A month-by-month guide to excuses for not saving money

December is a tough month to save money because of all the holiday season costs. January may be a worse month because you have credit card bills coming in. February is not good either. In non-pandemic times, isn’t this the perfect month to head south for some sunshine?

Give me a month, and I’ll give you an excuse to spend some money instead of saving it for future use. In the spring, you examine the effects of winter on your home and yard and decide on any maintenance or renovations needed. Summer months are bad for sure – you take a summer vacation, and summer camp for kids will be very expensive.

If you save when you have money on hand, you run the risk of never saving or not saving enough. Solution: Make the backup automatic. Each time you and your partner get paid, have the money transferred electronically from your checking account to a savings and/or investment account.

This style of saving is called “pay yourself first” and it’s all about basic personal finance. So why are we still talking about it? Why doesn’t everyone do it?

Some households are too financially insecure to save, perhaps due to pandemic-related loss of jobs or income. Let’s give them a goodbye, while encouraging them to read the first two episodes of the back-to-basics series appearing in the Carrick on Money newsletter to start the year (see below).

Another barrier to saving is basic human emotion. Saving is hard, spending is fun. And so we find reasons to spend money that could otherwise be used for savings. This is where an automatic savings or investment plan comes in.

These days, an interest rate on savings above 1% is quite competitive. Open an account at a bank, trust company, or credit union that offers rates like this and link your account to your checking account. Next, set up automatic deposits to coincide with the payday. The goal is for the savings to be withdrawn from your account right after a paycheck is deposited.

You can do the same for most investment accounts. The difference between saving and investing? Savings is money that you need to keep safe because it’s for emergencies or you’ll need it within five years. Investing is for money that you can take a risk with, because you won’t need it for at least five to ten years. That’s long enough for the stock market gains to outweigh the years of decline.

If you make saving discretionary, it is likely that you will sometimes use your discretion not to save. Outsmart yourself by making the save automatic. Choose a comfortable amount and do it. One idea is to start with 10% of take home pay, then work your way up to 10% of gross pay if you can. Do less if you need to and increase when you get a raise or a better paying job.

One of the great benefits of automatic saving is that you never have to think about saving. Saving becomes so routine that you may not notice you’re doing it at all.

Back to basics series

part one: It’s time to review the most basic rule of personal finance

Second part: Would a 20% interest rate catch your eye?

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Rob’s Personal Finance Reading List

Enough with the old house fetish

An American urban planner points out that although people like old houses, “new construction is better on almost every measure imaginable”. He says old houses are mediocre at best and dangerous at worst. Now for a summary of where the Canadian housing market is heading into the new year in terms of prices, interest rates and more.

How to escape a common pitfall during a job interview

One of the hardest questions to answer in a job interview is, “What are you currently doing?” Respond with your current salary and you might find out what to expect if you get the new position. A clever alternative response is explored in this New York Times story.

Credit cards that insure your smartphone

A roundup of credit cards that offer insurance coverage of up to $1,000 if you lose or damage a mobile device purchased with the card.

Retirement planning for young adults

A recently retired senior executive from a major US investment firm encourages millennials and Gen Z to save for retirement. One thing I really like about this Q&A is a note about how common it is for people to think they should do better with money.

Ask Rob

Q: What is the best brokerage for buy and hold investors?

A: My annual ranking of online brokers will be published on February 4. The ranking primarily focuses on the buy and hold needs of investors – the top brokers last year were QTtrade Direct Investing and TD Direct Investing.

Do you have a question for me? Send me. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

How to verify that it is the Canada Revenue Agency who is calling you and not a scammer.

The cashless zone

Frontman Ronnie Spector of the Ronettes passed away recently and I’ve seen a lot of mentions of the band’s songs. Here is my favourite, Do I like you?

what i wrote about

More Rob Carrick and Financial Hedging

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