Saving: Where to Start?

Whether you want to start saving (or improve saving) in a TFSA, RRSP or a plain old savings account with your bank, you have to make a decision before you even consider risk tolerance, savings vehicle, and investment goals. You have to figure out how you're actually going to do the saving.

There are two methods of saving that I've seen fail pretty consistently, and they are as follows:

1. Deciding to save whatever you have left at the end of a pay period after you've paid all of your expenses. So you get your paycheque (let's say for simplicity's sake you clear $1,200 biweekly), and after paying rent, bills, etc. you put whatever is left into your savings vehicle.

2. Having easy access to your savings account. So, regardless of how you decide to save, you can remove the money with the click of a button anytime you feel like accessing it.

These two styles fail for two different reasons.

The first fails because, honestly, most people either forget to tuck the money away every two weeks, or they get to the end of the two weeks and realize they don't actually have much, or any, cash to add to the account. I've been working as a financial advisor for 4 years, and in that time I've had a few clients come in and tell me very confidently that they can save better on their own, without my help or plan. Fast forward a year from that meeting when we sit down again to do an annual review. I show them how much they would have saved with me, and then I ask them how much they saved on their own. Almost without fail, I've got the winning number and we end up moving forward together. This is partly because my method involves a set Pre-Authorized Contribution (PAC), say $100, set to the day your paycheque lands in your bank. We call this "paying yourself first" in the biz. So mentally, you're living as though you have $1,100 landing in your account biweekly. We always choose a conservative number to start, so that you're not overwhelmed with a slash to your budget. It's just a phone call to increase or decrease your PAC, so don't get too hung up on the number you start saving.

The second point above fails because accessibility to your savings can create a situation where you're putting $100 in every two weeks and pulling it right back out with a few mouse clicks. Sometimes having your savings being an extra step away (like a phone call to your advisor or a temporary hold) can make you question whether you really need to remove it or whether you should keep saving for that vacation you want to take next year, or those snow tires you'll need for winter, or that early retirement someday.

So. The best way to start saving, regardless of your budget or goals, is to set up a PAC for the day your paycheque lands and put your money in a vehicle like a TFSA or RRSP (vs a savings account you can access with the SAVINGS button on your debit card, for example).

I can personally attest to this method. Years before I began working as a financial advisor, I set up two TFSAs. One was for "bulk saving" where I would consciously put extra money, and the other had a $25/week PAC. In the beginning my bulk saving TFSA was much larger, but within a few months my PAC TFSA slowly took over. I hate to relate all of this back to fables but this is a true case of the tortoise and the hare.

There are definitely exceptions and some people take an active interest in their savings. Nine times out of ten though this "set it and forget it" method of saving is going to get you consistent results, and it doesn't hurt! Most times, my clients don't even notice a change of lifestyle at all.

As always, if you have any questions just reach out and ask! I'm happy to help, and happy to see the women around me grow their wealth and knowledge.

Peace, love, and WEALTH,
-Rachael