Saving for Retirement

Most media articles you read these days that mention saving money suggest that most of us want to save for retirement but few actually manage to make much progress in that regard. There are plenty of reasons quoted for not saving, including the rising cost of living, too many expenses and not enough income, unexpected costs, interruption of income, expanded family and the list goes on. Although there are some very legitimate reasons such as health problems and loss of employment, the real culprit in most cases is, in one word, attitude.

The Problem

We live in a society today which promotes an unprecedented entitlement attitude. We want everything now and we are not prepared to wait and save for anything but rather we use credit to fulfill our wants immediately. Herein lies a key problem to saving; we accumulate tremendous debt in our blind determination to fulfill our wants, which often are not our needs. We want the latest version of our favorite electronic gadget as soon as it is available, regardless of the cost. We want a new car every three or four years, regardless of the fact that our old car is quite adequate for another couple of years.

Of course, the record low interest rates since the recession of 2008/2009 have provided cheap credit which has fueled our appetite for discretionary spending. However there is one critical factor that many consumers seem to completely overlook, that all that borrowed money, albeit cheap money, still has to be repaid. When you continue to borrow, often beyond your means, the resulting debt obligations make it difficult if not impossible to save any money.

This is why many of us have been unable to save even a modest amount for a rainy day, yet alone build a retirement fund, and are living pay cheque to pay cheque in a seemingly endless cycle.

Changing Your Attitude

In most cases, we are in total control of our money. Unfortunately we often lose control of how we spend it. We can blame our money management issues on glitzy marketing campaigns which entice us to buy products that we “want” or we can blame the banks and other lenders who make credit so readily and easily available. We can even blame the Jones’s next door with whom we had to compete. However, ultimately we must take sole responsibility for signing on the dotted line. No one forces us to borrow money or to spend our money in a certain manner.

My Dad once told me, in reference to managing money, that it is not how much you make but how much you spend that matters. Upon reflection, I have come to truly appreciate the wisdom of those words which originated from hard work and common sense. It is surely true that if you spend all that you earn you can never save.

It is also reasonable to conclude that if you continue to spend more than you earn through borrowing, which is commonplace today, you are living beyond your means and there will inevitably be consequences.

Saving Money Tips

Therefore, before we can have any hope of saving money and eventually building a retirement fund, we must change our attitude with respect to our spending and resultant borrowing. We must take specific actions including:

1. Establish a monthly budget which balances our expenses with our income
2. Avoid all unnecessary spending and focus on our needs rather than our wants
3. Avoid all borrowing unless absolutely necessary
4. Reduce and eventually eliminate our debt – see my article “How to Reduce Your Debt”
5. Commit newly available funds to a savings plan

Different Retirement Needs

Some of us have a retirement plan through our employer. In this case saving for retirement would be for the purpose of supplementing our employment pension and would be much more flexible than in the case where there is no pension.

Many of us do not have a retirement plan through our employer and the only retirement fund we can look forward to is the one that we build ourselves (other than the federal government administered plans such as CPP and OAP). In this case it is essential that we plan and start contributing to our retirement savings as soon as possible.

There are many financial institutions that have certified financial planners (CFP) on staff who can offer helpful advice and guidance on retirement savings using a variety of investment vehicles. The most important thing is to take the first step. Determine your retirement goals, such as age, lifestyle, income required and then obtain the services of a CFP to help you realize those goals.

For Canadians, see my article “RRSP or TFSA – Which Savings Plan is Best for You?” to determine which savings tool is best for you.

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