A Guide to Saving and Investing
Saving is very important, everybody knows, we believe we can say that with certainty. But how to save? Saving requires financial discipline. The following short article aims at elucidating some of the simple rules of saving.
Obviously, the more you make – the easier it is to save. But, it is possible to save on a moderate income. As the saying goes, “a penny saved, is a penny earned”.
One of the greatest living expenses is food. To save on groceries, it is practical to find a grocery store that charges less for produce. For example, in cities like Toronto, some grocery stores price their items in such a way that the bill they rake is as much as double than that of others. Coupons and buying in bulk can also be easier on the wallet.
An easy way to save is to only buy the things you truly need. In order to achieve this, it is helpful to have a written (or even a mental) list of items you want to buy before setting foot in the store. Marketing and advertising often influence spontaneous purchases and one ends spending much more than planned, and what’s more, on items that are unnecessary. Almost everyone has things in their apartments that are collecting dust, rarely or even never, being of any use.
Combining incomes with a significant other is another great way to save. Splitting the bills on rent, electricity, the Internet, groceries and so on, frees up 50% of expenses, funds that can then be saved. If you don’t have a significant other to move in with, an alternative route is to find a single or multiple roommates. Living with other people may slightly curtail your freedom and independence, but it can be seen as a sacrifice in order to save.
An important step in saving is opening a savings account. In Canada, the Government made it easier to save by implementing the Tax Free Savings Account (TFSA). Funds invested in this particular account, if properly invested, accumulate interest that is not taxed. Most banks have advisers who can guide one as to how to invest money.
Investing is a different, although related, subject altogether. In investing, there are two main personality types: risk-averse and risk-tolerant. As a general rule, the riskier the investment, the more likely it is to produce higher returns. For instance, GICs guarantee intact capital (so you will not lose the money you initially invested), but produce very low returns. An adviser will usually administer a questionnaire to determine the style of investment most appropriate for your goals. To illustrate, aggressive or conservative, capital growth or income generation.