How Saving is Bringing Sexy Back

Justin Timberlake can only bring it back a limited amount of times. But saving can do it every month....

According to Google, the definition of saving is income not spent, or deferred consumption. For many, this is all there is to saving. Payday hits every two weeks, you pay your credit cards and other forms of debt to avoid those pesky collectors, pay your rent, phone bills, and other typical expenses. For you lucky few, if your living expenses do not consume your entire income, you have a little money left over to self-indulge. If you are financially savvy and future oriented, you might save and invest.  However, this typically is not the case as North America’s economy is primarily driven by consumption. According to Statistics Canada, the household saving rate, which represents the amount of disposable income that remains after spending, fell to 0.8 per cent, the lowest it has ever been in a decade. Don’t believe me? This article has more information. 

Not only is consumerism attributable to falling saving rates, but also the low interest rates that are available out there. For example, TD High Interest Savings Account has a meager return of 0.50%. Did you notice they call it a  “High Interest Savings Account”? Consumer debt such as our credit cards have between 11.99% - 24.99% interest rates, but nope, not for our savings accounts. Thanks Big 5. 

So with such returns, it is easy to see why we would be less inclined to sock away some of our hard earned money, and opt to go out and buy that pair of cute Lululemons  you saw yesterday as you walked by Rideau Centre.

However, the purpose of this article is to give a different perspective to the purposes of saving and why you should still put some money aside every month regardless of the return. It’s for the greater good of your future, or at least, that is our hope right? So if you are still with me, please, read on!

Why Save? 

Some of us save for major life expenses such as a vehicle, or a down payment on a house. We save for other discretionary purchases like cellphones, laptops, the new Yeezys about to be released, etc.  However, what is the common theme in saving for these purposes? You are saving for future consumption. It is delayed spending.

Saving should mainly serve three purposes, which are as follow: 

•  Save for unexpected/unforeseen life events such as illnesses or accidents. You do not want to put these expenses on credit. Remember the high interest rates on consumer debt  and the annoying collectors that I mentioned?
•  Save to donate to your favourite charity or a great social cause. Karma is real people. 
  
•  Save to invest. More on this later.

How much should I save? 

 This is entirely dependent on your current circumstances and what you are able to put away without altering your quality of life. There are suggestions on the internet ranging from 10% to 40% of your gross monthly income. Gross meaning, no employment expenses such as CPP, EI and taxes or any other annoying deductions that you see on your pay stub are taken out. This will allow you to save a bit more than if you were to focus on your net income as the base of your savings rate. As long as you are saving a little amount every month, it will add up. Consistency is more important than how much you put away, as this might tend to vary from month to month, depending on your lifestyle. However, if you can commit to a fixed amount every month, you are golden.

I recommend saving more than you ideally think you should, just to get you uncomfortable and your creative juices flowing. "How will this get my creative juices flowing", you may ask?  Well, if you are putting more money away, you have less money to live on (duh!). This will make you think of ways to reduce your expenses  or find new ways to earn more money, both of which will make you better off financially in the long run. 

How should I save? 

Pay yourself first! This is a popular phrase in personal finance literature which means that you immediately route your specified savings amount at the time your paycheque is received. It is referred to as “paying yourself first” as money is put in your savings/investment account before you begin your spending or discretionary purchases.

To make saving easier and more habitual, you should automate it. Set up a recurring transfer to your saving/investing account for your specified savings amount, on your payday. All future savings contributions will be handsfree, and you do not see that money. Out of sight, out of mind!

For savings accounts, the big 5 banks do not pay much. If you are looking to open up a savings account with slightly better interest rate offerings, I recommend checking out online based banks. They typically provide better rates as they are able to save on costs that are synonymous with major banks such as the operational costs of physical branches. Also, check out the Best Highest-Interest Savings Account in Canada for more information. 

Save to Invest

I mentioned earlier on, that saving to invest should be one of the major reasons to save.  The reason is, you are likely going to get a better bang for your buck if you were to invest your money and earn passive/recurring income through dividends or distributions. “But where do I invest my money”, you are probably thinking. Well, there are multiple ways you could put your guap to work for you. The most common is the stock market. Mutual Funds and Index funds are what most people invest in. For the brave-hearted, they invest in individual securities. There are other investment vehicles such as real estate, peer to peer lending, bonds, commodities and cash equivalents. For more information about these investments, please consult your financial advisor. You can also check out WikiHow on some general knowledge.  The beauty of putting your money in a savings account that pays interest, albeit very little, you are able to receive a small monthly interest payment (which is better than keeping your savings in cash, or a cash account) as you educate yourself on the various investments that are available to you. After sometime of gaining some investment knowledge, you would have grown your savings amount to a sufficient amount and will be ready to pull the trigger on your investment. You’ll have another source of income (your investment) and have newly gained knowledge that you can share at your next soiree. Now that’s sexy.

Recommended Books for investing and improving financial literacy:

Richest Man in Babylon by George Samuel Clason

Rich Dad Poor Dad by Robert Kiyosaki

Your Money or Your Life by Joe Dominguez, Vicki Robin and Monique Tilford.

Think and Grow Rich by Napoleon Hill

I believe these books will help set you on a path of lifelong learning about finances, investing and will definitely increase your financial literacy. Check them out!