Saving for the future is important, especially if you want to achieve certain financial milestones in life. You’ll also need to save for things you want or for an emergency in order to avoid going into debt.
Here are five reasons you should be saving:
1. You want to buy a home
The national average price for homes sold in Canada was $503,301 in June, according to the Canadian Real Estate Association. Excluding Toronto and Vancouver, the average price was $374,760. You’ll need a down payment of at least 5% of the purchase price in order to buy a home. And you’ll also need to pay for closing costs, which can range from 1.5% to 4% of the selling price. On a $374,760 property, that’ll cost you anywhere between $23,359 and $33,728. If you save the money for a down payment in an RRSP, you can take advantage of the Home Buyers’ Plan and withdraw up to $25,000 without having to pay tax. Also, be sure to shop around for the best mortgage rate before buying a home.
2. You want to save for retirement
Although the Canada Pension Plan (CPP) is being expanded, it doesn’t mean you don’t have to save for retirement. The enhanced CPP is designed to provide one-third of a person’s pre-retirement income up from the current 25%. If you’re young, you’ll benefit from the CPP expansion the most but some older workers won’t benefit from the expansion at all. Retirement experts recommend you should earn between 50% and 70% of your pre-retirement income in retirement. The best accounts to save your money are in an RRSP or TFSA. If you’re looking for a safe investment option, consider a GIC (don’t forget to look for the best GIC rates before you buy).
3. You want to go on vacation
Time off from work can do wonders for your mental health. If you want to go somewhere, you better save for it. A recent Tangerine survey finds that 59% of Canadians spend more than what they originally budgeted for a vacation. And 29% fund their trip using credit or debt, with plans to pay it back later. If you have to go into debt to go on vacation, you shouldn’t be going at all. To make the cost of your trip a little less expensive, consider getting a travel rewards credit card to help pay for your hotel, flight, or other travel-related expenses.
4. You’re not prepared for a financial emergency
You should have some money set aside in case your car breaks down, your home is in need of major repairs, you lose your job, or you can’t work for a certain period of time and you don’t have workplace disability insurance. Since you can’t predict the future, you should be prepared for the worst. Most experts recommend putting at least three months’ salary into an emergency fund. An ideal place to save your money is in a high-interest savings account. If you save in a high-interest TFSA savings account, you won’t need to pay tax on the interest income you earn.
5. You want to reduce stress
Living paycheque to paycheque is a way of life for 24% of Canadians, finds a 2015 BMO survey. Not only is it a difficult situation, it can be stressful as well. Constantly being worried about money and debt can have an impact on both your mental health and your work. Good savings habits can help reduce stress and allow you to take control of your financial future.
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Flickr: KMR Photography