|
Like many of us, Lena, a 28-year-old graphic designer, has a number of different financial goals. She’d like to purchase a condo close to work in the next few years and build some equity, instead of paying rent — a value that her parents instilled in her. She's steadily putting away $40 to $50 every week for a down payment. Working for a small business without a company pension plan, Lena realizes it’s important to save for her retirement. However, she freely admits that, with retirement such a long way off, she hasn’t given it the priority it deserves.
Although Lena makes a comfortable salary and enjoys her life, she's been wondering if she might be spending too much on things like leisure and entertainment.
In this issue of MyVault News, we look at Lena’s situation and show how, with a few small steps, she has begun to realize some of her goals. Click through the links below to find out more.
First things first
The good news for Lena is that she’s starting out ahead of the game. Although she enjoys spending money, she has managed to do so without racking up substantial credit card debt — one of the most expensive ways to borrow. In addition to paying off all or most of her balance every month, Lena has made life easier for herself by carrying only one credit card, which simplifies her payments and makes it easier to avoid the temptation of overspending.
So far so good. Now, Lena is looking for an easy way to start putting some money aside for things she truly values. She’s tried budgeting at different points in her life, but found it too restrictive and time-consuming.
Fortunately, there is a way to find some extra money that doesn’t involve sticking to a budget. Quite simply, the idea is to eliminate some unnecessary expenses that don’t add a lot of value to her life.
Cutting back
Lena decides to track her expenses for a week to get an idea of what she’s spending on. As she suspected, a lot of her discretionary spending is on things like going to movies, spending the night on the town, magazines, and some coffee and pop throughout the week at work. She then takes a closer look at her spending to determine if there is anything she can easily change.
What Lena is doing, in fact, is identifying those spending habits she can quite easily do without.
This is what she comes up with. Instead of going to the movies two or three times a month, she will cut that down to once a month, and rent more films on DVD. For those weekends on the town, she and her friends decide to take turns making dinner for each other and bringing their own wine — something that Lena and her friends have been talking about for a while.
With so much free information available on the Internet, she figures it will be pretty easy to cut back on her magazine purchases and read what she needs online. And instead of buying two coffees each day while at work, she'll make the first one at home in the mornings.
The result of these steps? Lena finds she can save an additional $90 a month, and spend more quality time with friends.
With this information, Lena sets up a meeting with a financial advisor at her bank. Now, Lena has always been quite comfortable taking care of her bill payments and purchasing things online. So when her advisor suggests she take that $90 a month in savings and “pay herself first” — in the same way she might pay her phone bill — it makes perfect sense to her.
To make this process even more seamless — and ensure she won’t have to give it any more thought — her advisor suggests that she make the whole process automatic by arranging to have money taken from her chequing account every month and directed into a high-interest savings account.
With her own weekly savings, and the money she has managed to find, this means that she can easily save $250 a month. She has also committed to boosting that amount with any raises or bonuses she receives at work.
Don't forget about retirement
Although Lena’s immediate goal is to save enough for a down payment on a condo, she also needs to start saving for her retirement. Although that may seem a long way off, now is actually the best time for Lena to build her registered Retirement Savings Plan (RSP). The sooner she invests, the more her savings can benefit from compounding growth. What’s more, the money in her RSP grows free of tax.
So, together with her advisor, she has decided to allot the $250 this way: contribute $75 a month to her RSP and the remaining $175 to her condo fund. The high-interest savings account is still a good choice for the condo fund, but for her RSP she goes with a longer-term growth mutual fund. To get even more from her plan, she has also committed to reinvest any tax deduction she receives from her RSP contributions.
With a few simple steps that involve no major changes to her lifestyle, Lena is now able to pursue both her goals. And she and her friends are now spending more quality time together, instead of just spending money.
The key for Lena — as it is for all of us — is to set realistic, achievable goals and then make the whole process automatic. After all, we all have more interesting ways to spend our time.
Get inside MyVault and receive monthly financial tips and advice - Direct to your inbox
If you're interested in receiving articles like this, expert advice as well as the popular Money Clip podcast series, you can join MyVault. Find out more.
|
