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.





Why Minimalism?

If we strip personal finance to its core it seems to always revolve around the same principal: SPEND LESS THAN YOU EARN.

There are two basic ways to make this happen.

  1. Increase your earning potential
  2. Decrease your expenditures

The first way seems to be the most popular route. It is true that, objectively speaking, earning more money is a better finance strategy than spending less. After all, there is no real limit to how much one can earn. If it is possible for you to increase your earning potential through education, developing marketable skills, and/or networking than it very well may be worthwhile to pursue those options.

The second way, which I am attempting to accomplish through minimalism, tends to be less popular and less appealing. Objectively this strategy is worse than the first as there is a limit to how much one can decrease expenditures. However, I feel that this strategy has merit and is tremendously valuable. After all, these two strategies are not mutually exclusive. One can be at a tremendous advantage if one practices a minimalist lifestyle while or prior to striving for an increase in earnings.

The largest pitfall of the first strategy tends to be that increases in income rarely leave lifestyle unchanged. That is, those who earn more spend more simply because they can. This is where I believe the minimalist lifestyle perseveres .

Minimalism is not about pinching every penny and sitting in your dimly lit unfurnished single-bedroom rented apartment crying between work shifts. It is about eliminating all unnecessary expenditures in your life that do not add value. Ask yourself, what do I value? Almost unanimously we answer that we value happiness and therefor we should be spending our hard earned money on things that make us genuinely happy. That’s what minimalism means to me. Spending as little as possible by limiting my spending to experiences and commodities that bring me genuine happiness. Think about your own purchases over the last year. If you cannot remember a good portion of the purchases on your credit card statements it might be time to reevaluate your spending habits.

The most amazing aspect of minimalism is that when you consciously consider what purchases and experiences bring you happiness, and not the brief joy you may get from buying the latest gadget, but genuine happiness you will notice that these are the often the least expensive. Going on a hike with your family, learning to cook a new kind of cuisine,  going to a public skate with your friends, going to your city’s  yearly festivals, volunteering to a cause you strongly believe in, staying in on the weekend and treating yourself to a pjs only kind of day…the list goes on. Do I care that I do not have the latest and greatest phone? No. Do I care that I’m missing out on watching tv shows on a $3,000 4K entertainment system? No. Do I care that I don’t get to drive to and from work in a quickly depreciating $50,000 “luxury” vehicle. Definitely not.

This conscious minimalism can be an invaluable tool for creating wealth, for when income and earning potential increase, the disciplined minimalist inflates their investment portfolio and not their lifestyle.

That’s all for now, have yourselves a wonderful weekend.

Cheers, Andy.