By Sylvia Lim, CGA, CFP
Over the past thirty years, consumer spending grew substantially. This resulted in the doubling of household debt from 80% of disposable income to 165%; and decrease in personal savings rate from 11% to 1%. These statistics are shocking and consumers need to have a better handle on money management.
If you’re living from paycheque to paycheque, it is time you change your relationship with money. It’s easier than you think but it does take commitment to stay on course.
Focus on saving just $5 a day. This can be accomplished in a number of ways. Think $5 a day, or $10 every 2 days. However you work it, assign a value to each saving habit and make sure it adds up to the equivalent of $5 a day. Remember, for every $5 daily savings, you will end up with an extra $1,825 a year. Double the savings rate (or $10 a day) and you will have a $3,650 for investing or paying down your debt at the end of the year.
Two important rules to keep in mind:1. Trim back on small and mindless purchases. You can potentially save yourself thousands of dollars a year. The secret is to trim back and not cut out your current spending habits. This minimizes the pain and your new rituals will save you over $1,800 a year for every daily $5 savings! Not a hard resolution to keep.
Here are some ideas on what you can cut back on:
– daily lattes and coffees, trim back to twice a week instead of daily;
– chocolate bars and bags of chips, curb those cravings by making your own snacks;
– ATM usage, trim back the number if you’re being charged for each visit;
– if you smoke, trim back on the number of cigarettes by half and eventually to none;
– lunch outs, commit to twice a week instead of daily;
– movies and treats, think movies in with home made popcorn;
– take public transit to work and save on gas and parking, do this twice a week;
– after work beer and drinks, limit to once a week or cut back on the number of drinks by half;
– wines and alcohols, trim back overall consumption and make your own u-brew;
– music and game downloads, limit the number by half to start;
– fashionista wanabees, think ‘never pay retail’ and purchase accessories and timeless pieces instead of those flavor of the week items;
– gambling money, do a lot a budget and stick to it;
– lottery tickets purchases, trim back and keep in mind that you only need one to win!
2. Wait a day to commit to large purchases paid on credit cards and lay-a-way plans. When you see something you want, give yourself 24 hours to think it over. If there’s pressure selling involved, walk away. This helps you to stop making unnecessary purchases and curb impulse buying.