Do you want to save more money next year? Most people do. But how do you save more when there’s nothing left over at the end of the month? Try turning the problem on its head. Instead of trying to save what you don’t spend, treat saving like an expense you can’t avoid. That means prioritizing your savings goals ahead of time.

How to Make Saving a Priority

What are your financial goals for next year? Mine are to max out my RRSP contribution room, continue to max out my kids’ RESP account, and to contribute $1,000 per month to my TFSA.

Start by defining your goals. Then, build them into your spending plan for the year. What’s that? You don’t have a spending plan? Download this free budgeting spreadsheet and use the ‘yearly forecast’ tab to assign a job for every dollar you earn next year.

Input your savings goals first, followed by your fixed expenses such as your mortgage, property taxes, and insurance. Then fill in the rest of the spreadsheet by estimating what you’ll spend on variable items such as groceries, gas, travel, and entertainment.

What’s next?

Pay Yourself First

Made famous in The Wealthy Barber by author David Chilton, the phrase ‘pay yourself first’ is now considered to be the golden rule of personal finance. What makes this concept so powerful? It comes down to psychology. 

Parkinson’s Law states that “work expands so as to fill the time available for its completion”. Applied to your bank account, one might generalize, “the demand upon a resource tends to expand to match the supply of the resource”.

In other words, if you don’t make saving a priority at the start of the month there’s a good chance you’ll have nothing left over at the end of the month. You pay everyone else first and neglect your future self.

By paying yourself first, you’re forced to live on the remaining balance in your bank account. Parkinson’s Law still applies: The demand upon your bank account tends to match the supply of money in your bank account.

No problem. You’ve already met your savings goals. Spend away.

Make it Automatic

You’ve already made the decision to save money by paying yourself first. Now you need a system to prevent that strategy from being sabotaged – by you. How? Automation.

Set up an automatic withdrawal from your bank to contribute to each of your financial goals. Even better, match the automatic withdrawal with your pay day to ensure the money is out of your account before you even notice it’s gone.

For me, that means automatic withdrawals of $300 to my RRSP, $1,000 to my TFSA, and $416.66 to my kids’ RESP account. All whisked away before I have a chance to change my mind and spend it.

Enroll in your employer-sponsored savings plan. When I worked at the University, a whopping 13.8 percent of my gross pay went into a pension plan. Granted, this was not optional, but it forced me to live on less than 90 percent of my gross salary while taking care of a good chunk of my retirement savings.

Automatically enrolling workers into their employer-sponsored savings plans is considered to be one of the greatest accomplishments in the ‘Nudge’ area of behavioural finance.

Treat Saving Like a Bill Payment

Your bank knows this. So does the government. They don’t rely on your good faith to pay your mortgage or taxes on time every month. No, your bank takes its money right out of your account like clockwork. Taxes are withheld from each paycheque without fail. 

You can make saving a priority by treating your savings goals like the bank treats your mortgage payment, or like the government treats payroll tax collection. 

Automation equals forced savings. 

That’s why Canadian home owners rarely default on their mortgage. They’ll do anything to stay in their homes, from cutting expenses to the bone, getting a second job, or even dipping into their credit cards (bad idea!) while the bank continues to collect its mortgage payment.

By treating your savings goals like a fixed expense, you’ll force yourself (and your spending) to adapt and live on less. This applies to everyone, from young savers to retirees.

Give Yourself a Raise

You’ve decided to save more money, and made saving a priority by paying yourself first and making automatic contributions to your savings. You’re treating saving like a bill payment or fixed expense so you never miss a contribution. Everything is automated and running like clockwork. What’s next?

Give yourself a raise.

Behavioural economists Shlomo Benartzi and Richard Thaler expanded their research on automatic enrollment in retirement savings plans with a program called Save More Tomorrow. This program is all about gradually increasing your savings rate over time.

Remember when you started saving 10 percent of your net income? Maybe that was $500 per month (meaning your take-home pay was $60,000). Now your net salary has increased to $70,000, but because your automatic savings contributions were fixed at $500 per month, you’re now only saving 8.5 percent of your net income.

Increase your savings rate regularly, either alongside increases in income or just gradually as you get into a better financial position. It’s a relatively painless way to make a big impact on your savings over the long term:

“One of the most powerful factors in growing your investment account value is how much you contribute into your investment portfolio over time. By setting a minimum annual increase, you can take baby steps into growing your contribution rate over time without really feeling it.” – Preet Banerjee

Need More Motivation? Take on a Challenge

We all suffer from financial inertia from time-to-time. If you need a little extra motivation to save, try taking on a challenge. There’s the no-spend challenge, where you commit to only spending money on essentials for a period of time, and then banking the difference.

I like the 52-week money saving challenge. The concept is simple: Save an extra $1 in week one, $2 in week two, $3 in week three, and so on until you’ve saved nearly $1,400 by the end of the year. For a variation, try it in reverse so you’re saving $52 in week one and work backwards from there.

I don’t carry a lot of cash with me anymore, but I always save my change in a jar and use it for the kids’ allowance and tooth fairy money. One way technology has improved this version of saving is through a ’round-up’ feature. The idea is to automatically round-up each purchase to the nearest dollar and put the excess into your savings account.

Of course, there’s always a swear jar.

Final Thoughts

You likely have a lot of competing financial priorities and so savings often gets pushed to the back burner. I get it.

But you must save. You must get into the habit of saving. To do that, you need to make saving a priority by treating it like a fixed expense and making it automatic. Aim for 10 percent of your take-home pay, but if that’s not feasible aim for something – even 1 percent – to start building the habit.

In Michael Michalowicz’s Profit First, he gives business owners this lesson:

“Every time you get a deposit from sales, take a predetermined percentage of that money as profit. Of course there are a few more steps than just that. But even with the simple first step, of taking your profit first, you will become permanently profitable.”

If this simple, yet powerful concept can work for entrepreneurs, it’ll work for everyday people, too. Make saving a priority and always pay yourself first.