Saving money on any income

Saving money on any income

I get these emails in my inbox every now and then…

I like your site but you write about saving and investing habits most Canadians don’t have.  Besides, not everyone makes enough money to save, invest and take international trips like you do.

After my mortgage and car payment I have no money left over to save for retirement.  I’ll worry about that when the house is paid for thanks very much.

You write about your dividend income but that’s out of reach for many Canadians.  Maybe you could write an article that’s more relevant and realistic for the rest of us instead?

Thanks for your emails and comments. I read every one of them.  Keep them coming.

Based on the tone of such emails I suspect many Canadians know they should be striving to save 10% (or more) of their net income but can’t or haven’t found a way to do so yet.  The common culprit behind the lack of savings is typically maxed out consumption, a lower household income, or both.  There is simply nothing leftover at the end.  The income issue is huge.  Good jobs are hard to find and maintain.  That’s for another post for another day:  how to get and maintain a good job.  But let’s assume for the rest of this post some Canadians don’t believe they need to save yet:  “I’ll worry about that when the house is paid for…”

Fine.  Your call.  A few things to unpack here…

One, I believe you need to save some money.

Let’s use an example.  You need your cellphone data plan right?  Well, as long as you define this as a need in your life I think anyone that has a data plan can save at least $5 per month through some minimal effort – shop around and negotiate a better plan.  Heck, I’ll find you even more monthly money if you cancel your data plan altogether.  But you need data right?

Using this simple example, cellphone data plans are a want and not a need.  This implies I think most people have needs and wants totally ass backwards.  You don’t need a cellphone with a data plan.  You don’t need a new car.  You don’t need a gym membership. These are things you want.  You need to save for your financial future because nobody else will.

Do you really think other people are saving money for you?  Through government taxation only, maybe, but that’s it.

Two, I believe spending comes after savings.  This means when you read about “paying yourself first” that’s what it means.

You should consider saving at least 10% of your net income as a bill payment to You Inc.  If you can’t afford to save this 10% then you’ll need to buy less house, drive less car or make more income to consume the wants in our life.

What about the Latte Factor?  (That’s for old folks.)  How about the Avocado Toast Factor?  You know…little savings that add up to big savings over time?  Sure, like my cellphone example that could work.  I would argue instead of sweating the small stuff in life get the big money decisions in life right.  That means get your car decisions right.  That means don’t buy too much house.  I would argue if you can afford to buy a house (and all the extra costs that come with home moanership) then you can afford to be saving 10% of your net income.

Let the nasty comments fly!

Third, are you on some sort of deep austerity diet already?  The answer is probably “No”.   Here are wasted money opportunities if you do any of these things:

  • You own a car that is less than 5 years old.  If so, you recently used significant capital to buy a depreciating asset.
  • You dine out more than once per month.  Just so you know cooking at home is almost always cheaper and probably healthier.
  • You buy lottery tickets.  Sorry, this is not a retirement plan.  You’d have better luck getting hit by lightning through your phone, tablet or laptop while reading this article on a sunny day.
  • You smoke.  I stand corrected.  Maybe a good way to die young and not worry about retirement.
  • You drink.  See above, especially if you booze in large quantities daily.
  • You buy new clothes often.  Unless your job absolutely depends on it there are alternatives.
  • You buy your lunch at work more than once per week.  See cooking at home.

Those are the layups.  Dead simple savings listed right there – if you really wanted to change.  If you do any of the preceding I can easily find you a few hundred bucks per month with some changes.  With more lifestyle changes I know I could find you thousands of dollars per year depending on your income.

OK, now for the confessional…

I’m not perfect.  I spend money and sometimes downright foolishly at that.  I could be saving more money and probably should be to help us realize at least one of our financial goals.  I’m financially flawed.   I have spending impulses.  I often let bad financial behavior and emotions get in my way.  Hell, I still invest in some dividend paying stocks.  Some index investors continue to cringe about my investing approach…

We do however have a disciplined plan to save at least 20% of our net income every single month.  (Our savings rate is actually double that if you include our mortgage prepayments.)  Our TFSAs are maxed out.  My RRSP is full.  My wife’s RRSP will be out of contribution room in another few years.  I/we could cut back more if we really needed to – we are prepared to do so in any given month.  The point is for the last 15 years we’ve spent less than we make.  We’ll keep living this way for the foreseeable future.  It feels good to live this way actually.

Closing arguments

I get saving money is without question easier if you make good money in the first place.  I get that good, sustainable jobs are huge enablers to any savings goals.  Like I mentioned above those are topics for another day.  Good jobs can and do come and go.

I simply want to impart on you that we all have financial choices to make.

Whether it’s saving just $5, a sum of $50 or a modest amount of $500 per month – it can be done.

Saving money will take some financial discipline on your part.  It may include some tough choices. You’ll probably need to say “no” to family and friends now and again.  Good on you – I respect and applaud that.

Then again I suspect many Canadians wouldn’t want it that way.

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $600,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

29 Responses to "Saving money on any income"

  1. I think a lot of people would like to save/invest just like they would diet/lose weight. They would rather not do the work and prefer to just take a little pill. Sorry, despite all the “retire before you’re whatever” books/stories/blogs, saving/investing IS work and requires commitment and self discipline. Most often people that have such tight budgets are there because they put themselves there. (not all, some people get nailed by things beyond their control) The best way to not have such a tight budget is not to go there in the first place.

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    1. Thanks for your thoughtful comment Lloyd. Saving is some work but I think making savings automatic (i.e., as a bill payment to yourself if you will) is something almost everyone can do – even $5 per month.

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  2. I worked with many people who lived pay cheque to pay cheque and said the exact same thing. It was for those people I wrote “The Average Person’s Retirement Savings Plan” A few have followed the plan and have indeed have started earning Income for their retirement, though initially small. But one has to start, make the effort to save and eventually (hopefully) will see the benefit and start saving more.

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    1. Isn’t that the key though…just to start. Like a good diet, exercise, learning a new skill – the key is to start (even small in nature) and keep at it. Eventually, over time, good things will happen.

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  3. I was at a dinner party talking about vanguard index funds and someone said how much do you save a month. I said quietly that my wife and I put $3000 into our retirement accounts each month. We are all in the military, same rank and pay. They thought I was eating tv dinners, rahman noodles, and living in a van. Bottom line is I have no debt, cars are paid off, and my wife and I enjoy spending time together and raising our kids. I believe the Dave Ramsey quote of live like no one elesr, so you can live like no one else applies. If you save and try to avoid dumb financial moves you can do it.

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    1. No doubt having no debt, no car payments, etc. is a huge enabler to your savings rate for investing purposes. I believe most people take on too much debt these days because a) credit is cheap and b) there is no incentive to save because of a). We’re not perfect but we are on a good path finally and I’m optimistic we’ll hit our goals eventually.

      Good luck with yours Nicky!

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  4. Amen.

    You read my mind.

    Summary, get serious about savings now. Cut out/reduce the “wants” and/or get creative to generate more income to become self reliant and in charge of your financial future.

    Lloyd, you’re right. I’m an avid fitness person and have heard every excuse under the sun not to exercise. It takes commitment, significant effort and a plan but the results are SO WORTH IT, in countless ways. I think it usually it all comes down to giving yourself good enough reasons (motivation) to do the right thing and stay at it.

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    1. I still feel in many ways my wife and I are not doing as much as we should. We’re lazy to a point and we got a late start to saving and investing for many reasons. But, we have good jobs and we need to take advantage of them by saving and investing now. Life might not always be this way! The crystal ball is always very cloudy.

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      1. I think you’re wrong on that. You’re definitely doing more than we did re savings and curtailing spending, and much more than most. You also started saving well before most folks. As you know balance in all things is often the best choice, and you want to enjoy life at every stage.

        Yes, take advantage of sunny times as the future may not be as clear.

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  5. I’ve just spent the last month also addressing this issue. And even though I’ve written about it until my fingers fell off, I still have large quantities of friends who still say “I’m not like you. I don’t have any free cash” as they go out binge drinking, smoking a pack a day, and then drive home in a brand new leased (UGH!) car. I respect the effort you’re putting in on your own though, “MOA”. It’s a valiant effort. Maybe if enough of us harp on it, it’ll change some lives for good!

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    1. FWIW I know my wife and I could be saving more. But how much is enough saving? Could I have a $1 M portfolio by now? Yes. Could I have a paid off home by now? Yes. Both of these things are/were in reach if I really wanted to be on an austerity diet.

      That said, and I said as much in my post, I’m not perfect. I spend. I’m impulsive. But we are saving >20% of our net income for investing every year and if I had less income, I’d have less house, less car, etc. to make up for that.

      I get there is an income issue for many people – totally. Good jobs certainly make saving easier but my goodness cell phones, cable TV, newer cars, owning a home, vacations are not a “right”.

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  6. it misses the disclaimer: ‘This does not apply when you have children’
    Yet another article on what ‘Canadians do wrong’. Yawn.
    Where are the details, I know where the money goes, I budget every month, but the unexpected car repair, wood for the woodstove, ice cream for the kids while on a day trip and day care cost really eat up all of the ‘extra’s’ that could be saved. So do you want me to save a $1 a month? Well I can manage that I guess, thanks for the tip.
    Love you passive agressive last sentence “Then again I suspect many Canadians wouldn’t want it that way”

    Reply
    1. Thanks for this Pip. It sounds like you’re trying to do many things well. It wasn’t a poke at “what Canadians do wrong” but rather, unless you have really thought about your income and where your money goes I suspect most Canadians (not all) can save a little bit more than they think.

      No – I don’t want to save $1 per month. That seems rather useless in the big picture but I suspect most of Canada, other than low-income earners, have some priorities out of whack. I could be wrong, and I may be, but this is my perspective.

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  7. Eating out and not spending time to learn about investing and benefits of deferred consumption are major roadblocks for most people -Nothing worthwhile is easy.
    Kids are not easy either, but they do add value to life, teach you to think beyond yourself.
    The diet pills don’t work either, exercise and healthy eating do. Common sense is too often considered outdated and needs and wants too often mixed up.

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  8. Life is about choices.

    If you don’t make the choice to save for your future self – Fine.

    However, at least have the consistency to not complain about the generosity of the Canadian tax payer when you are retired.
    I am not interested in paying for your lack of planning.

    One Dad

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    1. Good point about not interested in paying for others’ lack of planning. I believe in a minimum income security (for low income and disadvantaged people) but I don’t believe in subsidizing everyone.

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  9. What would you do if your employer said “we must pay you 10% less per week? Find a new job? Sell your house? You would likely “make do”. The answer is simple. Open a savings account at the same bank that your pay is deposited to. Make sure the new account is NOT linked to your debit card. On payday, transfer 10% of your net pay to the savings account. Better yet, automate the transfer (contact your bank- they will set it up without charge). Before you know it, there will be hundreds (then thousands) that you can do with as you please- hopefully start investing. At that point Marks blog will make far more sense to you. Good luck.

    Reply
    1. “What would you do if your employer said “we must pay you 10% less per week?”

      Sure, I might find a new job but our lifestyle wouldn’t change very much. We could “afford” a -10% pay cut. We wouldn’t like it mind you but we could do it.

      I fully agree with automating money transfers to build wealth. If you don’t see it, the better 🙂 Thanks for reading Chuck.

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  10. Saving/investing is ALOT of work and requires commitment and self discipline. Start saving now; I started with $100 biweekly back in 2006 by asking my bank to deposit it directly into my self directed BMO investorline account (I fired my mutual fund financial advisor).
    I was only able to max out my RRSP each year at that time. Then slowly I started increasing my investments as $$ became available, and now I have grown my nest egg to 300K+. (RRSP, TFSA, Nonreg) I invested my tax refund and never blew it on vacations or clothes or whatever “want” I dreamed about.
    I cut out/reduced the “wants” (latte coffee, take out, frozen dinners, going to clubs/lounge’s every weekend, weekend trips to the USA)
    I drive a 10 yr old Vibe. I focussed on paying off the mortgage (paid off in 2005), redirected my mortgage payments into the investing account (so I couldn’t “spend” the extra money) I never kept up with the Jones’s because my goal was to retire as early as possible.
    I was a single mother with 2 kids (in day care too) and I have a good job. They had hand-me-downs and we sometimes shopped at Value Village. We tent camped (no RV), we vacationed where we could stay with friends/family to cut costs, I never got them a cell phone or a car. My ex and I invested in RESP’s and they have completed post secondary education and both have very good jobs. Now I’ve accelerated my savings (kid free) and invest into dividend paying funds to allow a passive income when I retire.
    It is doable, you just have to be very motivated and self disciplined. Now if I could just apply myself to exercise and diet 🙂

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    1. Very well done Bonnie. Impressive work as a single mother with 2 kids. You seem to have a great savings gene and this can only serve you and your kids well 🙂

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  11. Very well written. Thank you for sharing this post. As a Certified Financial Planner I have worked with thousands of clients and they all mistakenly focus on their income and not their output (spending). Yet I have met many clients that are making minimum wage and they are doing fine since they are avoiding all debt, living in a home that suits their financial situation, and have become adept at finding free fun activities. In the 70’s families of four lived in average 1200 sq. ft. homes.Now the average is two people living in 2800 sq. ft.

    Reply
    1. Great to hear from you Lisa and thanks for the kind words about the post and site.

      Unfortunately most people have needs and wants totally ass backwards. Once they get some of those things figured out, they’re usually on a good path.

      To your point “happiness” in life is not derived from a 2,800 sq. ft. house. 🙂

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  12. I don’t remember the numbers off hand anymore but my niece finally switched her bank from one of the big 6 to a local credit union and immediately saved a fortune in fees. It was a small thing but for many people inertia takes over and they never do.

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  13. Just adding to Rob’s point above when my son needed a mortgage we did a little test to see how his bank would compare. They quoted him 5.24% for a 5 year fixed mortgage. As a mortgage agent I got him the exact same product with the same bank for 3.29%. So to give everyone an example of how the figures look. He saved $26,409 over the 5 years in payments and owed $11,889.67 less upon renewal. So I am passionate in sharing this because I was with the banks myself for for 32 years with my home and rental properties and I could cry over the money I threw away. Find someone you trust to handle your mortgages. A mortgage agent works for you not the lenders and have your best interests at heart!

    Reply
    1. I think this is a good example, in general, to get “the big purchases” in life right. Sure, yes, small purchases add up over time. But if you buy too much house, own too much car or dine out too often you’re already setting yourself up to fail on any income.

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