If you find your best intentions to save are not helping your piggy bank, you’re not alone. Consider that in the latest 2012 Stats Canada census the average Canadian household earned $74,540 and spent $75,443. That means instead of putting money aside, on average, we drove ourselves $1k deeper into debt! An interesting additional stat published by CIBC revealed that 57% of Canadians planned to contribute to their savings in 2012. Ultimately only 26% of Canadians made contributions to their RSP in 2012. Not only are we poor savers…we’re also a bunch of liars.
There are plenty of financial commercials out there urging us to save and the government practically begs Canadians to do the same via their tax shelter plans (TFSA, RSP, RESP). Granted, there are lots of households out there struggling to make ends meet so saving for a rainy day is probably quite low on the priority list when you’re close to drowning already. In general we view saving as a good thing and most people understand that they’ll need accumulate money to pay their way once they retire. However, for the majority of households despite their understanding, saving it doesn’t seem to be happening.
In its simplest form saving is delayed gratification. The idea is you put off buying a few things you could otherwise afford now so that down the road you’ll be in a better financial position. So why do we struggle when saving is obviously in our best interest? The scientific answer is spending money on things gives our brain a quick splash of euphoria. We associate spending with happiness and the two become fused in our minds. As we spend more there is diminishing returns (we need to spend more to obtain the same euphoric feeling as before). I imagine a shopaholic would be at the extreme end of this spectrum.
It seems some people are just born savers and they are easily able to sock money away consistently. I’ve always considered myself a saver, and for me, it’s driven by a fear that I won’t have enough money down the road. The fear is enough to drive me to put off buying a new pair of running shoes when I’ve burned through the soles of my current pair. It’s enough to make me never use a shopping cart in Costco for fear I’ll spend out of control…and the list goes on. There is also an extreme side to this spectrum, which can be equally self-destructing as the above spenders.
An obvious argument against the savers is you can’t take your money with you. Agreed, but I’d rather be prepared than caught out and in the end you can always leave your savings for those you love. Like most things in life, there’s a balance to be found here between saving and spending.
So if you find yourself unable to master your domain of spending here’s two tips:
- 1) Create Financial Goals
It’s hard to save when you don’t understand why you’re saving. That’s like running a race without knowing the location of the finish line. Once you determine your long term needs it becomes a lot easier to set your short term goals. If financial planning isn’t your forte, it makes sense to hire a fee-for-service financial planner who can help put this all into perspective.
- 2) Set it and Forget it (automation)
Take your emotions out of the equation and set up automatic withdrawals from your primary bank account to a separate savings account. I recommend setting up this withdrawal on your pay date so you don’t even notice the reduction in cash. Most banks allow you to set up regular bills payments to separate accounts free of charge. Below is a snapshot of my automatic bill payment to my Questrade Inc. savings account:
If you’re still wary in regards to your spending habits and saving amount check out this review of Digit, by my bud J$, a new service that helps analyze your spending habits and then automatically sets money aside from your account into a separate savings account. The service is currently only available in the US, but I suspect eventually it should roll out into Canada. These types of services could have a huge impact on those that struggle with the concept of saving.
The earlier you start saving the more the power of compounding interest starts to kick in. Even setting aside a couple bucks each month will have a huge impact in the long run, so don’t tell yourself it’s not worth saving. While investment gains and the market are factors often beyond our control our ability to consistently contribute to our nest egg is often the key to a prosperous, financial worry-free, life.by