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.
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.