What is a sinking funds 101 - Frugl

Sinking Funds 101: Everything You Need to Know About Sinking Funds

From all-inclusive vacations and purchasing a new car to home renovations like that kitchen upgrade you’ve been dreaming of and even getting ready for family celebrations, there are so many different things that every single one of us plans for which usually comes with a price tag.

But how exactly can you and should you be saving for these types of planned purchases? 

The answer: sinking funds

Having a sinking fund, or even multiple sinking funds can play an extremely important role in your financial life. By using a sinking fund, you’re essentially making it easier for yourself to prepare for future expenses by tucking away a small amount of money on a recurring basis until you’ve saved enough to either cover the full cost or hit some relative “saving goal”. 

Sinking funds go above helping you save for small and large planned expenses, they can also help you improve the way you manage your overall finances by keeping you motivated, focused, and picking up new money habits along the way. 

Ready to learn more about sinking funds and how you can leverage them? Don’t stop reading here.. Keep going 🙂
 

“What the heck is a sinking fund and how do I start  one?”

By now, I’m sure you can tell that we’re big fans of sinking funds around here. There’s a good chance that you also likely have a general idea that sinking funds come with benefits. But… you’re still not sold, right? No sweat, that’s what we’re here for. 

Keeping it as simple as we possibly can, a sinking fund is a dedicated, usually separate, type of savings account or “fund” (hence the name!), that allows you to put money aside for purchases and expenses that you’re planning for in the future. future planned purchases. Your sinking fund(s) usually align with what your priority savings goals are—saving for a trip to Mexico? Create a sinking fund for that. Saving for your wedding dress? Create a sinking fund for that. Saving for a… you get the point!

Sinking funds “work” in a similar way to other types of saving funds or even investment accounts that you’re familiar with; usually by saving a small amount of money on a recurring basis, which usually ends up being monthly, for a specific amount of time until you’ve reached your goal. By the end of this ‘period of time,’ you should, fingers crossed,  have enough saved to either cover the full cost of the expense or at least enough to cover the amount you were hoping for. 

Here’s how to calculate how much you should be saving

The question then remains, “how much money do I need to be saving monthly?”. Just like everything else, it depends.

In this case, it depends on two numbers. 

  1. The total amount you plan on spending (or thus needing to save); and 
  2. The amount of time you have until you are considering making the purchase. 

Once you have those two numbers figured out, your math becomes really simple—take the total amount you plan on spending and divide it by the number of months, weeks, or even days you have left until you plan on making the purchase. 

The number you’re leftover is the amount you’ll need to save on a daily, weekly, or monthly basis to reach your goal. 

Mexico here we come…in 12 months

Let’s have some fun and use an example of saving for a trip to Mexico to illustrate some numbers. For the purpose of this example, let’s assume that you’re planning on booking an all-inclusive, $3,000 trip to Cancun, Mexico in exactly twelve months from now. 

Using that simple formula above, we would divide the total amount of the trip ($3,000) by the number of months you have left until you need to make the payment (12 months), which gives us a number of $250

Based on those numbers and that timeframe, it looks like you’d need to save $250 every month over the next 12 months to reach your savings goal of paying for your $3,000 trip to Mexico.

“Why do I need a sinking fund?”

There are several reasons why you need a sinking fund or why you would at least consider using one… But the number one reason is this; because life happens

It’s inevitable that there will be purchases you either want to make or need to make in the near future. Without a sinking fund, you might just find yourself being “forced” to pay for those expenses by resorting to other sources such as pulling money from your emergency fund, dipping into your retirement savings, or even busting out your nearly-maxed-out credit card. Resorting to those options doesn’t do you any good, in fact, it means you’re jeopardizing your financial situation and compromising your future financial health. 

That’s what makes sinking funds so amazing— they allow you to plan for large (or even small), expected purchases without compromising your finances while still remaining on track in other areas of your financial life, such as your retirement. Taking advantage of using sinking funds can help you stay out of debt while avoiding feeling even the slightest pinch on your monthly budget. 

By using a sinking fund you can:

  • Save for large upfront costs without feeling anxious or intimidated.
  • Plan and save for those dream items.
  • Importantly, save and spend your money without regret.

“Are there different types of sinking funds?”

There really are no rules when it comes to what your sinking fund(s) should or shouldn’t be used for, that’s entirely up to you and your goals. However, every sinking fund can be placed into one of two categories: 

  1. Large planned purchases. Most sinking funds will fall into this category as this is the most common use of a sinking fund. Saving for that trip to Mexico we talked about above, your dream wedding, and a down payment on a new house are all examples of large planned purchases.
  2. Small planned purchases. Next, are the smaller planned purchases that a sinking fund can benefit. This would include things such as family birthday celebrations, home decor, camps and weekend retreats, or even saving for back-to-school clothing for the kids. 

When you break out your funds into these categories, it makes saving for and planning for just about everything else so much easier to understand what you’re working towards.

“What’s the difference between my sinking fund and my emergency fund?”

We get this question asked ALL the time. So, are there any differences between your emergency fund and a sinking fund?

While there are similarities, there is also a very distinct difference. 

Your emergency fund is a reserve of money used for unplanned and unexpected expenses that come your way–in other words, for “emergency” occurrences. This can include things like the sudden loss of unemployment and income, your furnace or air conditioning unit breaking down, or getting a steep medical bill that you didn’t expect. 

Sinking funds on the other hand, are explicitly designed to help you pay for those planned, expected expenses you know you’ll either need to make or want to make in the future. Examples include saving for family birthdays and celebrations, saving for an engagement ring or wedding dress, or even saving for an annual family trip or vacation.  

So, the important takeaway is this: your sinking fund is for the known, while your emergency fund is for the unknown. 

“Where should I create and keep my sinking fund?”

NOW this is what really excites us.. for obvious, slightly biased reasons 🙂

With that being said, best practice will tell you that you should be keeping your sinking funds in liquid savings accounts where you are earning a small amount of interest while knowing that you can access and pull your money at any time. 

It’s totally up to you how you structure your savings and your sinking funds. You can use one account for everything you’re saving for as long as you track how much money you’re assigning to each planned purchase or savings goal. While that works, it can become a little messy pooling your money together.

We recommend creating separate sinking funds (savings accounts) for each different item or savings goal that you plan on saving for. So, if you’re saving for that trip to Mexico we talked about above, a small down payment on a car, and a nice anniversary gift for your partner, then we’d recommend using three distinct, separate accounts so that you can allocate different amounts to each account while being able to track your progress separately.

Moving forward with your sinking funds

Here at FRUGL, we make it easy to create new savings accounts based on your savings goals, categorize them, create your total saving goal amount, along with the time you plan on reaching those goals. Once your accounts are set up and making automated contributions, you’ll be able to easily track your progress to see just how much you have left to save for each goal. 

How to save for your first home - Frugl

How to Save for a House: 10 Ways To Make Your Biggest Purchase Ever!

Buying a home may be the biggest purchase a person can make. And, with home prices rising, it can also feel intimidating or even impossible, especially for a first-time home. However, there is no need to fret. If you’re wondering how to save for a house, you’re in the right place!

Before you start looking for a real estate agent, take some time to self-reflect on your current financial situation to develop a plan for success. Here are ten ways to help you save for a house and make your biggest purchase ever.

What Are the Costs When Buying a House

According to the National Association of REALTORS the median existing-home sales price for March 2021 was $329,100. Unless you have hundreds of thousands of dollars to spend, you most likely will work with a bank to finance your home purchase. Thus, the two main costs you need to save up for are down payment and the closing costs.

Down Payment

A down payment is an out-of-pocket expense a homebuyer will pay when financing a purchase. The amount is usually a percentage of the purchase price, which can vary depending on the type of loan.

For example, a 10% down payment for a purchase price of $200,000 is $20,000. Therefore, a homebuyer would need to bring $20,000 when signing closing documents while the bank will finance the remaining balance of $180,000.

Closing Costs

When financing a home purchase, there are several closing costs, such as an appraisal fee, termite inspection, and escrow fee. However, unlike a down payment, a homebuyer won’t know the exact dollar amount due until a few weeks or days before closing on the property.

Therefore, as a safe estimation, the closing cost is usually about 2% to 5% of the loan amount. For instance, homebuyers with a loan amount of $180,000 can estimate to pay about $3,600 to $9,000 in closing costs.

Moving Expenses

Although moving expenses are not as large as a down payment, it is still a cost that buyers should save up for. If you have a small family and only have small items, you can save a lot of money by transporting your family’s personal belongings in your car or a friend’s truck.

However, if you have larger and heavier items, you can rent a moving truck or hire a moving company. According to Moving.com, the average cost of a local move is $1,250 and $4,890 for a long-distance move.

How Much is Down Payment?

The down payment amount is usually a percentage of the purchase price. However, depending on the loan program, the percentage can vary. Determining which loans you qualify for is one of the first steps on how to save for a house. The requirements can change every year. So, be sure to check with a mortgage professional to get the latest details.

FHA Loan

The federal government insures a Federal House Authority (FHA) loan. However, the government doesn’t provide the loan to homebuyers. Instead, this program allows lenders to offer a low down payment requirement. The government will ensure the loan in case the borrower stops paying.

According to U.S. Bank, the minimum required down payment for an FHA loan is only 3.5% of the purchase price. Therefore, a 3.5% down payment for a $200,000 purchase is $7,000.

203k Loan

A 203k loan is a subset of an FHA loan based on section 203(k) of the National Housing Act. This program follows the same rules as an FHA loan and includes rehab expenses as part of the loan. Thus, homebuyers can buy a distressed property in need of significant improvements but at a meager purchase price.

VA Loan

The U.S. Department of Veteran Affairs created the VA loan, which is similar to the FHA loan. This loan’s critical difference is exclusively for U.S. service members, veterans, and eligible surviving spouses.

A VA loan doesn’t require any money down nor private mortgage insurance. Additionally, a VA loan allows a seller to pay 100% of the closing costs, unlike an FHA limiting a seller to 3%. Therefore, a homebuyer who qualifies for a VA loan doesn’t have to save up for a down payment.

USDA Loan

A USDA Loan is short for the “USDA Rural Development Single Family Housing Guaranteed Loan Program.” Like a VA loan, this program also allows a homebuyer to fully finance a home purchase, which means a down payment isn’t required.

The property must be a rural single-family home and low to moderate-income homebuyers based on the county’s median income to qualify for this program. Speak with a mortgage professional within your area to check your eligibility.

Conventional Loan

A conventional loan is a loan that is not part of a specific government program. The down payment ranges from 5% to 15%. Therefore, a 5% down payment for a purchase of $200,000 is $10,000.

Why Do People Want a 20% Down Payment?

Home borrowers that make a down payment of less than 20% are typically required to pay for private mortgage insurance (PMI). This insurance is not the same as home insurance. Instead, the purpose of a PMI is to protect a lender if a borrower defaults on their payment.

Thus, on top of the mortgage payment, property insurance, and property taxes, some homeowners will also have to pay for PMI. However, some homebuyers don’t mind paying the PMI because they prefer a lower down payment.

Some loan programs don’t allow you to remove the PMI. On the other hand, some programs will allow PMI removal when the balance is 80% of the original purchase. Homeowners can make extra payments towards the principal balance to accelerate the debt service payment. Alternatively, homeowners can refinance the property and take advantage of the house’s appreciation.

How Much Can You Afford?

Before you start looking at potential houses to buy, it’s essential to know how much you can afford. The general rule of thumb is that the mortgage payment should be no more than ⅓ of your monthly household net income. For example, a person with a monthly net income of $2,500 should aim to have a mortgage payment of no more than $833 a month.

Although this rule of thumb is a quick and easy way to calculate a rough estimate of how much you can afford. Any homebuyer needs to review their financial situation in detail thoroughly. Mortgage payments can easily vary due to property taxes and home insurance and can quickly increase your monthly expense.

Where to Save Your Money

It’s best to save money in a high-yield savings account, such as a money market account. Your account may not accrue a lot of interest. But, you avoid risking your savings by not putting it in an investment account, such as stocks or REITs.

10 Ways to Save For a Down Payment

1. Track Your Expenses

Before you can start putting away money for your down payment, you first need to identify and track all your expenses. Whether the cost is paying for utilities or entertainment, track it all.

 

With the help of online banking, you can see all your transactions in one place. Reviewing your expenses might even surprise you with some items you were unknowingly paying for. Knowing how much you spend on expenses will give you an accurate idea of how much you will have leftover from your paycheck.

2. Create a Budget

After you track all your expenses, it’s crucial to create a budget. A budget does not mean taking the fun out of your life. Instead, a budget is the best way to make sure you have enough money every month. For example, you budget $100 a month for dining out. If you already have exceeded that amount for the month, you will have to postpone any dining plans until next month.

3. Automate Savings

Creating a budget is a great way to be fiscally responsible. However, it can be tempting to spend your paycheck once it hits your checking account. To help overcome this temptation, you can set up automatic transfers to your savings account.

Talk to your payroll department to have them transfer a certain amount or percentage to your desired account. As another option, you can set up an automatic transfer with your bank. Automating your savings is a simple way to keep you honest with your savings.

4. Reduce Expenses

If you don’t have much money, an easy way to start saving is by reducing your expenses. For example, instead of buying lunch when you’re at the office, consider bringing your lunch.

Also, get rid of unnecessary expenses. That’s fantastic you signed up for a gym membership after the new year. But, if you’re not using it, you’re better off canceling it to keep more money in your pocket.

Consider living stingy and downsize, if possible. You’re not cheap. Instead, you are more intentional with your money. For example, you can trade in your car for a more affordable vehicle or change your cell phone plan. Or move into an apartment with more affordable rent while you work on building up your down payment.

5. Increase Your Income

Aside from reducing your expenses, another way to save for a house is to increase your income. One way to accomplish this task is by requesting a raise from your employer. However, be sure to back up your request with data to justify a promotion.

If you’re unable to get a substantial raise from your main hustle, consider a side hustle to create a second income stream. Depending on your current career, you can leverage that to your advantage to make money in your spare time.

Additionally, if you have an extra bedroom to spare, you could house hack your current residence and rent out the room for extra income. Be sure to consult with your landlord before advertising for a roommate.

6. Postpone Major Activities

You might call me a killjoy, but another option to save for a house is to postpone significant activities or events, such as a family vacation or concerts. Saving on travel alone can save you hundreds and even thousands of dollars.

Remember, I said “postpone” and not “cancel.” There will always be another opportunity to live that experience. At least once you have your house, you can hang those memories in your new home.

7. Get Rid of Debt

Getting rid of debt is another excellent way to help you buy a house. Not only does it reduce your monthly expense, but it can also make you favorable in the eyes of your lender.

According to Experian, two of the four significant factors mortgage lenders consider are payment history and credit utilization ratio. Lenders want to make sure potential borrowers have a good track record of paying on time.

Also, lenders use the credit utilization ratio to determine how much a borrower’s balance is compared to their credit limit. The lower the ratio, the more favorable a borrower, is to a lender. Therefore, it pays to pay down your student loans and credit card debt.

Additionally, lenders will also check a borrower’s debt-to-income ratio (DTI). This ratio compares how much a person owes to how much they earn a month. The better your DTI, credit utilization ratio, and other factors will help qualify you for a loan program to your advantage.

8. Save Your Windfall Income

There will be moments you’ll unexpectedly receive extra income, such as bonuses, gift money, tax refunds, and stimulus checks. Instead of splurging that surprise money on consumer products, save that extra cash in your separate savings account to help you get closer to your goal.

9. Sell Your Things

Another way to boost your savings is to sell items you no longer use. For example, if you’re no longer planning on having kids, you can sell that Spectra S2 to another mother in need. Not only can you make extra money, but you’ll also be reducing your belongings, which can have a positive effect on moving expenses.

A few options to sell your items are holding a garage sale or listing items for sale on Facebook or Craigslist. Aside from selling your TV or video game console, you can go as far as selling your barely used vehicle.

10. Pause or Reduce Retirement Contribution

It’s essential to make regular contributions to your retirement account, especially when you’re young and have time on your side. However, if you need a little more capital to save up for a down payment, you can temporarily pause or reduce your contribution to your 401k or IRA.

Keep in mind that you’ll lose the tax benefits of not contributing to these retirement accounts. Thus, it’s crucial to weigh the pros and cons of pausing or reducing your contributions. You may find more profitable avenues to save more money or may just need to extend your timeline when you can reach your savings goal.

Final Words

Owning a house is a great way to create generational wealth. So, as early as now, start reaching out to various mortgage professionals. A seasoned mortgage lender can help you navigate the financing process and help identify mortgage loan programs that work well for you. They can also let you know what credit score to work towards to get a better interest rate.

While you work on saving up for your down payment, also focus on building good money habits and practice budgeting for monthly payments. So, once you’re ready to make an offer and buy a home, you’ve already developed a habit.

This article originally appeared on Your Money Geek and has been republished with permission.

13 Easy Effective Money Habits

13 Easy, No-Effort, Effective Money Habits

Old habits die hard, and that should especially be the case for bad money habits. If you’re finding yourself with little-to-no savings and spending more money than you earn, then it’s time to ditch your bad money habits and work on building new money habits.

By building good money habits, you’ll be well on your way to gaining (or re-gaining) confidence in your everyday financial life. Good money habits help you budget, save money and pad your sinking funds, and work towards your most important financial goals, whether that’s your next hot and sunny destination or working towards early retirement. 

Sure, Rome wasn’t built in a day, and building good money habits (while dropping the bad ones) and improving your financial fitness isn’t something that usually happens overnight. But that doesn’t mean you can’t get started right away. Below are 13 easy, no-effort, and effective money habits that you can get started with right away.

Money habit #1: Automate your savings

Automating your weekly, bi-weekly, or even monthly savings contributions is what’s known as “paying yourself first” and is one of the best ways to make sure that you are consistently contributing towards your short-term savings, investments, and retirement funds. without having to worry about making manual contributions yourself.

By doing this, you’re eliminating both the time and the work that is involved, while making sure that you are always working towards your financial goals. 

P.S. Saving for a family trip, vacation with friends, home repairs, or birthday celebrations? Frugl makes it easy to automate saving for what’s important to you.

Money habit #2: Automate your bills 

Automating what’s coming out of your accounts is equally as important. By automating your regularly occurring bills such as rent, utilities, and cell phone payments, you’re making sure that your bills are being paid on time, which means you don’t have to worry about missed payments, late payment fees, or interest.

The other benefit is this; paying your bills on time is a sure way to build your credit score. 

Money habit #3: Set a phone reminder to check your bank account once a week

Regularly checking your bank accounts is a small but mighty habit that can give you a clear view of what’s taking place in your accounts; the good, the bad, and the ugly… well, hopefully just the good! 

By quickly checking in once a week, you’ll be making sure everything adds up and that you’re not being charged for payments you actually didn’t make! It’s also a good way to know exactly when money is coming in and when payments are going out. 

Money habit #4: Create a separate savings account for an upcoming big purchase, like a vacation!

Opening separate savings accounts are more than just a good idea; it’s a game-changer. When you create separate savings accounts for each of the different savings goals you have, you’ll reap many benefits including easier automation per account; easier goal tracking; increased motivation; and reducing your chances of easily misspending any money that’s pooled together. 

With Frugl, you can create separate, individual savings accounts for your goals in less than two minutes! Give it a try today 😉  

Money habit #5: Treat that ‘extra’ money with extra respect 

The next time you get a raise, have a great month with your side hustles or net that bonus you’ve been waiting for, do yourself a huge favor, and don’t go spending it all at once. Instead, take most or all of that ‘extra money’ and put it toward your savings goals.

We’re not saying it’s going to be easy, but it’s absolutely going to be worth it in the long run. Remember, a dollar saved is a dollar earned.

Money habit #6: Chat openly about your money 

Open and honest money conversations with friends and family is a great way to learn new money management approaches and money tips to improve your literacy. 

It’s also one of the best ways to get over any of your money fears and to help you take those next steps to start working on your financial goals.

Money habit #7: Use the Honey Chrome extension when shopping online

What if we told you there was an app, or rather a Chrome extension, that automatically looks for discount and coupon codes for you when you’re window shopping online? Well, there is and it’s called Honey

Getting started with Honey couldn’t be easier; Add the chrome extension and as you browse websites like you normally would window shopping online, Honey will automatically find working discount codes for you and apply the one with the biggest savings to your cart. 

It might be worth mentioning that we ONLY recommend using this when you’re already committed to making a purchase. 

Money habit #8: Skip eating out once a week

Guilty of eating out and splurging on lunches or dinners throughout the week? You could easily be wasting thousands of dollars each year. Even those small $5 to $10 food splurges here and there can add up and impact your ability to save for what’s important to you. 

Would you rather Mexican takeout on a Tuesday or actually eating authentic Mexican cuisine while in Mexico? I’ll go with the latter, thanks. 

Money habit #9: Don’t settle on the first quote you get

Taking the time to do your “research” and shop around for just about anything from everyday household items to financial products and services like auto insurance can pay dividends in the long run.

The best part is that by spending anywhere from thirty minutes to a few hours, you’ll easily save yourself well over a few hundred dollars, as well as have more confidence in your purchase. 

Don’t settle on the first quote or price you see. There’s almost always a better price that exists. 

Money habit #10: Use Value-Based Spending to guide your spending habits

Instead of spending with emotion or on impulse, use what’s known as value-based spending to help guide your spending habits. The premise is simple, only spend on items and expenses that bring value to you and that reinforce your financial goals. Anything else, it probably isn’t worth it. 

Value-Based Spending means that every dollar you spend should add significant value to your life and go towards helping you reach your financial goals.

Money habit #11: Remove yourself from email lists 

Out of sight, out of mind. Removing yourself from email lists is all about getting rid of the daily spending temptations that take over your inbox and do nothing but encourage you to spend your hard-earned money. 

Money habit #12: Create 3 SMART financial goals

Without setting financial goals, it’s almost next to impossible to track progress and celebrate milestones. When you’re considering your goals, it’s important to create everyone’s favorite acronym, S.M.A.R.T goals, which stands for Specific, Measurable, Achievable, Relevant (or Realistic), and Timely. 

Make sure to set both short-term and long-term goals to keep you motivated while focused on working towards your financial future.

Money habit #13: Sign up for mobile alerts from your bank

Long gone are the days of having to wait for bank statements or account updates to know what’s going on inside your bank account. With bank alerts, you can get real-time updates about various types of account activity and use these alerts to better manage your finances.

While the types of alerts available vary from bank to bank, they’re usually free, and you can choose to receive them by email or text.

Out with the old, in with the new

Say goodbye to your bad money habits and hello to these 13 new easy, no-effort, and effective money habits that will help you save more money, reach your goals, and feel better about your relationship with money. Which one will you be taking up first? 

Happy New year 2021

How to Make 2021 Your Best Financial Year (Yes, Really)

So, yes, 2020 was a dud on many levels: socially, mentally, financially. Here’s how to get back on your feet and feel good about your finances again.

We’ve scoured the internet so you don’t have to, from money magazines to personal finance blogs. Here are 21 ways to start the year off on the right foot and keep the momentum going all year.

1. Assess your situation (and be honest): create a balance sheet to assess your net worth 

Okay, so this is the scary but absolutely necessary part. Sit down and create a balance sheet so you can get a snapshot of where you stand financially. (You should do this every year). List all your assets — cash, investments, property, valuables, etc. — and liabilities: credit card balances, student debt, mortgage, car payments, etc.

Check with your bank — they likely have templates available online, or you can opt for a simple Excel doc.

2. Review your credit report and credit score

You’re allowed one free credit report a year from each of the three Canadian credit bureaus (check out annualcreditreport.com). Definitely take advantage.

It’s important to understand where your credit stands and what lenders may see. It’s also the first step to identifying any changes you may need to make to boost your score. Finally, read your payment history carefully to make sure it’s correct and report any activity you don’t recognize.

3. Tackle your “bad debt” as quickly as possible

Every financial expert will tell you to pay off your debt as quickly as possible. However, there is a difference between bad debt (credit cards and other consumer debt, usually with high interest rates and little pay off) and good debt (a mortgage or business loan, for example, which help build wealth or income over time). Prioritize paying off bad debt with the highest interest rates.

4. Create a budget and track your expenses

Yes, we know, another super exciting task. Essential, though. Here is where you take account of all your recurring bills, your expenses by category (entertainment and recreation), your weekly grocery list — everything that is coming in and out of your account. 

Use whatever tool makes you the most comfortable but will also make you feel accountable. Your bank likely has a template for you (TD, for example) or you may opt for a budgeting app such as Mint that will track and report your spending habits.

5. Reduce bills and subscriptions as much as possible

Once you’ve had a good look at your recurring bills, remove any redundancies and scrutinize where you may be paying more than you have to. Maybe you and your partner both have your own Spotify account and can split a duo account instead. You may pay for Amazon Prime every month but hardly actually use it. You may be dishing out for an internet package that far exceeds what you actually need.

Skim out any extra costs, even if the savings seem minimal — they add up.

6. Get creative with cutting down spending

Take a good, hard look at where your money is going. Ask yourself if you really need to be spending that much. Instead of ordering books from Amazon, opt for a library card. Alleviate your uber habit with public transport. Make more meals at home and take out less. Opt for free YouTube yoga classes instead of paying for that studio you hardly go to anyway.

7. Take advantage of cash back and coupon apps for everyday purchases

There seems to be more cash-back apps, savings apps and reward programs then a person count. Do a bit of research to find a couple that suit your lifestyle and spending habits. Maybe start here.   

8. Review and adjust your insurance coverage every single year

Your needs change every year so make a habit to review all your coverages across the board. You may be paying for coverage that you actually don’t need (or not getting the coverage that you thought you were).

9. Build an emergency reserve (ahem, covid)

There was likely no better wake-up call around the necessity for an emergency fund than when so many of us were facing layoffs and sweeping uncertainty. If you don’t have one already, make this year the year you start saving toward an emergency reserve.

An emergency fund can also be used for any unexpected medical expenses or emergency repairs to your vehicle or house. Traditionally, experts suggest saving three to six months of fixed expenses, though the amount of debt should be factored in.

Money Sense does a good job of breaking it all down.

10.  Put away as much savings as you can.

Save, save, save. If your employer offers a pension plan with a matching policy to boot, use it. If you can commit a monthly amount into a tax-free savings account, do it. Anywhere that you can automate savings, go for it.

11.  Set clear goals for yourself this year and beyond.  

Want to take an epic trip to make up for the lack of travel in 2020? Finally want to make this year the year you are debt free? Want to put that money away for a down payment?

Take the time to sit down and make concrete, clear goals for yourself.

12.  Make saving fun by working in strategies that suit your lifestyle

Setting your goals is the easy part. Planning how to actually meet those goals is where it gets tricky. Obviously, making a commitment to save does mean cutting back but you don’t have to make major compromises. Choose saving strategies that fit with your lifestyle. (Psst: this is FRUGL’s philosophy. Learn more about saving strategies here.)

13.  Look into low-fee, high-interest accounts offered by online banks.

There’s no sense in letting your money sit there without earning interest. While you’re putting away as much money as possible this year, make sure you’re also earning as much as possible — look into online accounts that offer competitive interest rates.

14.  Stop the guessing game – set very clear amounts and timelines to reach your goals

One of the biggest mistakes you can make when it comes to achieving your financial goals is to underestimate how much you need to put away and for exactly how long. Carefully calculating the timeline and any factors involved (your income, total cost of the goal, any interest rates, etc.) will make you feel confident and increase your chances of meeting your goal.

15.  Contribute to your RRSP

Yes, RRSP contributions fall into the savings category, but the closer you can get to your maximum contribution, the more money you may get back come tax season. (And the more money you can put toward your saving goals!)

16.  Maximize your investments

Once you’ve made a commitment to contribute regularly to your RRSPs and have taken advantage of any employer matching program you may have access to, take a look at your total investment commitment. Are you investing at least 15% of your income? Is your investment mix still standing up to your long-term goals? You should reassess every year.

17.  Automate everything.

Your bills, investments, savings — take advantage of everything that you can set up to be transferred and paid automatically. Not only will this make your life easier and pay your bills on time, but it will keep you committed to your savings goals.

18.  Set yourself up for an easy breezy tax season

Think back on the year you’ve had. Any major life moments that will impact your amount owing? A new house, for example, or CERB collection? Make sure you understand how much you may have to owe come the deadline and start preparing (as in, saving).

And, going into the new year, even when the deadline feels ages away, make sure you’re always staying organized. Track all invoices proactively, organize deductible expense receipts in a folder, etc.

19.  Invest in your career

Make this year the year you take that class, learn that new skill, earn that certificate. With online learning more accessible than ever, now is the time to invest in yourself (and set yourself up to earn more in the future).

20.  Find a way to earn extra income.

Easier said than done, we know. But if you can, pick up a side gig. Work hard toward that raise. Sell some clutter on Kijiji. Anything extra that you can earn is money you can put toward this year’s goals.

21.  Make a resolution to practice regular financial self-care.

Undoubtedly, money can be a huge source of stress. Commit to including your finances in your self-care routine by regularly monitoring your spending and your goal progress. The more on top of your finances you are, the more confident you will be. And the more you’ll be able to concentrate on the things that are the most important to you.

[Sources]