Fact or Fiction? Don't let saving myths cost you

At one time or another, we’ve all fallen for an urban myth that turned out to be factually false. Think touching a baby bird will make its parents abandon it, bulls hate the colour red, Napoleon was unusually short, and Marie Antoinette really said, "Let them eat cake." 

Most myths are harmless, but when it comes to your finances, believing fiction instead of fact can cost you.

Join our experts as they separate fact from fiction and debunk some of the most common myths about saving, because when it comes to building your rainy-day fund, knowing the facts, can really pay off. 

Fact or fiction: Saving only works if you can put away hundreds of dollars a month

The good news is that small amounts count. Whether it’s $25, $50 or $100 per paycheque, you’re not only adding to your savings but you’re also developing the habit of saving. And that’s the key to growing a healthy little money tree of your own.

Those savings can come to the rescue when life doesn’t go according to plan—a car repair, an unexpected home expense or time away from work. That’s your rainy-day fund doing exactly what it’s supposed to do: helping you deal with life’s bumps in the road before they become financial mountains.

So, how do you keep watering that money tree?

Start by paying yourself first. Choose an amount you can comfortably put into savings every paycheque and treat it like any other bill. As your income grows, consider increasing the amount.

Then make it automatic. Arrange for money to move from your chequing account into savings every payday. You won’t have to think about it, and little by little, those $25, $50 and 100 contributions can add up.

Before you know it, your money tree has taken root, and it’s there when you need to pluck off a few leaves.

Now that’s a fact that can grow your bottom line.
 

Fact or Fiction: Keeping all my money in a chequing account is safer than a savings account

No, the fact is that  keeping all your eggs (or in this case, dollars) in one chequing account isn’t necessarily the safest bet.

Spreading your money between chequing and savings can give you an added buffer against fraud while also giving some of your hard-earned cash an opportunity to grow.

Your chequing account is your financial workhorse. It’s likely connected to your debit card and used for everything from groceries and coffee runs to online purchases and monthly bills. All that activity can mean more opportunities for your card or account information to be compromised by fraudsters—whether through a suspicious website, a compromised payment terminal, or another scam.

Keeping some of your money separate in a savings account can create a useful buffer between the cash you use every day and the money you’ve worked hard to set aside. If your debit card or chequing account is ever compromised, at least all of your precious cash isn’t sitting in the same pot.

There’s another reason to branch out: interest.

Many chequing accounts pay little or no interest, while savings accounts may pay more. A High-Interest Savings Account (HISA), for example, can give your money tree a little extra nourishment by earning interest while your cash waits for the day you need it.

And you don't have to sacrifice easy access. Both chequing and savings accounts generally allow you to get at your money exactly when you need it.

Think of it this way: your chequing account handles today’s spending while your savings account helps look after tomorrow.

You’re not losing anything by giving your money two jobs. You may just gain a little interest—and peace of mind.

Now that’s fact you can sleep on.
 

Fact or Fiction: I need to be debt-free before I can start saving 

No, you don’t necessarily have to choose between paying down debt and building savings. Sometimes the smartest approach is to do a little of both.

Once again, think of that money tree. Without even a small nest egg tucked into its branches, one unexpected expense could send you straight back to your credit card, and potentially deeper into debt.

A good first step is building a small starter emergency fund. Even $500 to $1,000 can give you some breathing room when an unexpected bill lands in your lap.

From there, keep squirreling something away into savings every paycheque while continuing to make at least the required minimum payments on your debts. If you have extra money available, consider directing more of it toward high-interest debt, such as credit card balances.

Once that expensive debt is under control, you can turn more of your attention, and money, to growing your emergency fund. A longer-term goal might be having enough savings to cover three to six months of essential living expenses, depending on your circumstances.

The idea isn’t to grow your money tree overnight. It’s to give it strong enough roots to help support you when life gets a little stormy.

Now that’s a fact that can help keep you on solid ground.
 

Fact or Fiction: An emergency fund is just for emergencies 

Your emergency fund doesn’t have to sit untouched until a full-blown financial disaster strikes.

In fact, it’s often life’s smaller surprises that come knocking more frequently. The car needs a repair. The furnace decides January is the perfect time to stop working. Your dog eats something they definitely shouldn’t have. None may qualify as a financial catastrophe, but they can still take an unexpected bite out of your budget.

Think of your emergency fund as a financial shock absorber. It’s there to help soften the bumps, big and small, without forcing you to reach for a credit card or dip into money earmarked for something else.

Start small and build your savings from the ground up. With regular contributions, that little sapling can eventually become a sturdy financial safety net you can lean on when life shakes a few branches.

After all, you don’t have to wait for a hurricane to appreciate having an umbrella.

Now that's a fact worth saving.


Fact or Fiction: Separating Financial Truth from Tall Tales is an ongoing series that debunks common financial myths.