More than half of Canadians—62 per cent—say they simply don’t have enough money left to invest after covering their basic living expenses, according to a survey by Investors Group Inc. This is an alarming statistic, especially considering the aging population, the cost of higher education, and the unpredictable real estate market. Canadians can’t afford to live paycheck to paycheck without building some savings for the future.
Aurele Courcelles, director of tax and estate planning at Investors Group, suggests practical ways to reduce daily expenses and start building your nest egg. Here are five tips to help you get started:
1. Stick to a Grocery Budget
In a recent poll, 66 per cent of Canadians said everyday living expenses, such as groceries, were adding to their debt load. To manage this, Courcelles advises creating a realistic grocery budget. “The key to managing household finances is understanding your expenses and then developing a budget that you can stick with,” he says. Tracking grocery spending and cutting back on unnecessary purchases can free up money for savings.
2. Cut Back on Entertainment Costs
Another surprising statistic: almost a quarter of Canadians (23 per cent) say entertainment and recreation are contributing to their debt. Courcelles suggests a more thoughtful approach to spending on leisure activities. That new giant TV might be tempting, but is it really necessary? And do you need a brand-new car, or could a slightly older model meet your needs?
He recommends Canadians make more prudent decisions when it comes to luxury items and discretionary spending. Even cutting back on regular visits to restaurants or reducing impulse purchases at your favorite retailer can make a significant difference.
3. Boost Your Interest Earnings
Investing doesn’t have to be complicated or require huge sums of money upfront. “The earlier you start saving and investing, the more your money can grow over time,” says Courcelles. Starting small but consistently is key. He adds, “Slow and steady can win the race.”
To illustrate, he shares this example:
- Mary invests $2,000 at the beginning of each year between ages 21 and 29, totaling $18,000. With a 7% pre-tax return, by age 65, her savings will grow to about $293,000.
- Lynn, who starts investing $2,000 annually at age 30, will need to contribute a total of $70,000 over 35 years to reach the same $293,000 by age 65.
This shows that even starting with small amounts at a young age can have a big impact.
4. Know When to Borrow
Borrowing isn’t always a bad thing, especially when it comes to your financial future. “An RRSP loan can be a smart way to take advantage of unused contribution room, generate tax savings, and kick-start your retirement savings,” Courcelles explains.
Here’s how it works: You borrow to make a larger RRSP contribution, receive a bigger tax refund, and use that refund to repay part of the loan. You then make monthly payments until the loan is paid off. However, Courcelles emphasizes the importance of carefully considering how long it will take to repay the loan and ensuring that you have a plan in place.
5. Create a Payback Plan
When borrowing to invest, having a clear plan to repay the loan quickly is crucial. Courcelles advises working with a financial advisor to develop a manageable payback strategy. “The key is to ensure you can pay off the loan as soon as possible, ideally within a year,” he says.
One useful tip: use your RRSP tax refund to help pay down the loan faster. This not only helps you build your retirement savings but also ensures you don’t carry debt for too long.
In conclusion, while many Canadians feel they don’t have enough money to invest, small changes to everyday spending can free up funds for savings. By budgeting wisely, cutting back on non-essential expenses, and seeking smart borrowing strategies, Canadians can start securing their financial future.
