On average, Quebec households save around 6.1% of their income. But with so much choice—RRSPs, TFSAs, savings accounts, pension plans—how do you know where to put your money?
What's the best way to save? Is an emergency fund really necessary? And how much exactly should I be setting aside?
Because we all love to snoop into other people's finances, let's take a look at the actual savings profiles of three millennials, including all the figures.
Daphne is a graphic designer. Since she hit the job market five years ago, she's done some freelance and some salaried work. This year, Daphne took the plunge and has gone 100% freelance. As freelancers don't get tax deducted at source, or taken off their pay, it can feel like they're rich. But in reality, they need to plan ahead and set aside what they owe the government quarterly or annually. Being freelance also means you need accounting skills.
"I put around $75 in my TFSA every month and I try to put 10% of all my income aside to build an emergency fund," explained Daphne, who added that she plans to draw up a budget for the coming financial year, which is a smart move. For someone without a guaranteed income like her, a TFSA is a good choice for savings because it generates tax-free income.
Daphne is lucky that she can count on her family for financial support. "When I was born, my grandfather opened an account for me at a branch. And now, I've got a financial advisor who helps me invest my money. I need to go see him because I'd really like to buy a condo in Montreal someday," she added.
Catherine is a clinical nurse specialist at a Montreal hospital. She and her girlfriend want to start a family in the near future, but in Quebec, in-vitro treatments can be expensive, ranging from $5,000 to $20,000 depending on the clinic and the type of treatment. Of course, this is on top of all the usual expenses related to having a baby, such as major purchases (stroller, crib, etc.) and day-to-day expenses (food, clothing, etc.). All this adds up to about $4,500 a year, according to families.
To help kick start her goal of becoming a parent, Catherine opened a savings account. She deposits different amounts every month (because her schedule varies, so does her pay), but tries to keep saving consistently. For her, the little things she does every day are what help her savings grow. By shopping around for weekly specials at the grocery store and cutting back on the $5 pints and the inevitable side of fries, Catherine has managed to set aside $3,000 in only three months, about 15% of her monthly income. Not bad at all!
A savings account can be a good idea for a short-term project like a vacation or, in Catherine's case, to start a family. Remember that a savings account can also be used as an emergency fund.
Julien is a video editor for a media company. He's been a salaried employee since he began and takes part in his employer's RRSP program. He bought a condo three years ago, so his paycheques go on his day-to-day expenses, paying off his credit card, his mortgage loan (around $1,500 a month) and transfers to his TFSA. For now, he hasn't set up a budget.
"I don't regularly transfer money to my TFSA, just when I'm saving for a specific project," he said. And what's his current project? "I'm going on vacation next month, then planning to move to Helsinki, Finland, in two years' time," he said. It's a major decision and he hasn't yet estimated the actual costs. He's also planning to rent his condo while he's away to get some extra money. At the moment, Julien deposits $300 a month to his TFSA, around 10% of his income.
Even if you're a homeowner, it's still important to build your savings. Owning a home is a type of savings, but it shouldn't be your only asset if you eventually want to retire comfortably. Putting money aside will help you cover any unexpected renovations (a burst pipe can happen anytime) and you'll avoid going unnecessarily into debt.
When it comes to saving money, there's no magic formula. It's important to build your savings, even if it's just for an emergency fund in case something goes wrong. Systematic savings or automated transfers, are a great idea for people who struggle to stick to their budget. Remember, whatever you manage to set aside, you'll thank yourself in the future!
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