How to reach your savings targets

Creating a plan to build up your savings is the key to long-term success

Being able to afford the things you want in life without taking on too much debt is one of the key benefits of careful financial planning. You don't need a large income to achieve your financial goals, just the discipline to stick to a good savings plan. Here are the essentials for a successful savings plan.

An eye-popping home theatre in the basement. A brand new luxury SUV. A fabulous stay in an Italian villa. Everyone has something they want but can't necessarily lay down the cash for. It doesn't matter what your dream is, achieving it means setting up a savings plan you can stick to. Of course, it's not easy to save money. But like many good habits, once you start, you'll be surprised how fast – and easily – you'll reach your goals.

Here are some tips and new habits to form that will help get you there.

Have a reason to save

So what are you saving for? Make a list of all your goals, including that special vacation, your emergency fund, retirement, a new car, kids’ education, or a kitchen renovation. Then narrow it down. Prioritize the things you want to save for now. Sometimes that’s one single thing and other times it’s ten. The more goals you have, the more a plan will help you stay on track to reach them.

Decide how much and how long

Add up how much you need for your goals and set a time frame for each – short, medium, or long term. Then determine how much of your total income you're prepared to squirrel away and what you need to save every month toward each goal. You may want to set benchmark dates to monitor your progress. For longer term goals, you'll want to identify major milestones, like having $100,000 in your RRSP by the time you reach a certain age.

Evaluate and recalibrate

Feeling a little overwhelmed by the total amount? You may find that you can't realistically achieve all your goals with the amounts and time frames you've originally set. If so, you need to adjust – perhaps opt for a less luxurious car, scale back on the vacation, or set a longer time frame for the kitchen reno.

Set up the right type of account for each goal

Once you've finalized your goals, consider the best way to save for them. It’s often helpful to separate your savings “buckets” from your day-to-day banking account to make it easier to track and manage.

Short term – less than a year away

Choose a dedicated savings account that you can access easily without penalties, such as a High Interest Savings Account.

Medium term – one to five years

If you're not expecting to need your money within a year, you can consider a term deposit or Tax-Free Savings Account. They provide a good balance between a higher rate of return and security. Just be sure you don't lock your emergency fund into any savings product that penalizes you for early withdrawal.

Long term – more than five years

When you're talking about truly long-term savings for critical things like your child's education, a down payment on a home, or your retirement, you should talk to a financial advisor first. With a longer time frame, you have far more choice, including investing in the market for a greater return, particularly using mutual funds^†, ETFs^†, stocks^†, and bonds^†. You can also explore various registered savings plans such as the RRSP, RESP, TFSA or FHSA to enjoy both growth and tax-saving benefits.
Commit and automate

Once you've decided on your goals, amounts, and how you plan to invest, make sure to automate your savings plan by setting up pre-authorized contributions. This is an automatic transfer to each savings account every pay day or whichever schedule that works for you. That way, you don't see the funds and don’t miss them. Automating your plan is a good way to enforce savings and reduce impulse spending on items you don't really need.

Review, rethink, and revise

Once you have things set up, monitor your progress closely to ensure the balance between your savings and spending is working for you. Adjust if necessary, and then revisit your accounts to see how you're doing.

If you're not on track – perhaps you were hit with some unexpected expenses – you may have to increase your monthly contributions or revise your goals. But, don't let the fact you aren't saving as much as you want to stop you from saving at all. Getting momentum in a regular savings habit is the key to long-term success.