Dear Mike: I want to save money, but I'm living paycheque to paycheque.
Should I wait until I'm making more, or is it even worth putting a little away? Linda in Victoria
You want to save more for retirement, but life and its expenses show no sign of slowing down, and you're not sure where you'll find the extra cash. You may be surprised to learn how much "hidden" money is available once you begin tracking spending.
The next time you're out with friends or travelling to work, look at the person on your left. Then, look at the person on your right. One of the three of you has absolutely no idea how much money he or she spends on a regular basis and is likely missing out on key opportunities to build up retirement savings.
According to a 2012 national omnibus survey commissioned by Edward Jones, about one-third of Canadians do not keep track of their spending. The survey found 38.5 per cent of the remaining respondents track every penny and about 30 per cent at least monitor fixed expenses, such as utilities, car payments, housing costs and similar essentials.
It's no surprise young adults (ages 18 to 34) are least likely to track their spending, while those above age 65 are most likely. An interesting survey result, though, shows those earning below $40,000 annually and those making above $100,000 a year are both more likely to track expenses. This suggests good money management habits, such as tracking spending, are important, regardless of wealth or income levels.
So, what difference does it really make to know how much you spend on discretionary items like lattes, clothing and vacations? If you add them up over the course of a year, you will see the small choices you make with money do affect your goals for later years.
Try tracking your spending for a while, but don't stress about money mistakes that have already happened.
Once you have a fix on your spending, focus your attention instead on how you will spend going forward.
For example, estimate every expense you expect over the next year, from your morning coffee to groceries to clothes to travel.
Break those totals down to monthly amounts and start thinking about which expenses you can trim or eliminate. For example:
? Buy online versions of magazines, which may be cheaper than print versions.
? Consider downgrading your cable subscription (do you really need all those channels?).
? Opt for a less-expensive cell phone package or get a family plan that shares minutes.
? Switch to a slower Internet broadband speed at home.
? Bring lunch to work versus buying lunch each day.
? Choose regular coffee over a latte.
Right away, you may see opportunities to save $50 or more per week. That's at least $200 a month and, if you kick in a little more, you are well on your way to contributing sizeably toward that RRSP or TFSA.
Worried you will forget to do it and fall out of the savings habit? Set up a preauthorized payment into your RRSP and/or TFSA on a weekly or monthly basis. You likely won't even miss that $50 a week and will be surprised to see how quickly it may accumulate.
Armed with this knowledge of where your money is flowing, you can begin working with your financial advisor to take small steps to greater savings by identifying how you can redirect your discretionary cash to fund your future retirement or other life goals.
Mike Watkins, CFP, FMA, FCSI, CSWP
Watkins is a financial adviser with Edward Jones and author of the financial planning guide It's Only Money. To ask a question call 250-418-0114.
