What if I told you there are two things you can do right now to save your financial future?
For many of us, starting out in life can be exciting! You have endless dreams and aspirations, you dive into a career path, money starts coming in, and your life is heading in the right direction.
But will it always be that easy?
What about the roadblocks life will throw at you? Have you ever planned for financial emergencies? Do you have a saving strategy that you practise diligently? If you answered no to any of these questions, don’t worry; we have answers.
Saving? Never Heard of it!
Realistically, many people won’t realize they have any financial problems shortly after getting their first salary or high-paying jobs because, well, they don’t! Their salary usually covers all current expenses, and they continue to grow their lives without a care in the world for a stable financial future!
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The Ugly Truth
While this carefree mentality might work out for some people, unfortunately, this will not be the case for most people in the long term. This problem is best illustrated by a question I’ve asked so many people, and the most common answers are the solutions to financial freedom challenges you can avoid before it’s too late!
The Famous Time Machine Scenario: What would you do differently with your money if you could go back in time?
What would the current you tell the 25-year-old you to do differently with your money? I have asked many people this question about regret and reflection, and the answers do not surprise me.
They all focus on two main themes: spending within your means and saving diligently.
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Don’t Wait, Act!
I know what you might think; this seems like common knowledge; everyone plans to save and spend responsibly and achieve financial freedom. Let me tell you, it’s easier said than done! Most people I’ve spoken to wish they could return in time and fix their mistakes.
Don’t make the mistake of waiting!
Build responsible financial habits as early as possible, and set yourself up for success. The longer you delay it, the more challenging the future might be! That being said, I want to introduce you to the first crucial habit for developing financial stability.
Don’t Spend More Than You Make
The people who have told me stories about overspending with credit cards just wonder where they’d be today if they could erase their mistakes! If only they had saved and paid cash for everything instead of living above their means. I hear regret and disappointment every time, and even though they realize their past problems and reflect on their mistakes, they can’t buy back the time they lost. Don’t make the same mistake!
Don’t spend more than you make.
The concept is simple to understand but hard to execute in our society, where loans and spending on credit are socially accepted and a norm. An excellent strategy to mitigate overspending is calculating your discretionary income (income after taxes and necessities) and trying to limit your non-essential spending within this budget. Spending outside your means through credit doesn’t work out for most people! Take the advice and spend carefully; it will save you in the future.
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I hear the opposite from people who have saved carefully and paid cash for everything over the years. They paid cash for their vacation, vehicles, home renovations, everything! They are happy and thankful every single day that they live within their means because they set themselves up for financial freedom.
In reality, you might not be able to buy everything with cash. However, if you save and purchase responsibly, there should be a limit to the amount of credit you need to take on. Remember, live within your means, think about your future financial freedom, and spend responsibly!
Save, Save, Save…From Every Single Paycheque
The importance of saving money is simple. If you have an emergency (which happens to all of us at some point), you’ll have cash set aside for it. Think back to the questions I asked earlier.
- What about the roadblocks life will throw at you?
- Have you ever planned for financial emergencies?
- Do you have a saving strategy that you practise diligently?
The answer to this question is saving from every paycheck. You never know when you’ll need cash on hand! Maybe you want to buy real estate and need cash for a down payment. Unexpected family vacation, no problem, you’ll be able to afford it. Retiring soon? Live off of the income stream coming from your investments. The best and most rewarding way to save is to pay yourself first.
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How do I pay myself first?
Surprisingly, it’s super simple! You can save easily by setting up a PAC (a pre-authorized contribution) so that money comes from your bank account on payday and goes directly into your investments. You can choose the amount and how often it comes from your bank account. Whether weekly, biweekly, or monthly, it can go directly into your TFSA (Tax-Free Savings Account) or RRSP (Registered Retirement Savings Account), depending on your saving goals and tax situation.
If you’re a Canadian employee, don’t forget you most likely contribute to the Canada Pension Plan! However, this does not mean you shouldn’t save for financial freedom. For more important information regarding the CPP make sure to check out my Comprehensive Guide to the Canadian Pension Plan.
Consider Jack and Audrey’s Story
Jack and Audrey began their careers in their mid-twenties. Audrey had a great job that provided a defined benefit pension plan, providing her with financial freedom in thirty years. Each payday, her pension plan deducted funds from her paycheck and contributed them to her pension plan on her behalf.
Jack didn’t have a pension plan, but he did have the knowledge and resources to save for himself. He opened up an RRSP (Registered Retirement Savings Plan) through his financial advisor and set up a PAC. Every payday, the PAC automatically took money out of his bank account and contributed it to his RRSP on his behalf.
They also opened a TFSA (Tax-Free Savings Account) and a Non-Registered Account. PACs were set up in both accounts to save for Jack and Audrey’s goals.
Does Financial Freedom Really Matter?
Jack and Audrey were eventually able to buy the home they dreamed of. Their emergency fund came in handy when Jack’s car needed an engine repair, and they could take a vacation every time they needed it. There was no stress about how to pay for any of it; the money was always there. Thirty years later, Jack and Audrey were able to retire easily. Their home was paid off, their retirements were funded, and they had accumulated quite an extensive portfolio of investments through their regular savings.
Photo by Anukrati Omar on Unsplash
I’ll let you think about whether it matters or not. In the meantime, let me share a different story with you, Tom and Janet.
Tom and Janet’s Story
Janet was self-employed, and Tom worked for a company with a group RRSP matching plan. Tom signed up for the plan but only contributed a small amount each payday, not nearly enough to grow and provide a retirement income.
Instead of paying themselves first, each time they got paid, they used the money to pay their bills and then spent the rest having fun. Whenever they thought of saving, they would say they’d start soon. But their money just seemed to disappear; it came in and went out just as quickly. Thirty years later, when Jack and Audrey happily retired, Tom and Janet felt they’d be working for many more years. They finally began to save, but they had lost thirty years by not saving early, and the stress was significant.
They wished they could go back in time and do those two things: live on less than they made and save from every paycheque.
Key Takeaways:
If there are two things you need to take away from today, it’s this,
- Don’t spend more than you make; instead, live within your means
- Save, save, save…from every single paycheque
It’s Never Too Late to Start Paying Attention to Your Finances
Trust me, the sooner you start, the better. It doesn’t matter if you are sixty-three or twenty-three; today is better than tomorrow. When you become the boss of your finances, it will bring you a sense of peace and relieve stress. It is never too late to start paying attention to your finances!
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Eeva Niemi is a Wealth Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. The case study mentioned in this presentation is provided for illustrative purposes only and does not represent an actual client or an actual client’s experience, but rather is meant to provide an example of our process and methodology. The results portrayed are not representative of all of our clients’ experiences. Please contact Eeva at eniemi@assante.com or visit https://advisor.assante.com/Eeva-Niemi to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
