Saving in Canada 201: How To Start Building Your Savings Accounts

This article looks at the money habits and money mindset you need to master to start saving for your future goals. We dig into why saving is such a powerful habit, especially during uncertain times, and what techniques you can use to build your savings accounts even when your cost of living is high.

Key Takeaways

• This is the second in a series of three resources discussing savings. If you missed the first resource, you can read it here.
• Savings can provide a strong sense of day-to-day stability, as well as long-term financial security.
• With small changes and the right tools, such as the Scotiabank Money Finder Calculator, saving 20% of your income is achievable, even in high-cost cities.
• Choosing the right account for each goal can help you stay consistent and boost your earnings.

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Is It Realistic to Save 20% of Your Income?

We introduced the 50/30/20 rule in the first post in this series. That rule suggests that you put 50% of your income towards your needs, 30% towards your wants, and 20% towards savings and debt repayment. We will use that 20% savings rate as the goal in this post.

Saving 20% of your income may feel aspirational. But with the right guidance and some lifestyle changes, saving 20% of your income is achievable –even if you live in a high-cost of living area such as Toronto or Vancouver.

Achievable does not necessarily mean easy. The reality is that saving 5%, or 10% is better than 0%. So, we suggest starting with something smaller if 20% feels insurmountable, and working your way up from there.

If you are worried it will put you behind your desired savings target, try to reframe the lower percentage as skill-building and work your way up to a 20% savings rate. It can take time and practice, and that is fine.

Tips To Save 20% of Your Earnings 

While a higher income can help shield against a high cost of living, your spending habits are going to have a large impact on your savings. Continue reading to learn our top tips for getting your savings up to 20% of your earnings.

Automate Your Savings

A common saying in personal finance is you should ‘pay yourself first’. This actually refers to

If you already have 1-2 months of your expenses set aside in a rainy day fund, paying yourself first is a great place to start. This would look like setting up automatic transfers to your savings accounts to help you reach your goals.

By automating it, you reduce the risk that you will forget and spend the money. It is also a psychological trick. The money is automatically sent right after you get your paycheque, it is as though you never had the money in the first place. This can help you adapt your spending to your new budget more easily. As your income grows over time, you can increase the value of these automated transfers to mitigate the risk of lifestyle inflation — the tendency to increase your spending as your income increases.

Setting up automated contributions can be straightforward, depending on who you bank with. If you are banking with Scotiabank, it is as easy as setting up Pre-Authorized Contributions (PACs) into an account that aligns with your savings objectives. You just choose how much you would like to save (it could be as low as $25/month) and how often you want the transfers to take place.

Take an Honest Look at Spending

Regardless of where you are at in your saving journey, it is important to understand where your money is being spent each month. But this is especially true if you are living paycheque to paycheque or you are not able to save 20% of your income each month.

There are a lot of tools that can help you take this step more easily. Two of them are the Scotiabank Money Finder Calculator and the federal government’s Budget Planner.

Both of these tools ask you to input your income and plot out your expenses. They both provide a holistic picture of your spending, with visual charts to help you make sense of it. The Scotiabank Money Finder Calculator provides an estimate of how much money you should have left over at the end of each month, helping you determine how much can be allocated to your automated savings.

How To Cut Costs, Not Joy, To Save More

“Show me your calendar and your bank statement, and I’ll show you what you really value” – Peter Drucker . This saying highlights that we all have limited time and money, and looking at a person’s calendar and bank statement reveals how they are spending these important resources.

With that in mind, take a look at your spending and compare it with what you really value. Looking through this lens can really put things in perspective. Because while money comes with a lot of emotions, managing it is ultimately a math problem.

Where to Cut Costs

Common areas people overspend include:

• Housing, especially in high cost of living areas, such as Toronto and Vancouver.
• Subscriptions for services.
• Eating out or convenience food items – such as food delivery apps.
• Vacations, especially luxury experiences or international travel.

Here is how you can cut costs on those expenses:

• Consider moving out of high-cost neighborhood or think about renting part of your home to reduce costs.
• Review your subscriptions quarterly and cancel anything you have not used in a month or that you could have paid-per-use for less.
• Prioritize meal planning and cooking at home. It can be more fun than you think!
• Take shorter trips or travel locally to keep costs down.

In other words, sticking to your budget by reviewing your costs, spending in line with your values, and prioritizing saving 20% does not mean you can not do fun stuff. It just means that you adjust it to fit your budget.

Take Time To Celebrate Milestones

Celebrating your progress and feeling proud of yourself for making changes and meeting milestones is an important step in all of this. In fact, celebrating your milestones is key to staying motivated in the long run – and it is a powerful way to avoid savings guilt and spending because you are comparing yourself to others.

But remember: celebrating doesn’t mean overspending. If you’re in the early stages of your savings journey and want to celebrate that you’ve saved $5,000, then a modest dinner out that takes advantage of happy hour is great. Spending $1,000 of your savings on a designer handbag may not be the best option at this stage.

How Small Changes Have Big Impacts

Before we finish this post, we wanted to outline just how much of an impact a 20% savings rate can have on your life. Let’s take a look at an individual who is bringing home $45,000 after taxes and who wants to save for a vehicle and retirement:

With a 20% of income saved, this person would be saving $9,000 annually. With smart planning, that could fund an emergency account in 1-2 years. Then, with the emergency fund in place, they are free to focus on saving for a car and starting to invest for retirement.

Let’s say they contribute $4,500 annually to retirement, from age 30.

If they retire at 67, and contribute $4,500 each year without making any withdrawals, they’ll have around $367,000 in retirement savings (subject to the type of account and investment rate of return each year).

During that time, they will also have had $4,500 each year to save towards short-term goals, such as buying a vehicle. In other words, a 20% savings rate opens so many financial possibilities.

If you want personalized advice about reaching your savings goals, set up a free appointment with a Scotiabank Advisor to discuss how you could save more.

This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly, and action is taken based on the latest available information.