Friday, August 12, 2022 / by Mario Daniel Sconza
We often hear the mantra, “pay yourself first” when it comes to personal finance. This concept of automatically routing some of your salary every payday (before you can spend it!) into a retirement investment account isn’t hard to understand, but it’s hard to implement if you need every nickel just to survive until your next paycheque.
Discipline and dedication to the cause will help, but they are only part of the savings solution. The fact is that to succeed at saving in today's world, most of us will need to earn more and/or spend less. It’s like a sports team, making more money is the powerful offense that can help you mow down any and all expenses that pop up along the way and still leave you with money in your jeans. It is supplemented by your defense, which relies on restraint and monitoring to control expenses at their source... before they vacuum up your potential savings.
Trying to make more money is often the go-to solution as no one wants to cut back, but there are definitely some drawbacks. More income means more taxes and it many also lower benefits like your GST rebate or CCB benefits. If your tax rate is around 20%, an extra hour at $15 hour will have the same effect as cutting about $12 from the household budget.
Working more will also rob you of precious free time so there are significant social costs as well. If you have to incur additional expenses such as a babysitter or dining out more because you have less time or energy to cook, those costs need to be factored in as well.
Perhaps the biggest problem with working more is the very strong tendency to spend more! This is where discipline and determination come into play — make sure you earmark that extra money for saving and try to keep your expenses at the current level. Making more money won’t solve your problems if you continue to spend too much, make poor spending decisions, fail to invest, and have no goals to help motivate you and measure your financial progress.
You should also look at your debt cost to see if you should be saving in the first place! If you carry a credit card balance for example, you should definitely be throwing everything you have at it instead of saving. Even with the recent rise in interest rates, you would be lucky to get 4% on cash savings — most credit cards have rates four or five times that figure. You could also invest any extra money, but you have to add in the risk factor and you would be hard-pressed to get returns that exceed the interest rate on most credit cards.
Turning to defensive savings strategies, there are countless articles churned out every day on how to spend less, and they may yield some good tips that are practical for your situation. Look for easy things like taking advantage of grocery store bargains, collecting points or discounts on a credit card (but paying the balance in full every month!), or clipping coupons.
There is no end to the money-saving ideas and hacks, but the first step is to know your costs. You can’t kill what you can’t see, and household expenses are no exception. You need to track all your expenses for at least a month and analyze where your money is going.
You may find some low-hanging fruits like a lightly used membership you could cancel, or maybe you didn't realize how much those nights out on the town are adding up to every month. On the other hand, you may find the low-hanging fruit is long gone and that making more money is your only way forward! Make sure to track your expenses first and give yourself a realistic starting number before you dive into a more austere budget.
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