Is your savings account an indicator of your wealth?

SAVING MONEY TAKES TIME

 

Building wealth is not as easy as some people make it seem.  At the same time there are paths to achieve financial goals but you must be willing to walk them.

Your finances fall under an umbrella system where there’s more than one number that has to be accounted for when looking at your overall financial picture.

If you ask someone how much money they are saving every month I’m betting they will either laugh at you or straight up tell you, “Not as much as I’d like”.

The truth is that many Canadians struggle to put extra money aside every month because of debt load and monthly bills. There always seems to be a struggle to make ends meet because prices just keep going up and up.

I’m not just talking about people making minimum wage either. There are plenty of people who earn more than minimum wage that just can’t seem to get on the right financial path.

More money doesn’t equate financial freedom. Plenty of people are more than happy with no debt and a savings account without earning 6 figures. Although many people may feel the cash crunch to overcome this you must plan your attack otherwise you will never get ahead.

You can’t just wish your finances will work out at the end of the month. It doesn’t work that way, nor does a savings account grow without dedication to the system in which you choose to save your money.

 

Building Wealth

 

Yes, it’s hard to get over that debt hump but it is possible, although you certainly can’t expect it all to happen over night. The dollar amount in your bank account is NEVER a sign of how well you are doing financially either.

The wealth dynamics of one family can’t be compared to another for many reasons beginning with how much money they net each month and secondly, overall expenses.

You would have to factor in how many people are in the family and so on. Comparing is just never a good thing and should be avoided at all costs.

Being rich to one person is an entirely different to another.

Your wealth strategies should be priority which means that even if your savings account isn’t growing you must know how well your overall finances are doing.

Do you know your numbers?

The savings account is only a portion of your total worth and to base your financial health on one aspect of a complete picture just isn’t going to cut it. That’s comparable to only covering your leg with a blanket when going to bed at night instead of your entire body.

The problem is many of us believe that cash is king and it is if you have lots of it to spare. The other problem is when we view cash as a property of wealth than sometimes we overlook just how well or not so well we are doing with our money.

For example: You may have $5000 in Student Loans to pay off, $100 in the bank but your house is 50% paid off. Just because you have $100 in the bank and a loan to pay back doesn’t mean that you are broke. That $100 figure is NOT your wealth number. It’s just cash. If your focus is simply cash then yes you have minimal savings in the bank.

There are always ways to earn extra cash as long as you have 2 things, Time and Assets. Today a CBB fan writes to share his story about building wealth in his savings account and hopes to find ways to do that to help his family sleep better at night.

(If you have a question you would like me to read and potentially answer on the blog please contact me via the contact form on the blog. Please ensure to give me lots of details as it helps to answer the question and I never reveal your name unless you ask me to.)-Mr.CBB

 

Help build our savings!

 

Dear Mr.CBB

We have been using your budget for about 3 months now but it seems that our savings account is suffering. Budgeting is not something my wife and I have ever done so it’s new for us.

I hate seeing that there is hardly any money in the account after all the hard work we put into living a frugal lifestyle and paying down debt. My wife thinks we need to try harder or that we must be making financial mistakes that we need to change.

I did notice while I was paying bills from our online account that our bank fees totalled $35 last month. We do use our debit card and the ATM fees are killing us since we use a cash envelope budget so we need cash often.

We currently have around $10,000 credit card debt along with our mortgage of $150,000 left on a $250,000 house and net $6000 a month. Our vehicles are paid off as they were second-hand although we will likely have to buy new vehicles in the next 5 years. We have one child in which we invest in her RESP monthly.

I wonder if our budgeting numbers are off or need to be reviewed.

Friends of ours always seem to have spare money kicking around to do whatever they want and they aren’t shy to talk about it either. I found out they had well over $30,000 in their savings account which made me wonder if we are doing something wrong.

I also noticed that your family has over $100,000 in the bank in your net worth update and although I’m happy for you I want to be able to gain the same success as you both have for my family.

It gets depressing and I wonder if we will ever have a decent amount of money in our savings account so that we feel like we are getting ahead. We do have investments such as TFSA and RRSP’s but it’s hard to keep motivated when you don’t see those numbers as often as you do the bank account balance.

How do you suggest we go about growing our savings account?

What is the best bank to keep a savings account that won’t charge us lots of bank fees?

If you do use my question please do not include my name as my wife would kill me.

– K

 

Savings begins with strategies

 

Hi K,

Don’t worry I hear that often from fans who submit questions. My wife would probably do the same as she is not big on talking about our finances to anyone.

I guess it has to do with the way people treat you when they know what you have in the bank account and sometimes that is true. People may treat you as less than important if you don’t have as much money and other people may get jealous of success.

This is why talking about money is such a taboo for most people and why searching the web is the next best thing to talking to a professional although I do suggest that.

Taking advice about your financial future from the web is not the best starting point although grasping the basics of budgeting is something simple that anyone can do.

First of all, don’t compare what you have to what others have. That’s one of the biggest mistakes you can make and it can set you back financially because you fear you are not getting ahead.

Second, congratulations on using a budget and the cash envelope system.

Thirdly, Budgeting takes time so don’t get frustrated if you don’t see results right away. Your savings account will grow if you are doing a few things which I will discuss below but remember that you can always make changes. My list is never exclusive though.

We like to check our budget monthly to see where we can make changes, so if you aren’t doing a monthly review I’d certainly recommend that. I can’t tell you how many times we’ve found mistakes or ways to save more money just by spending that hour every month.

We do this together as well as it’s a team effort.

This is where you both need to sit down and tear the budget apart to make sure you aren’t missing anything and to see if your numbers can be adjusted.

Are you spending all the money in a certain category just because you allotted x amount to it? If so you may consider lowering that amount.

I can’t give you any solid advice on your budget as I haven’t seen your exact numbers but I will comment on what you have shared.

What I do see is that you both have at least $100,000 in equity in your house, investments for retirement and your child’s education. You have minimal consumer debt and your vehicles are paid in full.

I don’t know your ages but I’m guessing in your 30’s-40’s but I could be way off base. If I am right you still have plenty of time to build your savings account, save for new vehicles, invest and pay off your mortgage.

Mrs. CBB and I didn’t want to be paying our mortgage until we were 65 so we did what you are now doing and that was budget and live frugally. I’m not saying to be extreme cheapskates but cut your expenses as far as you can so you can live happily while finding ways to save money.

For example: We hardly buy new clothes because we can find what we need for much less at the second-hand shops, online auctions, free clothes given to us or we search the clearance racks when we do shop.

The savings in this category alone are huge. There are times where you may want to spend some money to buy something new, just make sure it will last you which means it may cost you a bit more.

I don’t mind spending decent money on a couple of pairs of jeans that will last me a over a year or so just to go out in. I buy cheaper jeans at the second-hand store for jobs around the house or for running errands.

Some families spend thousands each year on clothing and although some people want high quality clothing that doesn’t always mean they can afford it. You’ll be amazed at some of the high quality clothes we’ve found used.

That’s just one example and I’ve talked about so much on the blog about ways to save money in the budget that you will certainly benefit from reading past posts.

So, if you are budgeting $1000 a year for clothes maybe you can look at that number and decide to lower that number by only buying necessities and no new clothes for a year. Explore what ‘used clothes’ have to offer.

You have to remember that ‘balance’ is important when it comes to finance. You don’t want to go to one extreme with one aspect of your finances and forget the other. So, if you plan to pay down your mortgage fast you should also keep investing in your retirement savings.

Just recently when I posted our monthly Net Worth Update a fellow blogger left this comment and it certainly ties in well with your question.

Don’t base your overall worth on your liquid funds in your savings account. This is never an indication of how well you are saving money.

I’m glad that Mr and Mrs. Tre understood that just because their savings account wasn’t growing as fast as they’d like that it didn’t mean they were wealth poor.

Last week Mr. Tre made a comment that he felt we weren’t getting ahead. He was using our savings account balance as an indicator. While it is true our liquid savings are not increasing much, that’s because we are investing money in other places. When he looked at our net worth it was very clear that we are making financial gains. – House of Tre

How can you save money and boost your savings? Here are a few ways Mrs. CBB and I have managed to help grow our savings and maybe you can too!

First off… we Budget! That is the platform that saves us the most money however with-in the budget is where the real magic happens so it’s important to keep an eye on where your money is going.

 

Banking

 

This seems to be an area of concern for you and it should because banking fees can really eat into your wealth building. Almost all banks charge fees for using their services but there are ways to save as long as you are willing to make a few sacrifices.

If you are looking for bank that charges no fees I highly suggest a PC Financial Savings Account. There is also a PC Tax Free Savings Account, RESP and a PC High Interest Plus Savings Account that you can save your money in.

The best part is there are no fees and you get free bank cheques as well when you need them. You will encounter fees when you need services that the bank will have to provide you such as certified cheques, bank transfers etc. Most people hardly if ever use these services.

So, unless you need to see a bank teller face to face this is a great way to save money on bank fees. Keep in mind if you need to talk to anyone in person there are the PC Banking Pavilions with staff on hand daily.

If you don’t think that changing banking institutions is in the cards for you than maybe limiting your withdrawals every month is a plan you need to work out. You could also talk to your bank to see if there are other options that work in-line with the way you choose to bank.

No, I do not work for them either! I just love banking for free like I did in the UK. I never paid for a thing and that’s the way it should be.

 

Extra money

 

If you want to add more money to your savings account you have to either spend less or earn more. If you have the time to get a part-time job to earn extra income that is a great way to put some money aside.

If you have skills you haven’t tapped into like resume writing, tutoring,house cleaning etc. you can post an ad online at Kijiji looking to help people with your services.

De-clutter your house and save a tonne of money. It’s garage sale season so start going through the house and clearing out what you no longer use.

Living a minimalist lifestyle doesn’t mean that you have to clear out everything, but when you have too much clutter it really does begin to invade your space.

 

 

Budget Adjustments

 

Like I mentioned above review your budget monthly if not more depending on how much of a budget nerd you want to be. Monthly has always worked for us and it’s given us the opportunity to look at each category and decide whether we need to improve or we have extra money we aren’t using up.

If  for example you don’t need to budget $150 for your allowance every month don’t. If you can spend $50 a month now you’ve got an extra $100 you can put towards your savings account to help build your wealth portfolio.

Your savings account doesn’t need to have $100,000 like ours does. We are going to be doing something with that money and hopefully leaving about $5000-$10,000 in liquid cash in the bank. You both need to decide what number works for you but don’t go to extremes.

You won’t need it and the cash could be better used to pay down your mortgage and other debt which I would make a priority. Once the consumer debt is gone you will free up money to put into savings, investments or the mortgage.

If there are categories in the budget you can cut out completely like cable TV or home phone because you have a cell phone there are more savings. Don’t be afraid to contact your provider and ask for any promotions that can be added to your account.

We’ve saved thousands over the years calling Rogers and asking for deals through the retentions department. Sure you can save more without any of it but that’s your choice if you want to go that route.

 

Grocery

 

This is one of the easiest categories in the budget to cut even though some people swear it’s impossible to eat healthy on a limited grocery budget.

It is possible to eat well on a small grocery budget as long as you are willing to do some homework. There are parts of the world where grocery prices are through the roof but in Canada prices seem to be fairly consistent depending on season and availability.

I would suggest reading through my Ultimate Grocery Guide to learn all you need to know about grocery savings. I’d certainly start with the most popular post “How much should my grocery budget be?” to give you a starting point.

There are also other ways to save with your grocery budget by using online and smartphone coupon apps like Checkout51 or  Snap Groupon.

Signing up to become a Neilsen Home Scanner which pays you to grocery shop with points to use towards various gifts which I recently wrote about, Shop, Scan and Get Rewarded is another way to save money.

 

Attitude

 

At the end of the day your wealth savings all boils down to attitude. If you are not willing to change or work as a team with your finances you won’t see the improvements you want.

Money doesn’t grow on trees it grows in the hands of people who know how to manage it well.
If you want to be someone who has savings in the bank and no other debt to account for then educate yourself, find someone you admire financially. Find out what they do to save money or talk to professionals who have your best interests at heart.

Making changes is hard but sticking to them is even harder. Over time you will have more ammunition to analyze your spending habits with your budget and net worth updates. Before you know it that savings account of yours will be in a happy place and so will the both of you.

Best of luck and if you would like to ask me anything further please send me an email.

-Mr.CBB

What other tips can you offer this couple?

 

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Photo Credit: Freedigitalphotos.net/Thanukorn

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