What should you be saving for?
Let’s be honest; most of us don’t start saving for something until we really want it – by then most of us wish we started saving a heck of a lot earlier.
When we’re younger we save for smaller, more attainable things, like CDs, concert tickets and new clothes. As we mature, we start looking at the bigger picture – well, some of us do. Others find it a bit harder to avoid the fancy things in life and rack up debt from loans and credit cards.
There are many reasons why you might want to start saving some money – post-secondary education, a deposit for your first apartment or a used car. And then you get into things like marriage, mortgages, family vacations and – eeks – retirement.
Let’s take a closer look at what you should be saving for.
The Down Payment
Depending on the cost of the home and your financial circumstances, you should have anywhere between 5-20% of the home’s purchase price set aside for a down payment. If your down payment is 20% or more, then you fall under the “conventional mortgage” category. If your down payment is less than 20%, the mortgage is considered to be high-ratio and the lender will require you to purchase mortgage insurance as well.
The more you pay now, the less you pay later. Here’s where you save money with a higher down payment:
- You lower your monthly mortgage payments and make it easier to manage debt
- You pay less money in interest over the long run
- You don’t have to purchase mortgage default insurance
If you have parents that have put aside some savings for your post secondary education – lucky you! If you don’t have that pot of money or you have small children and want to start building up their education savings fund, it’s in your best interest to start early. The cost of education in Canada is high, and although you can take out a student loan to attend college or university, student debt sucks (I’m sure all will agree).
Registered Education Savings Plans (RESPs) can help you achieve your goal. Your savings are considered tax-free – until the funds are withdrawn. Depending on your family’s income, the government sometimes provides extra funds through the Canada Education Savings Grant and Canada Learning Bond programs.
It’s hard to imagine just how much money you’ll need to be comfortable in the future, especially taking inflation into account. But don’t let the not-knowing part stop you from saving now. While many people wait until the end of the year and then rush to make an RRSP contribution before the deadline, you could make your life easier by setting up automatic monthly transfers with your bank. The money you contribute to your RRSPs is tax-deductible.
Whatever you want (Really? Yes, really)
Most people don’t want to safely set aside all of their extra money for the future. Some of us want to spend that hard earned cash on living today! Whether it’s a trip to the spa, an overseas vacation or a new entertainment system. You’ve worked hard for your money and you’ve earned the right to spend it how you see fit – just don’t forget what mom always said and put some aside for a rainy day.