The Art of Saving

Whether your financial goals include retiring early, taking plenty of vacations, or buying a new toy, all working adults should agree that instituting a savings plan for these things is essential. Am I saving enough for retirement? How much do I need to sock away to go on vacation? How much is acceptable to spend on leisure items? All of these questions are quite personal and therefore differ on an individual basis, but the implemented savings plan should be essentially identical.

There are two basic saving methods (apart from not saving entirely) that one can implement to reach personal finance goals.

  1. Pay off expenses first, save the rest.

This method is by far more popular but I feel that it is inefficient in enabling one to meet their financial goals. This method prioritizes expenses over savings and enables one to save little or even nothing if it means that expenses get paid. It is no wonder that the average Canadian savings rate hovers below 6% of gross income.

2. Pay yourself first, then pay off expenses.

This system of saving is what I believe all working adults should strive towards. By prioritizing saving over expenditures one affirms the ideology that one’s own retirement, vacations, and leisure spending money are more important than other expenses. By forcing yourself to pay yourself first, and then expenses last, one cannot lag behind on savings goals. In my opinion the best way one can implement this saving strategy is through automation. That is, setting up an automatic savings contribution plan corresponding with your pay schedule.

Your own personal savings goals I cannot comment on since these are highly dependent on personal situations, but I can suggest the Pay Yourself First method of saving for those goals. If you and your significant other want to take an annual vacation that will cost roughly $3,000 you should set up automatic contributions of $116 bi-weekly to a savings account for that specific goal. If you wish to save 15% of your income for retirement you should set up an automatic contribution of 15% of your paycheque each pay period for that specific purpose.

It really is that simple.





A Man With A Plan

RETIREMENT. The end goal for most working folk. Whether you’re nearing your 60’s or just starting out in your career, retirement is an essential part of your financial plan. When can I retire? A question most only ask themselves when they are a ways into their working careers but it is a question I attempted to answer right from the start. Knowing when to retire is quite a simple calculation.

There are only 2 things you must consider in determining when you can permanently leave the work force.

  1. How much money will you need (monthly) in order to comfortably live the lifestyle that you choose in retirement.
  2. The date of your death.

All joking aside, all that you really need to determine in calculating when you can comfortably retire is your expected monthly expenses during retirement. If you know this figure (and ballpark is okay) you can begin to plan for retirement.

MY PLAN: Build enough wealth during my working years so that I can withdraw $24,000 per year ($2,000 per month) for expenses without depleting my capital. I plan to accomplish this by continuing to live a minimalist lifestyle and keeping expenditure extremely low in order to allow my investment contributions to be extremely high. When I satisfy my goal I will retire.

In dollars and cents: the wealth that I will need to build in order to withdraw $24,000 per year at a safe withdraw rate (meaning that the withdrawal amount can be expected to replenish by earned interest) of 4% is in the neighbourhood of $600,000. Thankfully since I am planning my retirement so far in advance I have time and, consequently, compounding interest on my side.

I will have more on retirement and the safe withdrawal rate method that I am choosing to deploy in my retirement efforts. Hope any and all readers of my blog have a wonderful weekend.

Beginning At The End

A fitting way to begin my personal finance journey with you would be to define and explain my end goal. For some their journey ends when they have completed their 35+ years in the workforce and collect a company pension in retirement. For others it ends when they reach the ripe old age of 65 and begin to draw from RRSP savings supplemented by CPP and OAS. The ideal end of my journey is something else all together.

WHY DO WE WORK? A question with a seemingly obvious answer but when we explain why we work we simultaneously define the parameters for when we can stop working. In other words, if we can satisfy our reasons for working without needing the income stream that work provides we can theoretically retire from the workforce.

My end goal is to accumulate enough capital over my working years to be able to retire not when I am 65 or when my work pension is satisfied but rather the instant that my own financial needs are satisfied. How and when I will achieve my goals is a topic for a future post. Stay tuned.