According to a recent poll, almost 32% of Canadians are nearing retirement without any money saved at all. Whether you’re 25 or 55, it’s never too late or too early to start planning for retirement. To help you get started, we’ve rounded up several good ways to save money and start planning for retirement.
Retirement is a long-term saving strategy. The longer you’re saving, the better off you’ll be down the road. This is where starting a savings plan early is so critical. Let’s get your retirement savings plan in action.
How to Budget
When you’re trying to start a savings plan, you’ll always want to begin with a budget. It’s hard to know what you can save when you don’t know how much money you have going in and out each month. You can start your budget in a digital worksheet, in an app, or with an old-fashioned pen and paper.
To start, write out all your income sources. Next, write out all your fixed expenses. A fixed expense is something like a rent payment or a car loan payment. These expenses have to be paid each month.
Your other expenses are likely ones you can cut if needed. These are expenses such as a monthly fitness membership or a music subscription. Once you see everything written out, you should have a clearer picture of what you’re left with.
If you’re unhappy with what you have leftover each month, it’s time to make some cuts. The more you can trim, the more you’ll be able to do with your money. Any extra income will go into a savings category that you can budget out for retirement, emergencies, and other financial goals such as buying a house or paying down debt.
Where to Make Cuts
Once you have your budget written out, you may be surprised by some of your expenses. Maybe you didn’t realize you’re paying for a spin class you haven’t been to in over a year. These are the types of expenses that can really add up.
Anything extra in your budget that you aren’t using at all, should go. Make some calls and set aside some time to cancel those items. You may find, you’ve instantly added a big chunk of extra money to your budget each month.
Next, you can focus on some items that may be harder to cut. Ask yourself some tough questions here. Is your daily latte more important than your retirement, for example?
Consider making coffee at home, making your own meals, or cutting back on dining out. Even small budget cuts can really add up. There’s also no need to cut all the fun and luxury out of your life. This isn’t sustainable and you may end up blowing your budget down the road.
Start a Savings Plan
Now that you have your budget tightened, it’s time to start making a plan for your newfound savings. It’s helpful to divide your savings into a few different categories. Categories may include, paying off debt, emergencies, travel, and retirement, for example.
First, if you have a decent amount of debt, you’ll want to put some of your savings into paying this down. High-interest credit cards, for example, are costing you a lot of money. Carve out some of your savings to go towards paying off your debt. Once this is gone, you’ll have more to save for retirement.
Next, decide on a number you want to put towards retirement each month. This number can always change as your life changes. You may start with a large number and scale back a bit after having children. Once your children are grown, you may bump this number up again. The important thing is that you’re saving.
A great way to make sure you’re saving is to make saving automatic. Most banks allow you to automatically transfer money from a checking account into a savings account each month. This will help you save without the temptation to spend.
Set Retirement Planning Goals
Your retirement goals will look a lot different at different stages in your life. In your 20s, for example, you’re likely just trying to get started saving. This could mean enrolling in a Registered Retirement Savings Plan (RRSP) account when you start your first job or creating a savings account just for retirement.
In your 20s, you likely don’t know when you’re retiring or where. It’s just important you get started. The sooner you start saving, the more time you have to accumulate wealth. In your 20s, 30s, and 40s, you’re also in your prime working years. This means your income is likely increasing with age and new career opportunities.
In your 70s, for example, you likely aren’t earning an income from a paying career anymore. Take advantage of your working years by maximizing your retirement savings during this time period. Next, you’ll want to start setting some savings and retirement goals.
Start by setting small goals to help you reach your larger goals. Let’s say you have a large goal of paying off your mortgage by the time you retire. A small goal could be to make one extra mortgage payment a year or to refinance. Think of these small goals as stepping stones to help you reach your larger goal.
Taking Advantage of Employer Funded Retirement Accounts
If you have access to an employer-funded retirement account, such as an RRSP, it’s time to start maximizing this. If your employer is offering a match program, this is essentially free money. Your employer is matching your contributions up to a certain percentage.
If you aren’t at least contributing what they are matching, you’re leaving free money on the table. The longer you stay enrolled in this program, maxing out your free contributions, the better. This money will quickly add up over time.
If you don’t have a company that offers an RRSP plan, there are other similar options available. You can also enroll in a self-funded RRSP to start saving for retirement on your own.
Make an Investment Plan
If you have an RRSP, this is the easiest way to start saving for retirement. It isn’t the only way, however. There are other stock-based investment accounts that can help you reach your retirement goals.
Consider investing in the stock market, a mutual fund, or a Tax-Free Savings Account also known as a TFSA. These are accounts you can open on your own or with a financial advisor. The longer these accounts are open, the more money they accumulate as you age and continue to contribute.
Real estate is another great investment tool. Owning property means you’re putting equity into a home each month. When you retire, you may be able to sell a property for cash. You can use this to buy another home, mortgage-free or as income in retirement.
Have Regular Financial Check-Ins
Whether you’re starting to plan for retirement in your 20s or your 60s, it’s important to have regular check-ins with yourself and your partner or spouse. If you have a financial advisor, yearly meetings with them are helpful as well.
At your check-ins, discuss your progress and your goals. Take a look at your savings, your debt, and how your retirement goals are tracking. This is also a great time to change your goals as you age.
In your 50s, for example, you may have a better idea of when you’d like to retire. You may start putting your retirement plan into action. This could mean selling a home, leaving a job, or making a career change.
Your retirement and saving goals won’t be the same in your 30s as they are in your 60s. It’s important to adapt your plan to the stage of life you’re in. It’s also nice to hold yourself accountable to see if you’re meeting your goals and sticking to your budget.
Good Ways to Save Money
When it comes to retirement savings, the good ways to save money begin with starting early. Let’s say you save $5 a day for retirement starting at age 25. At age 65, that $5 has turned into $73,000. If you wait to start saving $5 a day until you’re 55, that only adds up to $18,250.
You can see that how long you save is sometimes more important than how much you save. Saving for retirement is a great way to ensure your golden years are your best yet. You never know what will come your way later in life. The more prepared you are, the more stress is off your shoulders.
If you’re ready to start paying off debt or getting your finances back on track, fill out the contact form here. We have loan options to help you reach your financial goals now and in the future.