Nov 7: How To Avoid Dipping Into Savings

November 7, 2024

The idea behind savings has always been to put a little money away today, and in the future, you’ll be covered for any little emergency that arises.

But these days, people are raiding their savings to pay for day-to-day, non-emergency expenses. Is there anything we can all do to prevent that? Save with SPP took a look around to see what others think.

The GoBankingRates website offers up a number of interesting strategies.

One idea is to put your savings in “a separate, online savings account” that “is not directly linked to your chequing or overdraft, or that can be used with a debit card,” the article suggests. We have an account with Alterna Bank that isn’t hooked up to any card, and yes, it’s a piggy bank that’s sort of hard to get at.

A similar idea is to “make savings inaccessible,” perhaps by putting them into a registered savings account (such as a registered retirement savings account) or brokerage account where you can’t get the money out immediately, or without a penalty or tax consequences, the article explains.

At the How To Money blog, one thought is to “focus on your goals,” and to remember why you opened the savings account before dipping into it.

“Do you want to own a home? Become financially independent? Finally go on that big trip you’ve always dreamed of,” the blog asks. “Having a bigger goal to weigh your purchases against can help you think twice before transferring money out of your savings, or making an impulse buy. Once you have a solidified goal, you can think about just how much you could accomplish if you cut out mindless spending,” the blog continues.

A second idea recommended by the blog is creating “sinking funds,” or essentially pre-paying, for things you know you have to spend on.

“A sinking fund for gifts is a common example. We all know we need to buy gifts at the end of the year for the holiday season. But if we don’t plan ahead, we won’t have the money to buy anything. That leads to dipping into savings. Instead, if we create a sinking fund and contribute $50 per month into it starting each January, we’ll have $550 by the end of November for gifts,” the blog explains.

Okay – make the money hard to get at, remember why you’re saving before dipping in, and create little dedicated “sinking funds” to prepay for known, upcoming expenses (again, instead of dipping in.) Are there other ways to work this?

The Balance blog suggests an oldie-but-goodie – using cash.

“Set up auto debit for all your bills and savings contributions, then see how much money you have left over. That’s how much you have to spend. Take out that amount each week or month, and when it’s gone, it’s gone. When you are using cash only for your spending, it takes a lot more work to overspend since you have to actually take the money out of the bank,” the blog suggests.

Another good idea, the blog adds, is to set up an emergency fund – for real emergencies – rather than dipping into your long-term savings.

“If you have a separate emergency fund to handle unexpected expenses, then you will no longer need to dip into your savings account to cover unexpected expenses like car repairs or medical bills,” the blog explains. “Although using your emergency fund may seem like you are dipping into savings, you really are not because you have earmarked these funds ahead of time to cover these expenses.”

The takeaway for all this is that your savings cookie jar should be as hard to get to as possible, so you can’t dip into them for an impulse purchase.

Members of the Saskatchewan Pension Plan can’t dip into their accounts for non-retirement purposes, because SPP is a “locked-in” pension plan. You can’t access the funds until you are age 55 or older, when you are deciding what you are going to do to turn your SPP savings into income. Options include receiving a monthly lifetime annuity or the more flexible Variable Benefit.

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GoBankingRates, How To Money, The Balance

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