There is lots of money to be saved if you keep a close eye on your expenses, including those that go towards managing your bank accounts, investments, and your credit. If you are looking at upping your financial game and saving additional dollars every month, the following 18 smart strategies will get you started.
1. Cut Investment Fees
High-cost traditional funds may be costing you hundreds to thousands of dollars annually depending on your portfolio size. By using low-cost ETFs or Index Funds via a self-directed brokerage account (DIY option) or using a robo-advisor (non-DIY option), you could save money on investment fees and grow your investment portfolio quicker.
For Example: Let us compare average fees on a $100,000 portfolio when invested using equity mutual funds offered by your Big Bank (average of 2.23% annual fees) vs. robo-advisors (average fees of 0.75%/year including ETF fees).
- Mutual Funds = $100,000 x 2.23% = $2,230 per year
- Robo-advisors = $100,000 x 0.75% = $750 per year
For savings of a whopping $1,480 per year in fees in this scenario!
My #1 choice for a Robo-advisor is Wealthsimple.
If you are comfortable with the DIY option, including rebalancing your portfolio once or twice a year, you could save even more money as there are ETFs with management fees (MER) as low as 0.06%.
Potential savings: $$ – $$$ per year depending on your investment portfolio size.
2. Cut Banking Fees
While traditional banks continue to impose and raise monthly fees on chequing (checking) accounts, online-only banks are doing the opposite. Consider opening a no-fee chequing account with an online bank and save up to $360/year in account fees.
Examples of online banks that fit the bill include:
With some of these banks, you not only pay ‘zero’ maintenance fees, you also get paid interest on your account balance! If you write a lot of cheques (checks), some of these banks also offer them for free or at a cheaper cost.
If you prefer to stay with your current bank, find out what it takes to waive the ridiculous monthly fees. Some banks will waive all (or some) of your monthly fees if you:
- Maintain a minimum balance
- Open a certain number of accounts
- Are a student.
I hate having to pay fees on any of my bank accounts!
Potential savings: up to $360+ per year ($$)
3. Use a High-Interest Savings Account
With the ridiculously low rates currently offered on savings accounts by the big banks, you could just as well choose to keep your money under your pillow and be no worse off for doing so. A 0.09% interest rate on a $10,000 savings translates into $9 in earnings per year (RBC, wink-wink).
Interest rates like this one above are terrible and with inflation closer to 2%, you are actually losing purchasing power (and money!). To get more out of your savings, consider a high-interest savings account (HISA) that pays better interest and maybe provides “real” returns.
Some of the best HISA’s currently available include:
Potential savings: $$ to $$$ per year. For example, a 2.75% interest rate on the same $10,000 savings would result in a $275 annual return – an additional savings of $266.
4. Utilize a High-Interest GIC or CD
Similar to high-interest savings accounts, rates on guaranteed investment certificates (aka Certificate of Deposit in the US) are generally depressed as well. GICs/CDs are a great savings tool for growing your money in a very “low-risk” account.
If you are saving for a project, vacation, wedding, home down payment, a GIC/CD pays better than a regular savings account. Since you will rarely find the best rates at your bank, shop around and compare what’s being offered by other financial institutions.
Some of the best rates can be found or compared here:
5. Setup Automated Savings
Automate your savings so that as soon as your paycheque hits your account, you pay yourself first by automatically moving some money over to a savings account. An automatic savings plan (ASP) is one of the easiest strategies for putting money aside without over-thinking it. Many banks offer ASPs – utilize them!
There are also financial apps that help you to set aside a bit of money every now and then in a painless, hassle-free way, including:
6. Save Your Cash Windfalls
When you come by extra cash such as through an inheritance, work bonus, commissions, tax refund, and others, you should consider saving/investing them to build your net worth, build an emergency fund, or put it towards paying down debt.
Even if you feel the need to splurge and give yourself a treat, remember to pay yourself first by setting aside an amount towards your savings goals.
7. Bank Your Salary Raises
When you get a job promotion or receive a salary raise, the tendency is to succumb to lifestyle inflation i.e. increase your spending in line with your income. Do this instead with your salary raise:
- Pay off high-interest debt first, followed by other debt
- Fund your emergency savings
- Invest in your registered retirement accounts
- Save for your kids’ post-secondary education
- Invest in yourself and set yourself up for future salary raises and promotions.
8. Use Cash
If credit cards make you spend money you don’t have and your discipline (or a lack of it) is not helping, consider making purchases using cash instead. Believe it or not, paying with cash will make you spend less and save more. You know exactly how much you are spending and your chequing account will tell you precisely how much you have left – no “free” money!
A popular cash spending strategy is the “cash envelope” system. With this system, you allocate money to different monthly/weekly spending categories and put the cash into labelled envelopes. You spend only money allocated and if you spend all the cash in one category, that is it for that month/week. This is just one of many strategies you can deploy to keep you disciplined with your money!
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9. Save Loose Change
Admittedly, you will probably not save enough loose change to retire on, but it could pay for a few other things. Use the ol’ piggy bank or dump them into an old glass jar… just save!
There are many things you can do with this mini-savings account:
- Pay down debt
- Add it to your charitable donations
- Add it to your High-Interest Savings Account
- Purchase an item on your wish list
- Spend it on date night…
10. Use Cash Back and Points Credit Cards
Credit cards can be good and bad. When used with discipline, you can actually save money on your usual purchases/expenses. Earning points and cash back from the use of credit cards only counts as money saved if you are able to pay off your balances every month and avoid paying any interest. Cash-back and points credit cards award you cash or points for defined categories of expenses and based on how much you spend.
For example, my PC Financial World Elite Mastercard (Canada) awards 30 points per $1 grocery spending at Loblaw stores and 10 points per 1$ spend elsewhere. Points are redeemable at 10,000 points for $10 worth of groceries and they usually offer bonus points every once in a while. In 2017, we were able to redeem at least $800 worth of FREE groceries – that is like 2 months of grocery shopping! We also use other cash-back credit cards that we earn $150-$200 from every year.
Another great card for Canadians is Tangerine’s 2% Money Back Credit Card.
Potential savings: $$-$$$ per year depending on the card rewards offer and your spending.
11. Pay Off High-Interest Debt
This is pretty much straightforward. Paying off high-interest credit card debt can save you hundreds to thousands of dollars in interest payments. With credit card debt interest as high as 30% in some cases, you are better off concerting your efforts and paying it off first, before moving on to pay off lower-interest debt (like a mortgage), and embarking on other savings/investing goals.
Potential savings: $$$/year
12. Use a 0% Balance Transfer Credit Card
If you are deep in credit card debt, consider obtaining a balance transfer credit card that allows you to move all your high-interest debt onto one card and gives you a promotional period (6 months or longer) to pay zero percent interest rate.
Pay up as much as you can (preferably all) during this promo period to save on significant interest payments. Some balance transfer credit cards charge a balance transfer fee of up to 5%. This is still much lower than the 20% or more in interest charged on most regular credit cards.
Examples of 0% balance transfer credit cards include:
Canada: Canadian Western Bank Rewards Mastercard and CIBC Select Visa Card
US: Discover it Balance Transfer and Citi Diamond Preferred Card
Potential savings: $$ to $$$/year
13. Automate Your Bill Payments
Setup your bill payments – utilities, mortgage, personal loans and others – to occur automatically and you will avoid late payment fees and improve your credit score. About 35% of your credit score is determined by your payment history i.e. whether you always pay on time or miss payments when due.
Schedule your payments to coincide with when your paycheck hits your account in order to avoid overdraft or NSF fees that result when cheques bounce. Don’t bank on your memory to remember deadlines for when bills have to be paid by. Some companies will also give you a discount for auto-payments.
The Empower app (U.S.) can help you stay on top of your financial accounts and credit cards. You will never miss a bill payment.
Potential savings: $$/year
14. Grow Your Credit Score
An excellent credit score makes you eligible for the best rates available when you want to obtain a credit facility – mortgage, personal loans, etc. By qualifying for lower interest rates, you save money. If your credit profile is less than stellar, here are some ways to improve your credit score.
You can stay up-to-date and access your free credit score from the following providers:
Potential savings: $$ to $$$ per year
15. Avoid Credit Card/Overdraft Fees
Pay off your credit card balance in full during the “grace period” to save on expensive interest rates. When you stick with just making the minimum payment (2-3% of the outstanding balance), your credit balance only declines by a bit as each payment goes towards interest and principal. Add in the daily compounding of interest rate on credit card debt, and you will see why people get stuck in a vicious debt cycle.
Don’t let your chequing account be debited for more than you have. Overdraft fees are a bummer but may be cheaper than the dreaded NSF fee. Avoid both! Use a financial app like Personal Capital (U.S.) to consolidate all your accounts in-one-place.
Potential savings: $$ per year
16. Don’t Wait For Tax Refunds
Most people are glad when they get a juicy tax refund. It’s like receiving a bonus, or even winning the lottery i.e. free money. However, tax refunds are not necessarily the best way to put your money to work. This is because you are providing an interest-free loan to the government for 1 year or so when you could be saving/investing the money and earning returns.
To minimize the tax refund you get in April, adjust your tax withholding to take all applicable deductions into consideration and lower your tax payable at the source. In Canada, update your Form TD1. In the United States, update Form W-4. With the reduction in tax withholding, your paycheque will increase – save/invest the additional income every month.
17. Maximize Your Registered Retirement Account
Contributions to your RRSP (Canada) or 401k (U.S.) are tax-deductible, effectively lowering your taxable income and lowering the taxes you need to pay. The annual limit on contributions to registered retirement plans is made available by the government every year.
Save/Invest for the future by maximizing your contributions. It is not only savvy because you lower your income tax, but your retirement pot will also grow faster since earnings are sheltered from taxes until you start making withdrawals in retirement.
Potential savings: $$$ per year
18. Maximize Your Employer-Sponsored Retirement Savings Plans
If your employer offers an employer-matching RRSP (Group RRSPs), 401k, or other types of pension plans, make sure to maximize it. The employer portion of your total contribution is like getting free money and you would be leaving money on the table if you did not take full advantage of it.
You may also be interested in:
- The many faces of the investment fees you pay
- Understanding mutual funds and their place in your portfolio
- Everything you need to know about stocks (equities)
- ETFs explained
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