Financial literacy month: Saving like it’s 1982
While researching how Canadians save for Financial Literacy Month, I came across a mythical year that all statistics reference: 1982.
It was the year Argentina invaded the Falkland Islands, Canada gained constitutional independence from the Queen of England, Adobe Systems was born–bringing Photoshop to the world–and Canadians were saving 20 per cent of their disposable income.
Since that stand-out year, personal savings in Canada has been steadily declining. Last year, Statistics Canada reported that Canadians hit the lowest savings rate in a decade at 3.6 per cent in the first quarter.
What happened in 1982 that spurred so much saving? To start, interest rates were punishingly high, so borrowing money was expensive. Bank lending rates were over 15 per cent and peaked at 21 per cent in 1981. Those same high interest rates gave Canadians incentive to save and watch their wealth grow.
So, in 1982 Canadians were living within their means, plus some. In 2016, Canadians are living beyond their means, plus a lot.
The old adage is that if you save 10 per cent of your income, you’ll be golden for retirement, so that is my new savings goal. There’s two ways to reach my target: Make more money or cut out other expenses. As a contractor my income fluctuates, so I’m focusing on a ways to chop down my expenses and save like it’s 1982.
I live in Vancouver, so true to my stereotype, I do yoga. I absolutely love the studio I go to and for a long time paid $100 a month and vowed to go three times a week. This didn’t always happen and there were some months that I went for only two classes. That’s $50 a class! I have cancelled my membership, bought a 10 class pass, which I can stretch out over two or more months and I’ve boughten a subscription for $10 a month to a yoga website online, so I can do some of my moves at home. If you get a lot of community out of your exercise routine, then by all means keep paying, but if you’re not using it than get rid of it and find an exercise you like to do at home.
My brother is extremely particular about caring and maintaining everything he buys. His electronic are put in hard cases straight away, his car oil is always checked and changed when required, and everything is kept carefully away from water sources. I am the opposite, and I’ve realized my cavalier attitude towards maintaining my belongings, especially electronics, is expensive. Getting your computer checked out once a year may cost a little, but replacing it earlier than expected will cost a lot.
So often our social lives revolve around spending money on tickets, food and drinks. Finding free events to check out and than opting for an after drink or coffee, rather than a full meal, will cut down on some of your entertainment costs and get you out in the house.
There are expensive times of the year. Everyone says the Holiday season is the worst, but my family aren’t big spenders and neither are my friends (I’ve conveniently curated less expensive friends), so it’s not a huge stretch for me. Summertime is the time where money flows out faster than I can keep and now that I know this, I can plan. On months where there is less going on in your life, cut out a little more and stash it away for those months you know are going to be hectic. Doing this will also keep you from reaching for the credit cards and keep you on track of your overall financial plan.
This is a tip from CI Direct Investing advisor, David Dyck and it really works for me as a contractor. I don’t always know when my cheque are going to come in so it’s sometimes hard to put money away each time. His recommendation was to save on a quarterly basis, so instead of putting money into my TFSA each month, assess what I can contribute every three months. This way I have cash when I need it, but will still be able to save. Brilliant.
Everyone’s lifestyle is different and as a nation our lifestyles have changed dramatically. We eat out more, smartphones and internet have become essential, we pay more in government transfers (taxes) and we pay more for the basics like food and shelter.
By channelling my 1982 state-of-mind, I am able to hit my 10 per cent savings target and live life fully. Maybe one day I’ll bump it up to 20 per cent and get a perm.