people coordinate their ASP contributions with their payday cycle, so they don't even notice the money being put aside.
Stick with it.
Once you have an ASP in place, stay focused on your goal. Even if your financial situation changes down the road, it makes more sense to adjust the plan to your new circumstances rather than cancel it entirely.
Use annual reviews to stay on track.
It's important to keep your plan on track. One way is to review your progress annually and consider adjustments that may enhance your plan as your circumstances change over time. As well, you should reassess your plan whenever there are major changes in your life. Some key life changes that may have an effect on your financial situation include:
- Significant increases or decreases in household income
- Receipt of an inheritance or other lump-sum of money
- The purchase of a new home or other property
The amount you set aside could be just one hour of pay each day. If that's too much for you at this time, start even smaller. You'll soon see how easy it is to save automatically.
Need some help getting started? Contact us to talk to a Scotiabank advisor.