Saving $100,000 may seem like an impossible task, but it can be done as long as you put some effort into it. Make no mistake, there’s no easy way to save that much cash. But depending on how you save and invest your money, you can reach $100,000 sooner than you think.
Keep in mind that what you plan on using that money for may ultimately affect how long it takes you to save. For example, if you need that money for a down payment on a home, you won’t want to put it in any risky investments. However, if you’re saving for the long term, you can take more risks with how you invest your money, which means higher potential returns.
Where you park your money also matters. Your RRSP and TFSA have different tax benefits, so you need to take that into consideration before you make any deposits. How long it’ll take you to save $100,000 will differ for everyone, but here are some investment vehicles you can use to help your money grow.
High-interest savings accounts—If you’ll need your money in the short term, a high-interest savings account may be the best option for you. Current interest rates available range from 0.8% to 2.3%. That’s not bad compared to no interest in a chequing account, but it’ll still take you a while to save $100,000.
Let’s say you save $1,000 a month, with an annual interest rate of 2.3%. It will still take you about eight years before you reached $100,000 (keep in mind that interest rates can change).
GICs—If you prefer an investment where the interest rate won’t change, GICs are a good choice. Currently, GIC interest rates are as high as 3%. It will still take you close to eight years to reach $100,000 if you save $1,000 a month. Also, your investment is guaranteed. GICs and high-interest savings accounts are covered (up to $100,000) by the Canada Deposit Insurance Corporation in case of a bank failure.
Stocks and bonds—If you’re willing to take some risks with your money or you have a longer timeline, investing in the stocks and bonds should give you the best return. Traditionally, a balanced portfolio of stocks and bonds will return about 6% annually. That means you will reach your goal of $100,000 in just under seven years. Keep in mind that since stock prices fluctuate, your portfolio can go up or down in value at any time, which is why you shouldn’t invest your money in stocks if you need your money to be secure.
How to reach your savings goal quicker
Waiting seven to eight years to reach your savings goal may seem like an eternity, but there are ways you can save $100,000 faster.
Increase your savings rate—In the above scenarios, the assumed savings rate was $1,000 a month. If you’re able to save $500 more a month, it will take a little more than five years to reach $100,000 while saving in a high-interest savings account or GICs, or just under five years with average returns in the stock market.
Save any additional money—Whenever you’re presented with some extra money such as gifts, work bonuses, or a tax refund, you’re often tempted to spend. However, if you’re able to save that money instead, it can go a long way. There’s nothing wrong with spending any extra money you come across. Just remember your priorities.
Work more—I know it’s easier said than done. But if you’re able to work more, you can save more money. Some people will pick up some hours at work while others will find a second job or a side hustle. Working more isn’t for everyone, so you need to ask yourself how badly do you want to reach your savings goal?
The bottom line
There’s no quick way of saving $100,000, but increasing your savings rate is usually the best way to reach that goal more quickly. The investment vehicles you use can help you reach your goal faster, but always keep in mind there may be some additional risks.