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Save It or Spend It: Tips for Making the Tough Call

by:
Christopher Northey

It’s that moment when all of a sudden, you have a little extra cash to play with. Maybe you got a tax refund this year (congrats!), or maybe you finally sold that old dresser or those clothes and toys the kids have outgrown on Kijiji. Whatever the reason may be for your newfound cash and glory, it’s important to know what exactly you should do with it. Do you save it or spend it? Here are seven questions you need to ask yourself before you head out on a shopping spree.

1. Do you have debt?

If you have any unsecured debt—that includes credit card debt, payday loans, and outstanding phone and/or utility bills—any extra “found” money should be used to take care of it. This can save you hundreds, if not thousands of dollars in interest alone. Pay off the debt with the highest interest rate first (this is known as the “avalanche method” of debt repayment), and if you have money left over, tackle the next highest interest rate debt, and so on.

2. Do you have an emergency fund?

Assuming you don’t have any unsecured debt or you were able to pay it off in full and still have some change to spare, the next option to consider is setting up an emergency fund. The fact that over 50% of Canadians only have $200 available during any given month before they have to rely on credit tells us that most people don’t have an adequate emergency fund for the unexpected.

3. Are you behind with anything?

Are you up-to-date with your rent, car payments, insurance, and utilities? If not, these items may have to take priority over other obligations. Although it's important to ensure all bills are up-to-date, some circumstances, such as a possible eviction or arrears, must take precedence.

4. Do you have an upcoming major expense?

Does your car need a major repair, such as new brakes? Do you have an aching tooth that needs attention? Is your roof leaking and in need of some patch work? These are all necessary expenses you may want to put your money towards (sooner rather than later) before the situation gets any worse. Planning for these expenses and dealing with the situation when it isn't an absolute emergency can save you money and stress in the long run; waiting too long can cause undue stress and cost you more.

5. Can you plan for any major expense? 

You may not have any urgent major expenses, but perhaps you know you will be attending a wedding, and will need a gift or an outfit. Or perhaps you want to buy birthday or holiday gifts for your family ahead of time (again, saving you money). Making these purchases when you have extra cash on hand is a great way to avoid last-minute buys when you may not have the financial resources.

6. Do you want to save for something?

Planning a vacation, or perhaps a renovation for your home? If you are saving for expenses of this nature, your newfound money can definitely help make these occasions a reality. If you can consistently put some money away towards these goals into a savings account, they can be achieved much more easily. It’s important to remember, however, that if you do need money for something urgent you may have to borrow from this fund.

7. Would you like to invest in your future?

You may want to consider investing in a TFSA for a downpayment for a future home or cottage; an RRSP for your retirementor an RESP for your children’s or grandchildren's education. Speak to a certified financial planner about your financial goals; they can discuss your options and decide what sort of investment makes the most sense for you and your situation.

All set? Then spend it!

If you’re current on your bills, you have an emergency fund, no upcoming expenses, and you've recently topped-up your investments in your future goals, then it’s time to enjoy yourself! You deserve it. But make sure you have carefully examined all of the previous options before you decide to spend the money. Another responsible option? Save a portion of the money and spend the remainder.

A final thought: Remember to be prudent about how you spend your newfound money. An impulsive decision today could leave you regretting it tomorrow—or even for the next couple of years depending on the purchase. If you're not sure, give us a call 1-800-267-2272 and we'll help guide you on your best options.

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Topics: Saving Money

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