Imagine a four-year-old sitting alone in a room with a scrumptious cookie in front of him. Then imagine the child being told that he can have the treat now or wait 15 minutes and get two.
Most of us, as adults, find ourselves facing similar decisions trying to choose between “consuming” and saving.
The average Canadian has an income-earning time frame of only 35 years. The temptation over those career years is to live a “get and spend” lifestyle.
What we need to bear in mind, however, is that our 35 years of earnings may be required to fund 60 years of living. Over those 60 years we may face the pressures of inflation, low savings interest rates or investment risks as well as personal challenges, such as unexpected health care costs.
Only the lucky few have company pension plans at retirement. Government pensions were designed to provide only a minimal income base.
How can you come to grips with the urge to live for today and learn to save for tomorrow? Sometimes a quick reminder helps. Tell yourself, “Purchasing whatever I want, whenever I want, is making someone else rich!” Clearly, it is you who should be getting rich with your disposable income.
The best strategy, however, is to try to identify with your “future self.” Spend some time envisioning who you will be in 10, 20, 30 or even 40 years. Begin to see setting aside funds today as a gift to the “you of tomorrow.”
Do your best to avoid common under-saving pitfalls. Some people fail to save because they cling to the illusion that things will work out on their own.
Compounding that, the temptation to put off the hard decision to save becomes its own sort of decision.
Once you commit to saving, the benefits are immediate. The positive psychological impact of having made that first step towards future security is real.
There is satisfaction in seeing the growth of your accounts and knowing it is the result of your labour and your thrift. You work hard for your money and it is a great feeling to see it work hard for you.
How do you begin? Typically, the simplest and most effective approach is to ask your financial institution to arrange automatic monthly withdrawals from your bank or credit union account.
You can start with something as straightforward as a registered savings plan. As well, when small windfalls or unexpected savings come your way, treat yourself but add a hefty portion of them as bonus savings to your “nest egg.”
While your account grows, you can begin to inform yourself about various savings and investment options. Baker’s Books has a financial section. Your financial institution has advisors and it can be fun to browse the web for insights.
Review your progress annually and be sure to increase your contribution as you become accustomed to the process.
Pay the “future you” before you pay anyone else. Then, reward yourself with a cookie.
Rock Hutsul is The Hope Standard’s personal finance columnist, bringing you rock-solid advice on how to live your best financial life. Email: rhutsul@telus.net.