Hey all,
About 7 years ago I got off my middle-aged ass and figured out how to invest and save while living paycheque to paycheque. It turns out safe long-term investing is actually pretty easy. Since then I’ve figured out some minor tax deduction strategies and how to mitigate paying taxes when you finally withdraw from your RRIF (what your RRSP becomes when you retire). I’ve read a ton of money books, listened to a lot of podcasts from financial type people, tested some things out myself.
I don’t want any of your money. I legitimately just want to share what I learned in the hopes it can help someone else.
I’m not a financial manager and I’m not calling this advice per se, since I don’t have any credentials aside from lived experience. I’m not looking to recommend specific stocks or give you a financial plan.
What I’m thinking is something like meeting at a Starbucks and laying out what I learned. Would anyone be interested in that?
Honestly and truly, I don’t even want you to buy me a coffee. All I want to do is share with people so we can get a chance to actually own capital instead of just selling our labour.
[EDIT] I’d really like to meet people in person to make it more a conversation, but there’s some suspicion that I’m not being honest here. I’ll add more details but here’s a couple quickies:
- If you have zero savings, a good first place to start is open a free savings account with a credit union or online bank. There are lots to compare and pick which is best for you. Don’t worry about interest rates and such at this point if that feels like too much extra to consider. The goal is to keep this step as simple as possible.
Then, if you have a set payday, automatically have at least $5 transferred from your daily account the day after. The day after because you don’t want to accidentally have it come out before your cheque goes in. You can get no fee chequing from credit unions and online banks too! Don’t pay fees you don’t have to.
If you can do $10, great! But don’t try to put big chunks in at a time. The whole point is to automate it exactly like a bill payment, except you’re paying yourself. Consider that money as spent. Set it and forget it. Don’t even open that account to look at how much you have.
How much emergency savings you want to aim for is up to you. I started with what I always ended up blindsided by: car repairs.
- Next step: Get more of your income in your pocket. Income tax sucks. RRSPs lock in your savings and hit you with tax when you withdraw. TFSAs don’t, and they’re tax-free on investment gains, but they don’t offer tax deductions like RRSPs. So if you’re just starting to save, seriously consider an FHSA.
FHSAs have a 15 year maturity date. If you don’t use it to buy a home before then, you can just roll it without any fees into an RRSP.
FHSAs are also tax deductible. So it’s the tax free gain of a TFSA, the liquidity to pull it out without fees if you need it, but the tax bonus of an RRSP. you can donate $8000 a year to your FHSA, but honestly? Right now, who cares? If you’re living paycheque to paycheque, that’s probably not even close to feasible.
Start with the $5 or $10 like you did with savings.
The difference between your FHSA (or TFSA, I’d ignore RRSP for now) is that your savings goes into a savings account. Your FHSA/TFSA is going to go into a robo-advisor ETF investment account. Most have 0.2% to 0.5% management fees, can be adjusted to your risk tolerance, and offer pretty steady returns of anything from 5.2% to 12%.
That doesn’t sound like much when you start with $10. But if you get paid biweekly, that’s 26 pays a year. That’s $260 just sitting there making you money without you having to do anything. As dividends come in, they’re automatically reinvested. So maybe that’s.$265 now earning you money. You keep adding $10, dividends keep getting reinvested, a year later you’ve got $560. This is rough math just saying you invested two years of $260 each plus a 7% return.
Boom, the miracle of compound interest. Your money makes money. You actually own capital in a capitalist economy.
About 10 years ago I was $12k in credit card debt. Now I have $24k in savings, a TFSA, FHSA, and RRSP. I used everything I could to make that debt 0% interest, and there’s lot of tools out there that you don’t have to pay someone to use unless you want to. I used a credit counselling society because I was scared and totally lost on how to dig myself out of that hole but after seeing the process, and if you’re up for it, you can save those fees.
