Best retirement gift ever

ImageMy birthday’s coming up this month, and I’m planning on giving myself the best present ever. This year, I’m giving myself more than a million dollars for my birthday.

Let me explain: if you replace the words “million dollars,” with “RRSP”, you may start to understand where I’m coming from. It’s springtime, and since I like to think of my birthday as a “fresh start” (I also apply this methodology to New Year’s Eve, September, and sometimes Mondays), I figured it would be the perfect time to get started on saving.

Have you thought about your financial well–being lately? If you’re like most Canadians, you’re probably thinking, “I’d like to save some money for the future, but I don’t have enough to start now.” Well, I’m here to tell you that you do have enough! According to The Automatic Millionaire, by David Back, everyone has enough money to set some aside. It’s just a question of how you think.

Bach explains that if you invested just $200 every two weeks for 25 years in a retirement account that earned an annual return of 10 percent, you would end up with $1 678 293.78. Now, I don’t know about you, but I could definitely use that much money some day down the road. But to be honest, $100 a week sounds like a lot. It’s $14 a day (which, according to my book, is actually only $10—you’ll have to pick up a copy to find out why).

Do remember that putting money into an RRSP reduces your taxable income—so most people are actually better off to put the money into an RRSP than to declare it part of their income (it’s not a total tax loophole, though—you’ll have to pay the taxes when you take your money out). Bach and other writers call it “paying yourself first.” There’s also something he calls the “Latte factor,” which explains how most people spend a bit of money each day on small purchases such as coffees, muffins, and cigarettes. “Over time, money compounds. Over a lot of time, money compounds dramatically,” according to Bach.

You can start today to get your money working for you. Meet with a personal financial consultant who can advise you on the best investments for your situation, income needs, and risk tolerance. Setting aside a part of your income today will ensure you have a safety net tomorrow.
Saving does not come naturally to many of us. We want what we want when we want it. But if we follow some simple strategies, it will become easier and easier. Here’s what I plan on doing:

1Make it Automatic: I can barely remember to pay my bills on time, let alone make a cheque out every month for some retirement plan I won’t see for another forty years! If I set up my bank account to take “x” out of my account each month, I’ll rarely have to think about it.

2Pay My Credit Cards Off in Full: OK, I admit, I actually do this anyway. So I know for sure that I have one financial goal accomplished! Racking up high–interest credit card debt is easy to do, especially in our credit–based society. If you only spend what you have, and look at the credit card as a convenient pay method rather than a Maybe–I’ll–Pay–It–Off–One–Day–But–Now–I–Really–Want–Those–Boots–Card, you’ll find it easier and easier to pay off the full amount each month. So, bring on the airmiles, establish your credit, and pay it off in full.

3The Latte Factor: I’m not a coffee–holic, but I do frequent a little sushi shop down the street on my lunch hour. Dramatic lifestyle changes are not necessary, but cutting back a little here or there will really help with my $14 a day goal!

4Pay Myself First: According to Bach, we should all be “paying ourselves first,” which basically means that you should take a percentage of your income and set it aside for your RRSP before you spend it on other items.

If you feel like you wish you had started earlier, don’t despair. Go see a financial planner to help you get on the right track. Numbers can be boring, but if you’re glazing over, just picture yourself on a cruise ship sipping a Bahama Mama when you are sixty five, saying “I’m so glad I put that money away when I was young!!” It is never too late to start—David Bach also wrote a book called Start Late, Finish Rich.
Jasmine Brooks, Project Coordinator
MPR Communication