This is especially true right now.
Was that title clickbait? Yes.
Is it true? Yes.
For years, banks have not offered competitive savings rates in deposit accounts. This allows them to make a lot more off of your money. With the current high rate of inflation, saving money in a “savings account” costs you about 4-5% in buying power annually (If you’re even getting a “decent” interest rate.) Compounding this over time, it’s losing you a ton of future buying power. If you’re planning to save your way to retirement, plan on being very poor.
Knowing where you are and planning where you want to go is what matters. If you haven’t started yet, it’s never too late.
“Somehow you strayed and lost your way, and now there’ll be no time to play, no time for joy, no time for friends – not even time to make amends.” – The Cheshire Cat, Lewis Carroll, Alice in Wonderland.
Basic Retirement Planning
It’s incredible how many people will spend hours and hours watching a show on Netflix but won’t take a few hours to make a family budget, monitor their finances or plan their retirement.
Everyone needs a plan.
It starts with a basic personal or family budget and knowing where things stand. If you don’t know where you are, it’s hard to get anywhere. Then, you’ll need to figure out where you want to go.
Starting here and now is the best thing you can do for your financial future. Here’s how:
- List all your sources of income
- List your necessities
- Rent or mortgage payments
- Retirement planning (yes, this is necessary!)
- List your luxuries
- Eating and drinking out
- Event tickets and entertainment
- Other entertainment, such as streaming services and music subscriptions
- Other hobbies and extracurricular activities
Once you’ve figured out how much is coming in and how much is going out, you have a starting point. If that number is negative, you need to reevaluate and figure out how to make the numbers work. You can increase your income or decrease your expenses to a positive number.
The next important step in retirement planning is deciding what kind of lifestyle you want. Essentially, how much money will you need?
Some questions to get the juices flowing:
- Where are you going to live? Is it in Canada? Or abroad? Are you renting? Or will you own it? If it is abroad, what is the comparable cost of living?
- What are you going to do with your time? Are you planning on travelling extensively? Or hole up in the local library and read as much as possible? Or just good ol’ Netflix?
- Who will you be supporting? Will you have a spouse that needs support? Will your children be independent, or will they need help?
- How will your health be? What do you need to plan for in that regard?
Remember that you’ll still have to pay for food and other necessities.
Getting these ideas roughly planned out will help you determine “The number.” What do you need to accumulate to live the remainder of your life as you desire?
So you’ve figured out where you are, and you’ve figured out where you want to be. Now you have to come up with a plan.
There are a lot of “Financial Planners” out there. Think about anyone at the retail level in the bank. The “Financial adviser” you meet or speak with has you answer a handful of questions in a risk survey and then sticks you in whatever product management is pushing that week. This is not financial planning. Unfortunately, most of the general public gets this type of “financial planning.”
Understanding your timeline and risk tolerance is vital to make investment decisions, and serious consideration is necessary. Financial product salespeople will make money from you no matter what product you invest in. There are many people out there who sell financial products – banks, “financial advisers,” and multi-level marketers.
Work with Professionals
It’s ok to ask about someone’s credentials. It’s ok to probe the salesperson’s knowledge. It’s your money, your right, and your life.
Certified Financial Planners are an excellent place to start, but they often only work with individuals over a certain amount of investable assets. Regardless of the professional, get to know them and ensure you’re comfortable with them. Do you feel like you can trust them?
Use the System
In Canada, we have a lot of programs that can help us save for homes, retirement, education and health. Get to know them and use them appropriately. Watch in the next few weeks for our blog to discuss some of these “Savings” vehicles.
Invest, Don’t Save
Remember that no matter what, you must invest in these vehicles, not save. Saving will lose you money over time – guaranteed!
- Don’t forget the Registered Retirement Savings Plan (RRSP) contribution deadline is March 1st, 2023! Set up your CRA My Account to look up your RRSP and TFSA contribution room.
“Would you tell me, please, which way I ought to go from here?” asked Alice.
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.