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'Saving' is the new 'spending'

By Melissa Cassar

One small silver lining from the recent economic downturn is that people have begun saving again. For decades personal savings rates hovered around 10 percent of after-tax income, but beginning in the late 1980s, rates steadily declined.

As the stock market soared, so did home values. Many people felt richer – at least on paper – and the lessons learned during the Great Depression about saving for hard times faded into distant memory.

But what usually happens during severe recessions, the average savings rate has begun rising again. Why this turnaround? Financial experts cite many reasons:

• People fear losing their jobs and want a financial safety net.
• Those approaching retirement need to boost their net worth slashed by plummeting home values and retirement accounts.
• Costs for high-ticket items like post-secondary education and retirement have far outpaced the rate of inflation.
• Lending standards have become much more stringent, so qualifying for loans and credit is more difficult.

Although increasing savings during tough times would seem to be much more difficult than during prosperous times, clearly many people have figured out how. Here are a few strategies for building your savings:

• Track spending. Write down every cent you spend for a month on food, gas, clothes, entertainment – everything. Review the list and see what you could live without or at least reduce. For example, brown-bagging once a week would save 20 percent on your lunch budget – hundreds of dollars a year.
• Reduce fees. Banking and credit card fees for things like overdrafts and late payments can quickly erode interest earnings, so carefully monitor your balances and account activity. Bouncing one less cheque a month could save hundreds of dollars a year.
• Review insurance policies. Shop around for better car and homeowner's insurance rates; you can always ask your current carrier to match better rates found elsewhere. And consider raising deductibles, which can save hundreds of dollars.
• Avoid "retail therapy". Before hitting the mall, shop your own closet for "had-to-have" outfits still on their original hangers. Check your pantry for duplicate products as well.
• Drive your car an extra couple of years – you'll save thousands of dollars on depreciation and reduce your insurance premium.

For additional savings strategies a good resource is Practical Money Skills Canada, Visa Canada's free personal financial management program (www.practicalmoneyskills.ca), where you'll find a comprehensive guide to saving, budgeting and much more.

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This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

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