397 Ways to Save Money: Spend Smarter & Live Well on Less - PDFDrive.com
Page 4
ayear.
OpenaTax-FreeSavingsAccount(TFSA). Ifyou’re18orolder,go toyourfavouritefinancialinstitutionandopenaTFSAtosave$5,000in cash,stocksorbondseveryyeartaxfree.TheTFSAisabrilliantvehicle forCanadianslookingtostashsomeextraafter-taxcashforarainyday or to save for a new home, car or even for retirement. Over time the savingswithaTFSAcanreallyaddup.Forexample,let’sassumeyou
have$25,000investedinastandardhigh-interestsavingsaccountat3%.
Afteroneyearyouwillearn$760.40compoundedmonthly.Depending
onyourincometaxbracket,thegovernmenttakesaround$225.Witha
TFSA, you get to keep everything. The TFSA is also far more flexible than an RRSP: you can withdraw without any penalties, and the
contributionroomisalwaysavailable.TakealookattheGovernmentof
Canada’sTFSAwebsite(tfsa.gc.ca)formoreinformation.
BOTTOMLINE:PuttingmoneyintoaTFSAsavesyoufrompaying
taxes on income earned in the account. For example, investing $5,000at4.5%givesyou$225taxfree.
Contribute to your Registered Retirement Savings Plan (RRSP).
Savethousandsayearbycontributingupto18%ofyourpre-taxincome
toanRRSP.Savingforretirementisagoodidea,andcontributingtoan RRSPisawonderfulwayofloweringyourtaxableincome.Youcanalso
useyourRRSPasaninterest-freeloanforeducationoraninterest-free downpaymenttowardyourfirsthome.Checkoutthehomepageofthe
CanadaRevenueAgency(cra-arc.gc.ca)tofindoutmoreaboutRRSPs.
BOTTOM LINE: Starting an RRSP and contributing up to 18% of yourpre-taxincomeperyearlowersyourtaxableincomeandsaves
you hundreds and thousands. For example, a person earning
$50,000ayearcancontributeupto$9,000toanRRSPandgeta
taxrefundofabout$2,925.
SaveforYourChild’sEducation
Saving for your child’s university education can be scarier than retirement planning, because high-school graduation is probably
approachingmorequicklythanyourgoldenyears.Don’tbetakeninby
investmentfirmsthattellyouthatyouneedtosave$100,000perchild: they usually overstate the costs of education to attract more of your money.Ifyoucansaveevenathirdofthat,you’redoingmuchbetter
thanmost.Here’showtogetstarted:
•The earlier you start to save, the more time your investments have to grow, so open a Registered Education Savings Plan (RESP) as soon as possibleafteryourchildisborn.Thefirststepistogetasocialinsurance numberforyourchild.You’llfindtheapplicationatservicecanada.gc.ca.
•Choose an RESP with the lowest possible fees. This usually means avoidingthosewell-advertised“scholarshiptrusts,”whereyoupurchase
unitsinapooledinvestment.Itmakesmoresensetousethediscount
brokerageaffiliatedwiththebankwhereyoudoyourdailybanking.
•Anyfeesyoupaytoaninvestmentadviserormutualfundmanagerwill
eat up your returns. The best low-cost investment strategy is to buy index mutual funds or exchange-traded funds (ETFs) through your
discount brokerage. For more information, search the web for “index investing.”
•TakefulladvantageoftheCanadaEducationSavingsGrant.Thefederal
government will top up every RESP contribution by 20% to 40%,
dependingonyourincome,toamaximumof$500annuallyand$7,200
overthelifetimeoftheplan.Ifyoucollectthemaximumgrantamount,
itcanadduptoafreeyearofuniversityforyourchild.
•See whether you are eligible for other education grants. The Canada Learning Bond is a one-time grant of $500, plus annual payments of $100 (maximum $2,000), made to low-income parents who open an
RESP.TheAlbertaCentennialEducationSavingsPlanissimilar,andit’s availabletoallAlbertanswithachildbornin2005orlater,regardlessof income.
InvestmonthlyinyourRRSP. InvestinginanRRSPisasmartchoice nomatterwhenyoudoit,butinvestingmonthly(orevenbi-weekly)is
even smarter. Making monthly payments gives you a few different advantages. For starters, it gets your money into the investment cycle earlier—allowingitmoretimetogrow.Italsomakessurethatyourbest RRSP intentions don’t get washed aside in a February cash crunch by splitting your contributions evenly over the year at a planned rate.
Finally,youcantakeadvantageofdollarcostaveraging—aninvestment
strategythatarguesmarketriskcanbemitigatedbymakingfrequentset investments rather than trying to time lump sum contributions.
Essentially, with dollar cost averaging you get exposure to the market bothwhenitislow(whichmeansyougetmoreshares)andwhenitis
high (which means you get fewer shares), and therefore can end up lowering your average price. This can leave you better off than being
forcedtobuyataparticularrateattheendofFebruary.Tomaximize
this strategy, though, make sure your RRSP investment has low or no transactionfeessothatyou’renotgettingdingedateachcontribution.
BOTTOM LINE: Buy early and buy often when it comes to your RRSP contributions, so that you can watch your diversified
investmentaddup.Forexample,ifyouput$5,000intoyourRRSP
inmonthlyinstallmentsof$416.66throughouttheyearinsteadof
inonelumpsumattheendoftheyear,ata5%returnyoucangain
anextra$116.10oftax-freegrowth.
Don’tinsureyourkids. The general purpose of life insurance is to serve as income replacement for the insured’s dependants. Because childrenaredependants,ratherthanhavingdependants,itmakeslittle
financialsensetoinsureyourkids.Manyparentsbuyinsurancepolicies fortheirchildrenbecauseanagentsellsthemontheinvestmentaspect
of a cash value policy. Pass on these expensive policies, which are lucrativeforthesellingagent,andopenarealinvestmentthatyourkids can benefit from, like a Registered Education Savings Plan (RESP) for yourchild’spost-secondaryeducation.Unlikeacashvaluelifeinsurance policyforchildren,anRESPhasrealadvantageswheretheearningsare
sheltered from tax until drawn out for the child’s education, and then taxedatthechild’smarginalrate.
BOTTOM LINE: Don’t get sold on buying life insurance for your kids.Optinsteadtobuylifeinsuranceforthebreadwinnersinyour
family. To invest in your children’s future, consider opening an RESPtohelpfundtheirpost-secondaryeducation.
Makeawill. Awillwon’tspecificallysaveyouanymoney,butitcan saveyourestatefromprobatefees,determinedistributionofyourestate andcanhelppreventdisputesamongheirs.Forthosewhowanttoleave
everythingtooneperson,ado-it-yourselfwillkitforaround$50might beenoughbutcouldleavemuchopenforwillchallenges.Abetterroute
totake,especiallyifyouhavechildren,istospendthe$500andhirea lawyer.Unlikeawillkit,lawyerscananswerspecificquestionsanddeal withyourindividualsituation.
BOTTOM LINE: Hire a lawyer and spend the $500 on a will to
protectyourassetsforyourchildrenandheirs.
Get term life insurance not cash value insurance. If you have a family to support, then get term life insurance. Term life is pure life insurance in that you pay an annual premium to receive a decided amount of coverage.
When the policyholder dies, the beneficiaries collect, and there is no other potential payout to the policy. All other policieshaveanadditionalinvestmentangletothem,andsoaresoldas havingadded“value.”Theycanbecalledwhole,universalorvariable
lifeinsurance,butthepremiseisthattheycombinelifeinsurancewith aninvestmentportionthatbuildsupacashvalue.Manypeoplewhoare
buyinglifeinsuranceliketheideaofthesecashvaluepoliciesbecause theyfeel theirpremiums arebuilding to somethingabove and beyond the final payout. What they don’t realize, though, is that for marginal added value, they’re paying up to 1,000% more in fees. For the same amount of coverage, cash value polices can cost up to 10 times more thancomparabletermlifepolicies.Becauseoftheexpensivenatureof
cashvalueinsurance,manyfamiliescanendupbeingunder-insured.If
you’reshoppingforlifeinsurance,chancesareagentsandbrokerswill
trytosellyouacashvaluepolicy,astheypaysizablecommissionsand bonusestotheseller.Sobesuretoaskfortermlifeandsaveupto10
timesonyourinsurancecosts.
BOTTOM LINE: Avoid all the confusion: buy pure term life
insuranceandspendupto10timeslessonpremiumsandgetfully
insuredforyourfamily’sneeds.
StartanEmergencyFund
Anemergencyfundisastashofcashsetasideinanaccessibleaccount, usually a high-interest savings account. Emergency needs vary from person to situation, but they usually involve an unforeseen event that requiresanimmediatesumofmoney.Havingsomefundstuckedaway
forarainydaycanspareyoufromturningtocreditcards,goinginto
debt and paying high interest charges when times are tough. Keep in mind,though,thatanemergencyfundisnotforbuyinganewpairof
Jimmy Choo shoes, even if they are on sale! Here are some tangible
reasonswhyyoumayneedanemergencyfund:
•Illness: If a long-term illness keeps you from working and
earningmoney.
•Jobloss:Ifyougetlaidoffandcannotfindwork.
•Naturaldisaster:Ifyourhomeandpersonalbelongingsare
blownawayinastorm.
•Death:Ifyoulosealovedone.
•Fire: If your apartment burns to the ground and you need
some replacement clothing before your insurance claim
clears.
•Carproblems:Ifyourcarbreaksdownonthehighwayand
youneedittowedfromtheoff-ramp.
•Bustedwaterheater:Ifyourhomeisswimminginwaterand
youneeditfixedtoday.
Thesescenariosvaryinhardship,butineachcasesomeextra
emergencymoneywouldbehelpful.
How do you start building an emergency fund? I started my first emergencyfundbysockingaway$25everypaycheque,or$50amonth.
AsIbuiltabudget,paidoffdebtsandcutvariablespending,itbecame easiertosave$100to$250amonth.Mythoughtisit’sbettertosavea littlethantosavenothingatall.
Asimplesystemtoboostsavingsistoautomaticallymoveyourmoney
to an accessible (but not too accessible) high-interest savings account earmarkedforemergencies.Youwillearnalittleinterestasyourfund
grows.
Howmuchstashedcashdoyouneed? Thisisahardquestiontoanswer.
AfinancialadviseroncesuggestedIkeep$3,000,whileasavvyfinancial friendbelievedthreetosixmonths’worthoflivingexpenseswouldkeep me safe. The answer really depends on your living costs, financial situationandlevelofcomfortinknowingyouhavesomefinancialstores
forjust-in-casesituations.
Ifyou’reblownawaybythesenumbers,thenstartsmallwithalittle
cash and slowly build. From my experience, it’s very settling to know thereisalittlemoolahsetasideforarainyday.
CHAPTER4
Shopping
Thereasonsweshopcanbeasvariedasourpersonalities.Someofus
spendmoneyinstoresonlyoutofpurenecessity,whileothersapproach
shopping with as much zeal and fervour as an athlete training for the Olympics.Whetheryou’reshoppingforbasicneedsorfulfillingwants,
changestoyourshoppinghabitscanhaveahugeimpactonhowmuch
moneyyousave.
Some shopping adjustments, like looking online for coupons, are
simple habits to adopt and can quickly save you some dollars in the shortterm.Otherlifestylehabits,suchasshoppingonlywithcash,are largerchangesthatmaytakesomepracticetoadopt.Regardlessofhow
you currently shop, there are ways to save money on your future purchases.
This past winter I put my own shopping habits to the test while looking for a pair of snowshoes to help me get around in the deep Canadiansnow.Thelocalbig-boxstorestockedapairthatwouldhave
served me well, but after doing some quick research I found a better modelonlineandatalowerprice.Findingacouponforfreeshippingat oneofmyfavouritedeal-trackingwebsitessealedthesale,andIbought abetterpairofsnowshoesforfarlessmoney.
Whilefindingacouponandtakingadvantageofsalesisideal,there
aretimeswhenpayingfullpriceforaquality,long-lastingitemisnota bad idea. This was the case when I purchased a high-quality merino woolsweater,whichwasn’ttheleastexpensiveoptionintown.Forthe
priceofthewoolsweater,Icouldhavepurchasedtwocheapersynthetic
tops in the same store. But I opted to pay full price for the one wool sweaterbecauseIfeltitwouldlastalotlonger.Thisisanexampleof how I shopped with a preference for quality over quantity, and this tactic has served my pocketbook well over the years, saving me from replacing clothing and other items frequently. So keep in mind that
manystrategieswillhelpyoutostretchyourshoppingbudget—bothin
thelongandtheshortterm.
Decidingwhatyouwanttobuyiseasyformostofus—maybeabit
tooeasy!Butbyfollowingsomestraightforwardtipsonshopping,you
cangetbothwhatyouneedandwhatyouwant—whilesavingmoney.
BuyingTactics
Before you hit the shops to spend some coin, arm yourself with these budget-savingtipstokeepthemostmoneyinyourpocket.
Don’t waste money on brand names. Don’t believe the expensive marketing hype behind many brand-name products. Items carrying a brandarenotnecessarilybetterorworththesubstantiallyhigherprice thanthelessadvertisedalternatives.Bewaryofcompaniesthatspend
lots of money on image-oriented advertising, as marketing costs big bucksandyou’repayingforthatcostintheproduct.Save10%to50%
bypurchasingqualitygenericfood,clothing,cleaningsupplies,toiletries andkitchensupplies.
BOTTOMLINE:Ona$75cartofgroceries,goinggenericwillsave
youupto$37.50—cashinthebankoneveryshoppingtrip.
Askforadiscount. Askingtopaylessforaproductorservicesounds difficult,butit’snot.Justbepoliteandask,“Isthisthebestpriceyou can offer me?” Finding a store manager can usually net good results immediately.Justbyaskingthequestion,I’vewalkedawaysaving10%
to15%onarearugs,mirrors,furnitureandacamera.Offeringtopay
cashforanitemratherthanusingplasticcanoftenhelptoo.Askingfora discountisfree.Saving10%withlessthanfiveminutesofworkistime wellspent.
BOTTOMLINE:Askforadiscountoneverythi
ngyoubuy.Youmay
justsaveafewbucks.
Barter to save money. If you’re parting with stuff you no longer
want, then give the age-old practice of bartering a try. Generally, barteringisthetradingofgoodsandserviceswithouttheuseofmoney.
Check out the website U-exchange.com to find like-minded people to trade such things as a camper for a vacation or to swap services like website building for a haircut. When contacting people sight unseen, don’tagreetomajortradeswithoutdoingresearchfirst,andsteerclear ofgiftcardtrades,asmanyexperiencedbarterershavereporteddubious issueswithswappinggoodsforuselessplastic.
BOTTOM LINE: Clean out your quality or unused clutter by
barteringforgoodsandservicesyouneed,savingyoufrompaying
100%ofthecost.
Buyqualityoverquantity. Developingapreferenceforbuyingfewer things of higher quality could save you thousands over your lifetime.
Whenbuyingitemslikeasofa,apairofpants,awashingmachineora
coat, it makes sense to spend a bit more so that they last for several years. You may save a few bucks buying a cheaper coat, but you will also have to replace it sooner when the seams come apart. Spending more money on real wood furniture instead of manufactured sawdust mayseemlikeawasteiftheitemslooksimilar,butwhencoreitemscan lastdecadesandbehandeddownthroughgenerations,thenconsiderit
aninvestmentoverthelongerterm.
BOTTOM LINE: Always try to buy good-quality essential items
instead of cheaper, less durable ones. This will save countless dollars over the long term. A $39 bookcase that lasts only a year isn’tastealcomparedwitha$150bookcasethatlasts15years(or
$10peryear).
Useyourloyaltyprogrampoints. Ifyoucollectpointsfromloyalty programs like Air Miles or Aeroplan, then be sure to redeem them.
Loyaltyprogrampointsarenotlikemoneyinthebank—theydon’tearn