Five easy steps to help you achieve your savings resolution
Is improving your finances one of your New Year’s resolutions? If it is, then you’re in good company. In survey after survey, roughly half to two-thirds of people who plan to make a resolution say theirs will focus on finances.
To be successful in any goal, you need to make a plan. Here are five steps you can take to help you boost your savings and achieve your financial resolution in the coming year.
1. Review your budget
Before you set your New Year’s resolution goal, it’s important to be realistic about what you can save. Make an accurate listing of your total monthly income and expenses (including bills and living costs) to assess what you can reasonably commit to saving. If the result wasn’t what you were hoping for, try trimming your expenses or looking for other income opportunities.
2. Make your goal specific
Knowing you want to save more is one thing, but research shows you have a better chance of success if you have an explicit goal in mind.1 So make your New Year’s financial resolution specific. If you’re saving for a vacation or other major purchase, determine how much you need to save every month to have the amount you need by the target date. For longer-term goals like retirement or a down payment on a home, set aside a defined amount each month to reach your annual savings goal.
3. Schedule contributions
Once you’ve determined how much to save, the next step is to make consistent contributions. There are many ways to do this, but the easiest is to set up a Pre-Authorized Contribution (PAC). Just set the amount and the frequency, and the funds will automatically transfer to your savings or investing account. For more information on the benefits of automatic contributions, check out our article.
4. Track your progress
One study suggests that tracking your progress may be just as important as setting the goal in the first place.2 Not only is it motivating to see your progress towards accomplishing your goal, tracking also helps you make adjustments if your plan isn’t quite working. Visual tools, such as Qtrade Direct Investing’s contribution trackers for registered retirement savings plans (RRSP) and tax-free savings accounts (TFSA), are a great way to see how you’re doing.
5. Maximize your savings
The purchasing power of cash gets eroded over time by inflation. So, once you’ve built up some savings, consider putting it to work and investing. If you’ll need access to the money within a couple of years, you should likely play it a bit safe: investments like GICs or high-interest savings accounts can help you earn some interest without exposing you to market risk. For medium- and longer-term goals, you can seek higher returns by investing a portion of your savings in stocks, bonds, exchange-traded funds (ETFs) and mutual funds. It’s always good to be careful about your risk exposure but, generally speaking, the longer your time horizon, the more aggressive you can be since your investments have time to recover from a downturn.
These five easy steps can help you commit to your New Year’s savings resolution and improve your financial well-being. And once your plan is in place, you may be surprised at how quickly your habits adjust.
1 Houston, Elaine. “What is goal setting and how to do it well,” Positive Psychology.com. April 9, 2019. https://positivepsychology.com/goal-setting/
2 Hirsch, Wendy. “Goal Monitoring: Why it pays to keep your eye on the prize”, Science for Work. June 5, 2017. https://scienceforwork.com/blog/goal-monitoring/