I recently wrote about the problem with retirement calculators and it really got me thinking about how much I have saved (or not saved!) for my future. It’s not like I don’t think about saving but it seems like it always gets put on the back burner.
Twice now, in the last 10 years, I’ve gotten a part time job to earn more money. The hope was to continue to enjoy the lifestyle I’m accustomed to and now have some money left to put away at the end of the month. But even with the extra income, there was still always more month than there was money.
It got to the point where the extra money wasn’t worth the extra work.
Then, one night, we were listening to a radio show in the car (not my idea – I like music but when the BF is driving – it’s usually talk radio). It was a show on retirement saving and the “expert” said that most people think that making more money is the only way to save for retirement but saving more money is the real answer.
I thought to myself “wow! What a powerful statement!”
So powerful that I am going to repeat it:
most people think that making more money is the only way to save for retirement but saving more money is the real answer
For once, I agree with the “expert”!
It’s common knowledge that the more you earn, the more you spend. If you make $50,000 per year, you will live in a certain type of house and live a certain type of lifestyle. It stands to reason that if you were to double your income; chances are you would double the house you’re living in and double your lifestyle.
But there is very little chance that you would double your saving.
I’m talking about the average person here. There are those who maintain a middle class lifestyle even as their income rises and, nine times out of ten, it’s the wealthy people doing this. That’s why they’re wealthy!!
So let’s look at a few ways that you can maximize your saving instead of killing yourself early trying to earn more:
Paying off your debt should be your first priority. Yes, first even before saving because eliminating debt is part of the savings plan. Don’t listen to me, look at the numbers. RRSP investments – even the really good ones – are not paying you 22% annual returns. But your credit cards are charging you that much or more in interest. It just doesn’t make sense to pay more interest than your earning in interest. In fact, it’s just common cents. (see what I did there)
Pay off all consumer debt as soon as possible and then take those payments to start building your savings.
Get creative – paying off your debt isn’t just about making monthly payments. Can you do a balance transfer to get a lower interest rate? Can you refinance your mortgage to absorb some of the debt (again, at a lower interest rate)? Can you consolidate your debt into a lower interest loan? Reducing the interest rate on your credit means more of your monthly payment will be applied to the balance owing.
Pay yourself first. Uuuugh! I knew this rule when I was 22 years old – why didn’t I do it! It’s not too late to start though – pick an amount that is reasonable* and start putting it away now. Weekly, bi-weekly or monthly. NO exceptions. Make sure to put it somewhere that it is not easy to get to. You may not want to lock it but put it in a place where getting it out is just complicated enough to make you re-think the withdrawal.
*Note that I used the word “reasonable”. Don’t set your savings goal so high that you can’t reach it. This will only frustrate you and increase your chances of giving up altogether.
Your home can be part of your retirement savings. Paying off a mortgage will benefit whether you stay there or not. If you stay; your monthly living expenses are significantly less. If you choose to sell – whether to downsize, move to a rental or move to a location where the cost of living is much less – the equity in your home has now become part of your retirement savings.
I also like that, because it’s your principle residence that you’re selling, you pay no tax on the money you have made due to the increase in value of your home (your investment). This is unlike cashing in RRSP’s or selling a secondary property – an investment property or perhaps a cottage – where deferred taxes need to be paid.
Live below your means. Living high now could cost you later. Of course, we all want to have all of the perks in life while we’re young enough to enjoy it but what if you’re one of the fortunate folks that lives until your nineties. You need to make choices today to ensure a good quality of life in the future. And it doesn’t take much; no one is telling you that you can’t enjoy life today but it’s about balance.
Do I really need that mani/pedi? Perhaps it’s a McDonalds coffee today instead of a Starbucks Latte. Cut back on how often you eat out. Go for a hike instead of to the mall (where you will most definitely buy something you do not need).
Open a savings account and, every time you choose to do something that saves just a little bit of money, put that amount in the account. It will add up surprisingly quickly.
RRSPs aren’t the only way to save for retirement. In Canada, we now have the wonderful TFSA (tax free savings account). The TFSA allows the same benefit as RRSP’s in that you do not have to pay taxes on the growth of your money but, unlike an RRSP, you don’t have to pay tax when you withdraw from a TFSA.
On the flip side though, you don’t get a tax deduction for contributing to a TFSA the way you do with RRSP contributions. Taxes will never go away, you just need to choose when you’re going to pay them. (Sad but true)
The downside to the TFSA that I’ve found is that, because it’s so easy to get to the money, I have used it often when an unexpected expense has come up. I always mean to put the money back but . . .
Last, but it should probably be first because it’s that important. PLAN!
I’ve found that since I turned 50 years old, I think about my future a lot. Too much. I worry a lot too. Like constantly. But thinking and worrying about your future and planning for it are not the same thing.
Plan on paper. Plan with real numbers and real goals and set the plan in motion to reach those goals. And don’t just put the plan in a drawer and forget about it. Check in on your progress every year and adjust when things change if you need to.
I hope that some of this has been helpful, even if all it’s done is gotten you to start thinking – and planning. I’m certainly going to get my plan out of my head and on to paper ASAP so I can spend more time living and less time worrying about living.
It’s important to say now (mostly so that you can’t sue me for anything) that I am NOT a financial professional or an advisor. I am just a regular 50+ person like you who wants to look to the future and know that maybe, if I do a little planning, some of the worry will go away.
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