The truth about saving
Many people think that saving is all about retirement, or budgeting, or being able to buy a home. Sure, it’s related to all that stuff, but when it comes down to it, saving isn’t a goal, or a finish line. It’s a set of habits that are key to your financial and mental well-being. This means that saving will look different to you based on your unique situation, your goals, and where you are in life.
To better explain this, let’s take a look at key saving strategies for different stages of life:
Saving in your 20s
Saving is a life skill. You wouldn’t wait until your 30s to learn how to cook or do your own laundry (we hope). Developing good saving habits is no different. In your 20s, you may be recently out of school and starting your career. You might want to pay off student debt, or buy your first home, or both - and saving can help you with that.
Think about saving as financial security. Form good habits now, and you’ll feel more confident in your future.
Here are some key strategies:
- Pay yourself first: Set aside part of each pay cheque and add it to your savings. In fact, you can set up a plan to do that automatically with pre-authorized contributions.
- Know what you owe: For some people, paying off debt - especially high interest debt - is the best first step. Figure out what you owe and how to start paying it off.
- Learn about money: The fancy word for that is “financial literacy,” but getting started is actually simple. There are tons of websites, blogs, magazines, and podcasts out there to help you learn more about managing your money.
- Track your spending: The best way to start cutting back is to find out where your money is really going. Print out six months of account and credit card statements to go over, or try a money-tracking app!
- Set up a TFSA and start contributing to it. The earlier you start, the more you can earn!
Saving in your 30s and 40s
Life is often full of big changes when you’re in your 30s and 40s. You might be advancing your career, taking care of your family, managing a mortgage, paying down debt, and building up your savings. Sounds like a lot, right? It is, which means that you’re often spending more than you’re saving during these years.
That doesn’t mean saving isn’t important, though. This is the time to evaluate your short- and long-term financial goals and make sure you have a clear plan to stay on track, which may mean careful budgeting and regular savings contributions.
Here are some key strategies:
- Save for retirement: If you aren’t contributing regularly to an RRSP (Registered Retirement Savings Plan) - start now. RRSPs are tax-sheltered - you don’t pay any tax on the interest, dividends, or capital gains your investments earn and contributions are tax-deductible.
- Invest for education: Sending your children to university is expensive, so make things a little simpler by setting up RESPs (Registered Education Savings Plan). Savings in an RESP grow tax-free - plus, there are government grants that can help with your contributions.
Saving in your 50s, 60s, and early 70s
Saving becomes an even bigger priority as you get older. With retirement on the horizon, it can feel like you have this ‘savings deadline’ to meet. Don’t panic. No matter where you are in your savings and retirement planning, you still have time to get on the right track.
Start by getting a clear sense of your financial situation by asking questions like: How much debt do you have? Where’s your cash flow coming from? Once you know where you are, it’s much easier to map out how you’ll get to the place you want to be when you retire.
A key strategy for saving in your 50s:
Maximize your RRSP contributions and consider other options like TFSAs and other non-registered accounts.
A key strategy for saving in your early 60s:
It’s time to re-evaluate your ideal retirement scenario and budget. Work with an advisor to optimize your portfolio and decide when it makes sense for you to start receiving Canada Pension Plan (CPP) payments.
A key strategy for saving in your late 60s and early 70s:
It’s time to enjoy retirement and all the work you put into saving for it. Give yourself some peace of mind by setting up annuities or other forms of investment income. Also, make plans to transfer your savings from RRSPs to RRIFs when you (or your spouse) turn 71.
Learn more about saving
4 reasons to get a TFSA
5 good habits of successful investors
6 ways to add money to your RRSP
A version of this article was originally published December 2020.