This Example Will Help You Save for Your Biggest Financial Goals
Do you have an emergency fund? Is education for your children important to you? Is flying to Paris a big dream? Have you always wanted a Harley? Are you hoping to retire in comfort some day? There is always a way to reach your financial goals.
Let’s look at an example:
John and Kathy have been spending $600 per month on dinners out and entertainment. They want to maintain part of this lifestyle plus save for their two children’s education, a big vacation and for their retirement. How can they do it all? Answer: by doing it over time.
Find the money in your budget
John and Kathy choose to reduce their restaurant budget to $300 per month. They will either eat at lower cost restaurants or make it a luxurious treat once a month.
Save for your children’s education
John and Kathy put $100 per month into Registered Education Savings Plan (RESP) accounts for their children. They set up automatic transfers from their account into the RESP so there is no temptation to spend on concerts or restaurants that no longer fit their financial goals.
Save for retirement
Like many employees, John and Kathy both have Registered Retirement Savings Plans (RRSP) matching programs at work where their employers will match their contributions dollar-for-dollar.
They will fill out the necessary forms through their employers and both John and Kathy will start a deduction of $50 from each of their paycheques every month. Thanks to the RRSP matching programs, they each really put in $100 per month (i.e. $50 from John, $50 from John’s employer). By cutting $1200 ($50 each per month) from their annual entertainment budget and taking advantage of the employee benefits, in a year’s time John and Kathy will have $2400 in their retirement account.
Plan your trip by paying for it first
John wants to take the kids to Disneyland; Kathy wants them to see Europe. While they can’t agree on which holiday right now, they don’t really need to. But they do need to save for it. John’s employer offers a Canada Savings Bond program. Through the program John will have $100 deducted from his paycheque each month. This money will grow in a Canada Savings Bond so when the kids are old enough, they will have the luxury of deciding which destination to pick (Disneyland, Europe or Euro Disney). The trip will be paid for in cash rather than on a credit card.
Result: $4800 allocated AND saved for their top three financial goals at the end of one year!
- In one year they will have $1200 in their RESP accounts for their children (plus additional funds deposited from federal and provincial government programs)
- They will have $2400 in their RRSP accounts (including their employers’ matching program)
- They will have $1200 in Canada Savings Bonds towards their future vacation
Not bad for spending just a little less time and a little less money in local restaurants!