Saving money isn’t always easy, especially when juggling a tight income, debts, or unexpected emergencies. But small changes can make a big difference—even in challenging times.
By following a few practical money-saving tips, you can start building financial security, step by step. Below, you’ll learn why you need to start setting aside some money, a few of our best money-saving tips, and some advice for building good habits that set you up for long-term success.
Why You Need to Start Saving Money
There are a ton of reasons why you might need to start saving money. A few examples include:
1. To Pay for a Home, Car, Vacation, or Other Big-Ticket Item
For a lot of people, the main motivation for saving is to, at some point, use that money for a major personal or family purchase. This includes things like a downpayment on a home, buying a car, going on vacation with the family, or setting aside money for education.
Whatever the big-ticket item is, it can take a lot of time and patience to set aside enough cash to pay for it—even when you’re following the best tips on saving money! Saving for a down payment on a home can be particularly tough since the value of a home (and thus, the amount you need to save) can fluctuate significantly over time.
2. To Start Investing Early & Plan for Retirement
Another reason some people may want to set aside as much money as possible as early as possible is to take advantage of compound interest on certain investments (such as retirement funds).
For certain investments, putting aside a little money early on can have a major impact on your savings versus waiting just a few years before retirement to start saving thanks to the magic of compound interest. The longer your money can sit and benefit from compounding interest, the wealthier you’ll be.
For example, if a 25-year-old invests $1,000 earning 5% interest, compounded annually, by the time they’re 65 years old they will have $7,039. But if they had waited until they were 55 years old to make that same investment, they would only have $1,628 by the time they were 65.
In both scenarios, they invested the exact same amount of money with the exact same interest terms. However, they would have ended up with more than four times the wealth if their money had stayed invested for 40 years versus just 10 years.
Compounding interest means that each year, the interest earned is based on all of the other accumulated years of interest. The interest component continues to grow on an ever-increasing balance. The interest is never withdrawn—it stays invested. So the interest you earn starts earning interest itself—it’s no longer just your $1,000 that is earning interest.
The longer your money can remain invested, the more you will benefit from compound interest. And, if you add more to your investment over the years, your wealth grows exponentially.
For example, say at 25 years old you make that same investment of $1,000 earning 5% interest, compounded annually. But you also invest $100 every month until you’re 65. After 40 years, you would have invested $49,000 but you will have $155,292. Not too shabby.
On the other hand, if you wait until you’re 55 years old to start investing, you would need to invest $1,000 every month to have roughly the same amount of money by the time you’re 65 years old. And you would have invested a total of $121,000 of your own money versus $49,000.
The lesson here is if you start investing early, you’ll harness the power of exponential growth. Compound interest just needs time for you to see its explosive growth pattern. This is why deciding when to save versus when to invest can feel challenging—it’s all about finding the right balance for your financial goals.
3. To Get Rid of Debt
Getting out of debt can be a major motivating factor behind the decision to start saving money. While saving money when dealing with debt can be difficult, it’s not impossible.
Setting aside some extra money each month to put towards paying down debt can be a challenge, but being able to do so can pay off big time. Remember that example from earlier about compound interest? Compound interest is wonderful when you’re saving money and investing in yourself, but it’s not so great when it’s related to unpaid credit cards.
Let’s say you have a credit card with a balance of $1,000 and the interest charged on that credit card is 19.99%. If you didn’t make any payments and that credit card charges compound interest, you would pay about $16.66 in interest charges after the first month, which would bring your new balance up to $1,016.66.
But now that your balance has gone up, so have the interest charges. So instead of paying $16.66 in interest, the following month you would pay $16.94; then $17.22 the next month, making your balance swell with every passing month.
The original $1,000 balance will grow in small increments at first, but given enough time, it will grow exponentially. Keep in mind that there may be additional costs, too—like over-limit fees, other charges, and even potentially higher interest rates.
Paying off debt before it can accrue interest can save you a lot of money! Use our Debt Calculator to find out just how much you can save.
4. To Prepare for Emergencies and Unexpected Costs
Another common reason people look for money-saving tips is to set aside some cash for a potential emergency. Events like the COVID-19 pandemic helped demonstrate just how important it can be to have some cash set aside to get us through tough times, like a job loss or illness.
But we also have to save for unexpected costs that can come up in our day-to-day lives. Unexpected costs are typically much smaller and less impactful than a full-blown emergency, such as losing your job or a global pandemic that brings whole economies to their knees. Examples of unexpected costs can include:
- Home repairs, such as fixing a leaky roof or a burst pipe
- Having to replace a tire after one pops because of road debris or wear
- Hiring a babysitter because you have to work late
- Getting a last-minute gift or flowers for an impromptu event or occasion
When an unexpected cost pops up, having the money available to cover it can mean the difference between accruing debt and staying out of debt.
5. To Reduce Financial Stress & Achieve Financial Independence
Saving money helps reduce financial stress by giving you a cushion to handle unexpected expenses. You don’t want to fall into a panic every time you encounter a surprise car repair or medical bill. You also don’t want to put those expenses on a credit card or take out a personal loan.
When you have savings, you gain peace of mind knowing you’re prepared for emergencies and are less reliant on credit. Over time, consistent saving can lead to financial independence. You can make choices based on what you want and what’s best for your future rather than what you can afford.
6. To Invest in Your Future & Take Advantage of Opportunities
Saving money allows you to invest in your future and capitalize on various potential opportunities. These opportunities look different for everyone but may include starting a business or pursuing higher education.
A healthy savings account puts you in a position to take advantage of these moments without relying on excess loans or high-interest credit. Additionally, having a financial cushion enables you to grow your wealth through investments and long-term planning.
Tips for Saving Money
Now that we’ve discussed some of the basic reasons behind building up your money savings, how can you actually do it? Here are some money-saving ideas that you could use to start building up your bank account—even if it’s just a little bit at a time.
Tip #1: Pay Down High-Interest Debt Before Focusing on Savings
Credit Canada uses a framework known as the Priority Pyramid in our credit counselling sessions to help you prioritize and allocate your resources more effectively. According to this method, paying off debts should take precedence over savings or investments. This is because the interest charged on debt is typically much higher than the interest earned with most savings accounts (think 20% versus 2% on average). Because of this, it often makes more sense to focus on paying down debt before putting money towards savings.
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If your savings reliably grow at a rate of 2% a year, but a debt of equal value accrues 19.99% interest a year, you’ll save far more money in the long run by paying the debt down first.
Mike Bergeron, Counsellor Manager at Credit Canada, says, “Paying debt off earlier can make a huge difference in savings in the long run. It reduces the amount of interest you would be paying on the term of holding the debt, increases cash flow to invest sooner, allows you to compound your savings over a longer time, and has psychological benefits.”
Admittedly, deciding which debts to attack can be tough, especially if you have several high-interest accounts. The good news is you don’t have to do it alone. The team of experienced Credit Counsellors at Credit Canada can help you through this challenging process and pave a clear path toward financial security.
Learn more about how to balance debt repayment with saving for the future.
Tip #2: If You Have Automated Savings Tools, Use Them!
Different banks may have different tools to help you automate your savings. For example, virtually every bank or credit union will give you the option of automatically transferring some money from your chequing account into a savings account at regular intervals (or to another investment account). Other banking institutions might offer a “rounding” service, where they round up your transactions to the next dollar and put the difference into a savings account.
This can help with your money-saving strategy in a couple of ways. First, it helps you put aside money without requiring any extra effort. Second, having less money on hand to spend can help you curb your impulse spending.
Tip #3: Make a List of Financial Goals You Want to Achieve
What do you want to do with the money you’re saving?
Whether you want to pay off debt, buy a car, save for your retirement, or just be ready for an emergency, money savings can mean more to you when you have a set goal.
When creating your goals, use the “SMART” framework. This approach ensures that your goals are:
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Specific: Be clear about what you want to achieve, like creating a $3,000 emergency fund
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Measurable: Don’t use vague terms like “save money” — make sure your goals are concrete and measurable
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Achievable: Choose realistic objectives so you can build momentum and boost your financial confidence
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Relevant: If you’re setting multiple goals, make sure they complement one another and are relevant to your savings journey
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Time-Bound: The best goals need to have a time limit or deadline; for instance, you might say you want to hit your emergency fund goal within six months
Check out our guide on how to create financial goals to learn more.
Tip #4: Create a List of Your Expenses
Take some time to track your expenses for a few months and take a long, hard look at what you’re spending money on. This can help you set a budget and identify some key money-saving opportunities. Here are a few simple tips to help assess your current spending habits:
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Track your spending
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Categorize your expenses
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Identify areas where you can cut back
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Be consistent and honest with yourself
For example, if, after a month of tracking your spending habits, you notice that you’re spending more on takeout than you thought ($10 meals add up fast when you’re eating out once or twice a day), you might want to cut back. You might even identify other spending habits that you have that you wouldn’t really think about in your day-to-day routine, like how much you’re really spending on groceries or lottery tickets.
You can use our expense tracking tool to help you keep track of your expenses and identify areas in your budget where you can cut back.
Tip #5: Find Ways to Save on Expenses
One of the best money-saving tips Canada consumers can learn involves reducing their expenses. Try the Analyze, Brainstorm, Change method to help you:
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Analyze: First, get a clear picture of your income vs. expenses. Review your bank statements, track your spending using our expense tracker, and identify areas where money is leaking—like unused subscriptions.
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Brainstorm: Now that you have a sense of what is currently going on with your cash flow, think about: What could you do differently that would increase your income or cut your spending? Consider simple, actionable changes like buying groceries in bulk, using public transportation when possible, or enjoying free activities instead of paid entertainment. Or, larger changes like getting a second job or getting a roommate.
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Change: Put your plan into action. What are the changes you’re willing to commit to that will make the biggest difference? Choose two or three changes that you will commit to. This is what brings your cash flow into balance.
Tip #6: Reduce Monthly Bills and Subscriptions
Take a close look at your monthly bills to identify areas where you can cut back. Making a few changes to your driving habits could decrease your fuel expenses. You could also explore energy-saving strategies to minimize your utility bill.
Reducing monthly subscriptions is one of the most effective money-saving tips that tends to get overlooked. Make a list of your monthly subscriptions and total your subscription costs. You may be shocked to learn how much money you can save by cutting back on your streaming and app subscriptions.
Tip #7: Avoid Common Money-Saving Pitfalls
In addition to money-saving tips, watch out for some common mishaps that could derail your savings journey.
One common trap involves increasing your spending any time your income grows. Don’t view that pay raise as money to burn but rather as an opportunity to save more or pay off debt faster.
Bergeron says one of the best ways to do this is to “seek someone to hold you accountable while avoiding the temptation to keep up with the Joneses.”
Remember your financial goals and resist the urge to inflate your lifestyle. You can periodically reward yourself once you’ve hit your savings goals and paid off some debt.
Tip #8: Don’t Be Afraid to Ask for Help
You don’t have to go about saving money all on your own. Seek help from someone else to create spending plans or provide advice for your money-saving strategy.
This help could come from your friends, family, or a non-profit credit counselling service like Credit Canada. Sometimes, an outside perspective could prove to be a priceless resource for helping you set aside more money, reduce wasteful spending, or identify the best ways to invest your spare cash for the future.
Credit Canada is the longest-standing credit counselling agency in Canada with over 50 years of expertise in helping Canadians take control of their finances. Our certified Credit Counsellors offer free, confidential, and non-judgemental counselling services to help you understand your financial situation and get to where you need to be—whether that’s paying off debts, investing in savings goals, or creating budgets.
Contact us to get started or give us a call at 1(800)267-2272!
