Making your dreams a reality

Fri, Oct 7. 2011

Grow Your Savings – Financial Information Month October 2011

Growing your savings is like growing a garden – you begin by regularly putting aside small amounts of money, and just like seeds in a garden would sprout and begin to grow over the years, similarly, those savings would begin and continue to grow. Saving is an excellent habit to acquire, and its significance continues to prove it helps in making our dreams a reality. Let’s look at ourselves as doing a personal budget- just like the Government – when our expenditure exceeds our revenue, we have to borrow at a cost.{{more}} Savings helps to offset this constant need of borrowing and saves us the additional costs which are incurred.

A general savings pattern should be at least 10 -20 % of your gross salary, for those without substantial financial obligations, try saving at least 40%. This really helps to jump start your savings, while increasing your purchasing power. A clever way to increase your savings at an extra-ordinary pace is to practice saving the amount of your expected mortgage re-payment. Visit your Personal Banking Officer and have them complete a mortgage qualifier. With this information, you would know what mortgage amount you would qualify for with your current salary, and what the required monthly re-payment would be. Imagine your monthly repayment would be $1200.00, initiate a savings plan for $1200.00 monthly, this way you will begin to familiarize yourself with managing that payment, while increasing your savings significantly over a short period of time. Just imagine accumulating $30,000.00 in two years, it is definitely possible. Always keep your savings in a separate account from your everyday account, and be sure to pay yourself first, so as you get paid your savings should be automatically credited each month.

Have you ever applied for a Mortgage? Savings can be used to lower the amount of your Mortgage or loan amount requested. This allows you to borrow less and pay less over the life of the credit facility. Another good practice in relation to your mortgage is to save one monthly mortgage payment on an annual basis and apply it to your mortgage each year. By doing this, you can settle your mortgage in full, a few years before its due to be paid off. Having reduced your repayment term (amortization), it is advisable that you continue making the monthly payments to a savings facility until retirement and be able to retire comfortably with funds to add to your gratuity.

Savings is also important to safeguard against un-employment. Your savings should be able to meet your expenses for at least 6-12 months. This provides protection for you and your family by being able to provide for yourselves to satisfy your basic needs and also prevent the likelihood of borrowing from family or friends – a debt or debts you may be uncertain of how or when you will be able to repay. Being a Personal Banking Officer, I see situations where parents are working, but are unable to assist their children in paying the required student loan interest re-payments, but have the property to secure a student loan. Savings can combat this situation It will require the child to work and save before going off to study, but it’s definitely a solution. Depending on the size of the loan, speak to your financial advisor and get the information regarding the savings pattern needed to service the required interest payments. While it will take some sacrifice, it’s worth it for your personal development. Savings should also be done for retirement and to protect against emergencies. At retirement, most persons income is cut in half. Retirement savings acts as another source from which to draw to ensure a continued comfort of life, and saving for emergencies protects and gives the peace of mind that equates to less worrying and a better quality of life.

Remember, saving is a critical part of your development, and proper planning should be done regarding your goals. Set S.M.A.R.T goals (specific, measurable, attainable, realistic & time-framed). If you are unable to do so on your own, please seek proper financial advice. No matter how small your savings capacity may be, it is important to save, as we usually say “for rainy days”. So protect yourself from the unexpected and prepare for the expected. I leave you with this quote:“Saving what others don’t today will help you achieve what others won’t tomorrow”. Let’s start saving today!

Ashroy Forde, Scotiabank