How to save for your projects

1. Draw up your budget

Before you start saving, you’ll have to draw up a budget. This will tell you how much money you can put aside each month. Even if you have a good idea of how much is coming into your bank account every month, it’s probably harder for you to say how much you spend over the same period.

By drawing up a personal budget – an assessment of your income and expenses – you’ll be able to calculate how much you can put aside for savings each month. With this information in hand, you can make annual projections and establish a savings target that respects your financial capacity. To optimize your budget’s effectiveness, follow up every month and adjust it as necessary.

​​→ ​Check out our article on budgeting tips and our interactive online budget calculator.

2. Determine your savings capacity

Have you made your budget? Well done! You now have a good idea of how much you can put aside after paying your monthly and annual expenses.

Next step: Determine what percentage of this amount you can allocate to your savings. Remember, no amount is too small. Are you able to save $25 a month? That’s already a good start. The important thing is to establish good habits that you can revisit as your finances change.

It’s better to set a realistic amount that fits your budget. By setting a savings goal that’s too high, you risk abandoning it a few months later. As the saying goes: Saving is a marathon, not a sprint. And the sooner you start, the more you’ll accumulate.

3. Establish your projects and goals

Now that you know how much you can save, do you know what you’re saving for? By defining your projects and goals, you’ll be better able to answer this question.

Your first goal should be to build an emergency fund – a financial cushion you can draw on in times of need. This will help you cope with unforeseen situations, such as losing your job or your computer at the end of a semester, without having to resort to credit. This fund should cover three to six months of expenses. All set? Now you can move on to your other projects.

4. Draw up a budget for your projects and a savings plan to make them happen

Once you’ve established your projects, you’ll then need to set a savings goal for each of them (i.e., how much you want to save and how long it will take). Remember: Your schedule should be based on a realistic savings capacity that takes your budget into account.

Your savings plan should answer two key questions:

• How much do I need or want to save for this project?
• How long will it take me to reach this savings goal?

Systematic savings

Worried you won’t have the discipline to reach your goals? Opt for a systematic savings plan. This involves setting up automatic withdrawals from your chequing account that go into a savings account. This way, you put money aside without even realizing it. And since this amount is immediately deducted from your available funds, you get used to living without it.

Choose the frequency that works best for you, such as weekly, bi-weekly or monthly. Did you receive an unexpected amount or bonus? Add it to your savings.

 5. Choose the right savings account

A TFSA, RRSP, FHSA or savings account... It’s not easy to know where to start. Each savings vehicle (or account) has its own characteristics and objectives. Talk to an advisor to find out which one is right for your project. These specialists will be able to explain the differences, suggest the most appropriate options and even recommend different types of investments to help your money grow.

In the meantime, here’s some general information on different savings vehicles. It’s important to know that registered accounts offer a number of advantages, particularly from a tax standpoint, since they give you access to tax-sheltered deductions and returns. Among the most popular are:

• Tax-Free Savings Account (TFSA): Unlike RRSPs, TFSAs don’t offer tax deductions. However, the returns generated by your savings in a TFSA aren’t subject to tax. Useful for short- to medium-term projects, the TFSA allows you to withdraw as much of your money as you want at any time. For shorter term projects, make sure you choose safer types of investments that are also easy to withdraw.
• Registered Retirement Savings Plan (RRSP): RRSP contributions are tax-deductible, so any amount contributed reduces your taxable income and potentially the amount you pay in taxes. Returns are also tax-sheltered; money withdrawn before retirement, however, isn’t. As the name implies, this savings vehicle is designed to put money aside for retirement, with two exceptions: It can be used under the Home Buyers’ Plan (HBP) to finance the purchase of a first home or to finance a return to school under the Lifelong Learning Plan (LLP). In either case, you need to meet certain conditions to withdraw the money. What’s more, you have to repay the amounts withdrawn from your RRSP over a set period of time.
• The First Home Savings Account (FHSA) offers the best of both worlds. Like an RRSP, amounts saved are tax-deductible, and like a TFSA, returns are tax-free. However, it can only be used to purchase a first home; otherwise, the sums you withdraw will be taxable. But unlike the HBP, you don’t have to repay the amounts withdrawn.

Should you be saving even if you have debt?

You may be wondering whether you should pay off your debts before you start saving. It’s natural to want to pay off all your debts at lightning speed, but you can actually do both at the same time. To do this, you need to:

• Make a list of your debts
• Add up the amounts owed
• Note the interest rates applied
• Keep track of due dates
• Prioritize your debts

In other words, you need to prioritize the debts that cost you the most in interest, such as credit card balances. You should also take due dates into account so you don’t miss any payments. Otherwise, you’ll be charged interest, which could damage your credit rating. Note that some debt, such as student loans, have schedules with regular, predetermined payments.

Once you have your list of priorities, draw up a repayment plan and add the necessary amounts to your budget. Then, estimate the amount you can devote to your savings.

The best way to keep on track? Set challenging goals. Saving may not give you instant gratification, but realizing the project you’ve saved for will give you great satisfaction.