3 Steps to saving simply!

Many of my clients know they should be saving more but traditional canadian banks can actively work against them; high banking fees, low interest rates, and expensive mutual funds all add up and will cost you tens of thousands of dollars in the long run. Here is a simple strategy you can setup that puts your cashflow on autopilot!

If you are looking for recommendations for various financial services checkout my recommendations here! These are a collection of services me or my clients have used, many of these result in a referral bonus (for me and you) which I donate a portion of to a local charity.

Step 1:  Setup your buffer account

Setup an account with EQBank named "Savings" and change all your deposits (ie employer, tax return, e-transfer auto deposits, etc). EQBank is free and has has a long history as one of the most competitive HISA's in Canada! You should also move any cash such as your emergency fund to this account.

Banking products in Canada are very sticky, once you setup direct deposit they basically have you for life and banks know it! Don't fall for this and setup a free HISA as a buffer account where all your direct deposits go and you can pay yourself an allowance from, you dont need to use this bank for your day-to-day things but it will maximize the interest you earn and make it easier to switch banks to better align with your needs.

Step 2: Pay yourself an allowance

Once you have your emergency fund and cashflow going to your "Savings" account you should to setup a recurring payment to your "Spending". Add up your monthly expenses like rent, utilities/bills, grocery/gas budget, etc and setup a monthly transfer that is enough to cover all these expected costs, EQBanks supports recurring transfers.

Your spending account can be at one of the big 5 banks but depending on your needs you might be best served with a free option like Tangerine, Neo, Simplii, or just open a second HISA with EQBank with a couple quick taps.

The key part of this step is that you automatically earmark money for spending which creates a tripwire if you spend more than you anticipate you must dip into your "Savings" account, this means you are always aware when you exceed your expected costs and can adjust your spending/saving accordingly.

Step 3: Invest the rest

Take 5 minutes each year/quarter/month (whatever works for you) and log into your EQBank to transfer excess emergency funds from "Savings" to your investing account. Higher frequency is best but make sure its not too much of a burden.

As your income grows so should your investment contributions, by transfering all your excess savings on a recurring basis you avoid amassing a large savings balance (or increased spending) as your income increases.

Time in the market beats timing the market so you can stick with whatever investing solution your most comfortable with but if your looking to get true market returns than checkout my guide to simple self directed investing.

Opportunity Cost

While this may add some overhead to how you manage your money it will reduce your dependency on any individual banking service and with just a couple hours of "work" you can save yourself thousands of dollars in opportunity cost (or more) in the long run.

Having separate Spending/Saving accounts and automatically moving money between them ensures that you can completely rational with your budegtting decisions and mitigate the chances that you splurge simply cause you have the money in your account. (See mental accounting bias)

Having a simple rule for investing forces you to be more agressive moving funds from "Savings" to your investing account and will allow your money to begin working for you sooner. While most folks invest a static amount each month that unfortunately means as your income grows (or you recieve windfalls like tax returns) you need to keep revisiting the decision of how much to invest each week/month/year rather than simply investing everything in excess of your emergency fund.