The rule of thumb taken from both the Wealthy Barber and the Richest Man in Babylon, is that we need to save 10% of everything we make to ensure a comfortable and prosperous future. This is a very general rule, and most Canadians have a very difficult time even saving 3% of their income towards a future savings plan. Why is this?

When we talk with our clients, the one thing that we see over and over again, is that retirement seems like a goal so far into the future it is hard to conceive its value today, let alone take from today's lifestyle to fund a future obligation such as retirement. Many people believe that they can just catch up later on in life, when money becomes more available and accessible. But if you are not willing to take $100 out of $1000, you are far less likely to take $100,000 out of $1,000,000!

So how do we save today, enjoy it today and still save for the future? The answer is proper allocation of your savings. Instead of putting 100% of all your savings into an RRSP, you need to also plan for saving goals in the near term or an emergency fund, and also saving for something you enjoy like a new car, a new boat or a family vacation to name a few. If you only have a long term vision on your savings, then it becomes more difficult to commit the money every month. But if you knew that every month you were also putting some money away into a side account for a trip to Disney World, saving becomes fun!

Here's the Secret Formula: Out of every dollar you invest, you should allocate 60% towards a Future Savings goal such as retirement, 20% into an Emergency Fund, and 20% into a "Fun Fund".

If your furnace or dishwasher or car breaks down, your emergency fun will be the source of the funds, without having to use credit to fund the purchase. By also allocating money every month towards your Fun Fund, it will allow you to watch it grow and grow, and properly plan for things such as family vacations or special items that are important to you and your family without getting in the Credit Trap to fund these purchases.

A typical Bank advised client does not generally get this kind of advice, because the Banks are be fixated on RRSP deposits, and it is a measured metric at each Bank branch. So year after year the branch needs to increase its RRSP's under management, and encourage customers to move large sums of money from their savings accounts into the RRSP's that the banks manage. And when you need to make large purchases or take a family vacation, they have just the Credit Vehicle for that!

If we continue to buy through borrowing, we will always be at the mercy of the lenders, and will always be paying much more for our purchases than the simple cost of the item due to the incredibly high cost of interest expenses. Take control today and become your own bank, and when it comes time to repay a loan from your Fun Fund or Emergency Fund, you simply pay yourself back. A much more attractive solution than paying someone else back.

Call our office today, and we will show you how to build the right financial future that you can enjoy both today and into retirement.

Steffen deGraaf