Saving, Not Borrowing: Something to Learn from Grandma

2015-09-28

Wesley Cowan

With summer over and kids returning to school, many Ontario families are getting back into the regular schedule of life, with all the busyness that entails. This is also often the time when we turn our thoughts toward the rest of the year and what we hope to accomplish before 2016 arrives. 

Person talking on a cellphone looking at spreadsheets on their laptop

Some of our summer expenses will linger if we depended on credit to fund fun events or vacations, but hopefully that debt can be paid off quickly and we can use the extra cash flow for future plans. Naturally, it makes sense to pay off the higher interest debt like credit cards first so that your summer adventures don’t end up costing you a lot more than you had anticipated. If you find that you’re stuck in a bit of a debt cycle and are having trouble getting the debt paid off quickly, perhaps some debt consolidation would help. This could include options such as remortgaging, getting a consolidation loan, or in more challenging circumstances, filing a Consumer Proposal with a licensed debt professional like MNP Ltd.

Once your debt payments are manageable and you have some extra cash left over each month, it might be time evaluate what bigger ticket items might be in your future. For instance, is your car going to need a major service? How’s that old washing machine doing? A new roof next summer? With a little planning, you can pay for a lot of these things without needing to use credit, which would help you avoid more interest charges.

It’s probably true in general that we’re not as good at saving as our parents or grandparents.  They grew up in a time when credit was not as easy to get and people had different attitudes about debt (i.e. that it was bad). They were often able to budget their money in a way that allowed them to save even small amounts on a regular basis, and in time have enough money to buy the things they needed - including more expensive items. We can definitely learn something from the example set by previous generations. Yes, sometimes it involved putting a certain amount of cash every week into a coffee can in the closet. There’s still nothing wrong with that idea, however with modern e-banking technology, saving can be a lot easier (and more secure!).  

Once you have figured out how much you have left over each month after your regular monthly expenses, choose an amount you feel comfortable setting aside for a future purchase – taking into account how long it will take to save the total you need. Set up a second (savings) bank account where you bank and transfer the amount from your main account on a monthly basis. Smaller amounts more often are less noticeable than bigger amounts only once in a while. Most on-line banking services allow you to set up these transfers yourself and modify them as you like. Another option might be to have to money deducted directly from your pay. Some employers will let you set up a per-pay deduction that goes into a Tax Free Savings Account (TFSA) or an RRSP. If the money’s gone before you even get it, you get used to managing on the smaller amount and probably won’t even notice that it’s gone. Just be sure that the money stays accessible so it’s there when you need it, and be mindful that when you draw money out of an RRSP, it does become taxable (although you did get a tax break when you put the money in). Some investment accounts will even make you some money on your savings. That said, it’s best to avoid risky investments that could result in you losing your hard-earned savings, particularly if you are going to need them in the short term. 

One final thought: it’s tempting to want to use credit to buy something that’s ‘on-sale’ because it’s a ‘great deal’. In my three decades as an adult consumer, I have never seen a truly one-of-a-kind deal (regardless of what the sales people tell you). The sale will happen again in a few months, and sometimes the newer / better model. Unless you’re certain that even with the interest charges you will have to pay, it’s still going to be a great deal, don’t take the bait. Follow your grandmother’s advice: save your money and buy it for cash. It might not be as exciting as getting it now, but you’ll be happy the month after your purchase when you don’t find an extra bill in the mail.    

If you do find that you’re stuck in a cycle of debt and it’s becoming unmanageable, it might be a good time to meet with a Licensed Trustee at MNP Ltd., who can help you fully assess your financial situation and explain all of the options available to you. It’s never too late to make a fresh financial start and begin with a clean slate living by the examples set for us decades ago.