9 Nifty Ways to Nix Saving
Posted by Gail | Filed under Money Management, Saving
1. Don’t put money into a Registered Retirement Savings Plan. Hey, you’ve got better things to do with $20 a week, right? Who cares that $1,000 a year for 30 years at 6% adds up to almost $80,000. And so what if $100 a week would get you almost $400,000 come retirement time. There are coffees to be bought, magazines to be read, and nights out on the town to be had. Besides, the government has a great plan in place to take care of you when you’re old and gray. Failing that, you can always move in with the kids.
2. Pass on the Canada Education Savings Grant. Some people make a big deal about the fact that if you put money into a Registered Education Savings Plan for your child’s future education the government gives you money to help. A $2,500 contribution to a plan for Little Susie means the Feds will add $500; that’s an immediate 20% return. Hey, Little Susie can get student loans to get through school just like you did. So what if it’s 12 years later and you’re still paying through the nose. What’s good enough for you is good enough for Susie.
3. Be content earning a pittance on your savings account. Yah, you know that there are legitimate banks out there willing to pay you four or five times what you’re currently earning. But, hey, interest rates are so low it barely makes a difference. And moving your account is such a pain in the arse. Besides, you’ve been dealing with The Big Bank all your life. The fabulous service they give you is more than worth the pathetic interest you earn and the huge fees you pay. Aren’t all banks the same anyway?
4. Stick with your monthly mortgage payment. Who cares that saving money on mortgage interest is as easy as choosing to make accelerated payments on your mortgage. That can’t be right anyway… it’s just another of those fancy marketing tricks. After all, how can paying weekly instead of monthly mean the equivalent of one extra monthly payment? Sure, they say that could save four year’s worth of interest! But that can’t actually be true, can it?
5. Stick with your low deductible on your car insurance. If you have an accident, you don’t want to have to shell out more than $100 or $250 to get the car fixed. You just don’t have that kind of money lying around. So it costs a little more for a lower deductible, so what? You know that when you do end up having an accident, you’ll be covered. And the fact that you paid $350 a year more for your insurance will be worth it. After all, you have an accident every five years or so anyway, right?… Wait a minute, is that really $1,750 in extra insurance premiums?
6. Don’t bother using the new Tax-Free Savings Account. You earn so little interest on your stupid bank account that the last thing you’re worried about is the tax you’ll have to pay. Never mind that $5000 a year for 20 years earning just 4% means just less than $150,000 in tax-free money — $16,000 more than you’d have if you were paying tax at a marginal tax rate of 31%. It’s just another ploy to stop you from spending your hard earned money on all the toys your neighbours have.
7. Carry a balance on your credit card. Everyone carries a balance on their cards, you should too! You’re making your minimum payment. That’s good enough for your credit score. Who cares if it takes 20 years to pay for the barbecue you just put on your card? So, the barbecue will cost a little more, but you got a great deal on it so it’ll all come out in the wash.
8. Change your car every year or three. Hey, you work hard and you deserve to drive a nice car. So what if you could save 40% buying used. You’re not driving someone else’s leftovers. You like the new car smell. And you’re making enough to handle the payments, so what’s the big deal?
9. Don’t sign up for your employer’s savings matching program at work. Sure they’re willing to match your retirement savings contributions up to 3% a year. And, sure, that’s like getting a raise. But you shouldn’t have to cut back on your spending to get that extra money. Hey, you slave away at your job and you’re not about to give up the $125 a month specialty channel package to get a pathetic extra $1200 a year from your employer. TV helps you to relax.
August 13, 2012 at 5:59 am
Well put Gail!
August 13, 2012 at 6:35 am
Amen!
August 13, 2012 at 7:00 am
Gail, maybe it’s time to post again about #6. This is one vehicle that still too many people don’t understand well or use wisely. It doesn’t help that it’s so poorly named!
TFSAs are a great option and you don’t have to park your money in a savings account earning 2%. Why would you??
Speak with your financial advisor. You can invest this aggressively and yield a much higher return or even with a moderate level of risk, you can do quite nicely with a TFSA.
Have you ever polled your readers to find out how many of us have TFSAs, if they are maximized each year, and what our average rate of return is?
August 13, 2012 at 8:17 am
How do I find banks with these interest rates??
August 13, 2012 at 8:41 am
Good post Gail.
PC Financial has a savings account with an interest rate of 1.35%. Nothing earth shattering to be sure, but better than the pathetic amount you get from the Big 5.
August 13, 2012 at 8:49 am
Gail, you should re post this once a week. I have nothing else to say but well said!
August 13, 2012 at 9:08 am
Well put,
Just want to know how you manage to pull off 6% on retirements and 4% on tax free? Are you thinking mutual funds and such?
August 13, 2012 at 9:11 am
HAHA! I enjoyed this one! Well said – but definitely chuckled to myself.
August 13, 2012 at 9:11 am
@Doter–try this website for interest rates. Great place to start, it seems to get updated weekly. For the last few years, it’s consistently been the Credit Unions with the better rates.
August 13, 2012 at 9:11 am
I should print this and give it too my office mates at work!
I like this approach!
August 13, 2012 at 9:12 am
@Doter–oops sorry! here’s the link:
http://money.canoe.ca/rates/gics.html
August 13, 2012 at 9:29 am
This is a great post! Gets your brain thinking instead of just doing! I like the tone of the writing as well. If you have ever tried explaining to someone about any one of these things that’s what you are met with sometimes.
August 13, 2012 at 9:35 am
LOL.
Thankfully, I do the opposite of all those listed above.
If you’re looking for a better return on your TFSA, there’s lots of options. Personally in addition to a boring old savings account I also have a TFSA brokerage account which lets me buy & sell stocks. Much better return than a savings account at 1.35%!
August 13, 2012 at 9:51 am
IMO, RRSPs may not be to everyone’s best interest. IMO, investors who are/will be low income earners need to get professional advice concerning RRSPs. This issues are around the impact of taxes at time of withdrawal. Investors just need to make make sure that they understand.
August 13, 2012 at 10:00 am
There is nothing I like better on a Monday morning than a little sarcasm. Love love love this post Gail!
August 13, 2012 at 10:03 am
Thanks @Flowers!
I think the advice is solid, but the numbers (unless I’m missing something) tell a completely different story. A five year GIC at 2.55% isn’t earth shattering, especially when compared to rising costs of living, no?
I’m also confused about the RRSP. I’ve just graduated from a doctoral program and can expect to work sessional for the next few years until a full time job appears (either in or out of academe). I’m funneling my savings into a TFSA, but have never put a dime into an RRSP, though my contribution room is quite large — $60,000 or so.
I have no debt; instead, I have over $40,000 in various savings/”planned spending” accounts, and $4,000 in my chequing account. I’d love to know how to invest some of that $40,000. I invested $5,000 from my TSFA into mutual funds a few years ago, and as of this morning, it’s sitting at $5,213; is this good progress?? I’m not trying to be facetious, I really want to know!
August 13, 2012 at 10:13 am
I didn’t realize it until I finally got around to putting some money in a TFSA this past week, that you can shelter all sorts of investments under that TSFA umbrella … Mutual Funds, Stocks, Bonds, etc., etc., etc. You don’t have to settle for a simple savings account at a little over 1%. Perhaps others out there are as unaware as I was of the TFSA options?
August 13, 2012 at 10:18 am
Where are you finding 6% returns? Spill!
August 13, 2012 at 10:37 am
Maryl,
You can look for Corporate Bonds or a little safer in Dividend Paying Stocks and reinvest the income into more stock via drip. This is a good option if you are talking long term. Plus the stock should go up although the percentage earnings will be lower at that point.
August 13, 2012 at 10:47 am
On reading the comments, I realized why people settle for a savings account at The Big Bank. As soon as people start tossing the alphabet into the conversation and talking stocks and bonds, most people run to what they know. I lost $$$ investing and will never do it again. However, real estate is my savings plan and so far the equity on my property has done nothing but jump by leaps and bounds. So far anyway….
August 13, 2012 at 11:14 am
I’ve been thinking lately about whether or not I should start an RRSP or a TFSA.. now I am thinking about doing a bit into both. Thanks for the great info, and I love the tongue-in-cheek delivery.
August 13, 2012 at 11:16 am
Doter, you can put money into an RRSP and not claim it on your taxes until your income goes way up (but in the meantime it’s earning capital gains/interest/dividends tax-free ). This is a really good idea if you’re in a low tax bracket right now, but you know you’ll be in a much higher one in the future. It sounds like you have about $50,000 or so to invest so I think it’s time to look for a financial advisor. Ask around. Go for either a fee-only planner or one on salary (I use the latter because I like the mutual fund company she’s with–and they sell far more than their own products). Because she’s on salary, she doesn’t make money by moving my money around and doesn’t push her own company’s products over others (that’s rare, I know).
August 13, 2012 at 11:22 am
@Tracey — thanks so much for the feedback, I really appreciate it!
But if it means between choosing between the TFSA or an RRSP, you would pick the RRSP?
August 13, 2012 at 11:48 am
Gail – when are you running for Prime Minister??????????
August 13, 2012 at 12:10 pm
#2 is exactly why I started a RESP a month after my baby was born. Nothing else will give me a 20% return and I don’t want my kids to have the same problems I did carrying around that much debt when just starting out.
Its amazing how many people I talk to say that its FOOLISH to have an RESP because if your kid doesn’t go to college you’ll “lose it all.” It really bothers me how many people say that. I don’t know if they really believe it or if its just an excuse not to save. The only thing you lose is the savings grant, you don’t even have to pay back the interest you earned on it.
And the government gives you a bonus just for signing up!
August 13, 2012 at 12:31 pm
@Doter RRSPs make sense for people who will be in a high tax bracket in their working years and a low tax bracket in their retirement years. TFSA makes sense as the retirement vehicle for folks with an average tax rate (like those making under $40K annual) because it will not be taxed when you take it out at retirement. The delicate dance in the calculation lies in whether your OAS or possibly GIS (the supplement) will be affected in retirement.
And yes your TFSA value is decent progress, it’s better than a loss with the last few years of volatility we’ve had. You can easily use your TFSA as part of your planned spendings and savings since you can pull it out at any time.
@Leasa It sounds like you were not properly invested for your personal risk tolerance and did not quite understand how investments work. I wouldn’t cross out investing completely but find an advisor who values a conservative approach and doesn’t get paid with hefty DSC fees. Real estate is unfortunately highly illiquid and does have it’s own risks.
@Brian Many many people do not properly understand how TFSAs work, in part by the choice of name and in part by a poor awareness campaign.
August 13, 2012 at 12:52 pm
haha do I sense some sarcasm?
I dont know why TFSAs arent used more. They are only confusing when you start taking money out and in- otherwise they are totally straightforward!
I think we should add one more
#10 I dont need a financial advisor. All they do is take fees and give bad advice. My uncle Joe lost money with his advisor. I am smart enough to understand all my options and risk levels and I dont need any advice!
I love my advisor! So worth it if you have questions!
August 13, 2012 at 3:41 pm
Haha, I’m not sure if my friends would get the sarcasm if they read this post! I would, however, point out that I’m pretty sure #4 is actually a fancy marketing trick. Accelerated mortgage options do end up paying the mortgage off sooner, but mostly because you are making more payments per year. The interest saved between monthly/bi-weekly/weekly is pretty small. I did a quick calculation of the present value of $400 per week vs an approximate equivalent 1733.33 per month (400 x 52 / 12) – the difference is about $25 at 4% interest.
August 13, 2012 at 4:26 pm
I give you a standing ovation for this post. People are really out of it when they dont’ even take advantage of the tools which are out there.
Well put!
August 13, 2012 at 5:05 pm
I love this, definitely printing this ans posting at work for my colleagues…
So good…
August 13, 2012 at 5:57 pm
I find it amazing how people can turn down free money. Our employer makes a contribution to our pension plan (standard for all employees).
In ADDITION to this, they will match RRSP contributions up to 5% of our gross pay. I can’t believe we have people here who don’t take advantage of this match. Where else can you get a tax deduction and a 100% return on your money BEFORE your investment even starts to work for you? These same individuals (princesses?) complain our employer doesn’t do enough for us.
Just goes to show as Gail indicated above. Some people can’t be helped if it means they have to give up instant gratification of some want. By the way, we aren’t even locked into working with the investment company our employer uses. We can make two withdrawals per year without any service charges.
August 13, 2012 at 7:47 pm
Awesome post, Gail – loved every word of it!
August 13, 2012 at 8:10 pm
And may I add a #10? According to a recent survey of households, you can “nix your savings” by emulating the average Canadian. Only about 50% even have an emergency fund or any other short-term savings. Yikes.
August 13, 2012 at 9:01 pm
ING currently has a promotion that if you use a friend’s orange key and open a bank account with a minimum of $100, they will give you $50.
Feel free to use my orange key – 17035926S1
They have a TFSA – current rate is 1.4%
Their saving’s account only has a rate of 1.35%.
Their chequing account has a rate of 0.25%.
They also have a children’s account with a rate of 2%! That’s the highest rate I’ve been able to find. I set up my son’s account as a joint account so that I have access to it (to deposit money). In one month, he earned more interest that he had with TD Canada Trust in over a year.
August 13, 2012 at 9:19 pm
@ Robyn: I wonder with ING possibly being sold out to Capital One in the near future, I wonder what changes we’ll see… Thinking that switching to another institution might not be a bad idea…
August 13, 2012 at 10:38 pm
I have a friend who is an investor and she advises me to stick my $$ into a TFSA and not focus so much on my RSP as my income is less than $35K annually. She says it will lessen my tax impact. More should take advantage of the TFSA accounts b/c of this. I’m working on it.
August 14, 2012 at 9:05 am
Thanks Gail for always bringing conversation to the money side of things for the “rest of us”… I agree with all of your points, however, I would like to point out that saving in RRSPs does not intrinsically give you 6% returns. Saving in RRSPs is great for most people, especially the ones who do not tend to save and expect lower income in their retirement years, but there is still no guarantee of 6% returns since the “safe” (ie. low risk GIC) returns are so low. For the 6% returns, the average saver/investor will have to do their own due diligence and put money into an investment vehicle with the potential of 6% returns or more… Most average investors should look into ETFs and dividend stocks (better yet, dividend aristocrats). Personally, I am trading more than investing these days, but for those who want to ride the average, it is probably advantageous to look into ETFs and dividend stocks than the mutual funds typically sold by the big banks… The banks charge a fairly hefty fee and the returns are probably comparable to the ETF.
August 14, 2012 at 11:08 am
RE: RRSP’s-I also think of it this way. a contribution made now gives us a tax refund of 32% and estimating a tax bracket of at least 25% at retirement we are 7% ahead, as well as accumulating tax free interest. The key is to be able to approximate your future income. Also like TFSA’s for short-term and emerg funds. So glad we started RESP’s years ago (and our kids also contributed) with 1 going off to university, but i am a planner by nature! Even small amounts can add up as the years go by, and beleive me we started small, ha ha!
August 14, 2012 at 11:21 am
Try Manulife Bank. They offer 1.75% interest. Do a lot of cross border shopping? Open a US$ account with Manulife, they offer 0.6% interest.
August 14, 2012 at 3:37 pm
I absolutely agree with everything you wrote except the bank thing. I have been thinking of changing to another bank like ING and of course, the whole moving issue comes up. I hate the way the big banks nickel and dime me yet, I heard recently that ING is leaving Canada. So there is security in the big banks. How do I get around that issue?
August 14, 2012 at 7:10 pm
@ Cas, I had not heard of Capital One buying ING, but I really hope that does not mean they will start charging account fees!
August 15, 2012 at 8:03 am
@ Robyn: Capital One bought out ING in the States. ING stated themselves that they are up for sale here in Canada.
http://business.financialpost.com/2012/08/02/ing-considers-sale-of-canadian-online-banks/
August 15, 2012 at 8:11 am
@ Robyn: OOPS! Posted the other link in the wrong spot!
Here it is:
http://moneyland.time.com/2011/06/17/capital-one-buys-ing-direct-and-customers-start-to-freak-out/
August 15, 2012 at 11:10 am
I love your blog. I’ve been reading it this morning with the hopes of rekindling a budget for my family. We make good money, but once we get a savings built we always seem to spend it and have absolutely no reason to be living paycheque to paycheque like we do. I am positive that we can get back on track by the end of the year. I’m a teacher living in alberta and had been told by my father that I have a good retirement package and should focus my savings on emergency and education for my children (which I have about $25000 for their schooling so far and they are 4 and 6). Do you think that this is good advice or should I be adding RRSPs to the mix?
August 15, 2012 at 11:11 am
I’m sorry, but I can’t wrap my mind around investments other than RSPs and savings accounts. I just don’t understand all the terminology flying around, and it’s overwhelming. I’m not going to risk my money when I have no idea what I’m doing–what may be simple for some of you is not for me. So maybe I won’t retire with millions, but I’ll retire with more than I would if I didn’t put anything aside.
August 16, 2012 at 8:40 am
What about folks with defined benefit contribution plans?
I was under the impression that they should use a TFSA because at retirement, they won’t necessarily be in the “low tax bracket” to take best advantage of RRSPs
Or is a combo of both best?
August 17, 2012 at 7:03 am
[...] Gail’s Monday post (item #1!) was basically written for me. It helped me see how foolish I was being. I went in to ask a few questions of the payroll specialist at work, and today I’m going to drop off my form so that I’ll start having the deductions come out of my next pay. It may put back my medium-term goal by a few months of savings, but, as I keep telling myself, I’m sure my future self will thank me. Author Bio ~ Victoria (32 Posts)Working on finishing up a PhD in Medieval Studies, what Victoria really wants to do is walk around the world and write books. Twenty-nine and single, Victoria lives in Halifax and is trying to balance work and life. [...]
August 22, 2012 at 2:26 am
I just registered this year’s TFSA contribution. Hopefully, I’ll be savvy enough to register the 2013 amount in January so that I’ll get the entire year’s benefit!! Um…note to Norma! lol