I realize just how unusual it is for a 20 year-old to be writing a blog post pertaining to finances; however, it is SO important to educate oneself on finances early in life. In no means am I stating that I am some kind of financial expert- because heck no, I am still learning new things every day regarding finances! I just wish to pass along information that has worked well for myself thus far. By educating yourself as a young adult, you could WILL be saving yourself (literally) from a lot of unnecessary monetary worries. Understanding finances can be extremely boring to the majority of individuals, which is why I’ve decide to write this post in a primarily point form attire. This one particular article will be in regards to saving 10% of your paycheque, every paycheque.
*DISCLAIMER: I owe all of my current financial knowledge to my financial advisor Rod, and all of the books he has referred me to.
Q: What is the 10% rule?
A: If you’re familiar with the finance book “The Wealthy Barber” by David Chilton, then you’ll most likely already have heard of this term. If not, go and invest in this book immediately, it is life changing. The 10% rule refers to saving 10% of your paycheque for yourself. Meaning, that the very first thing to do after depositing your paycheque is take 10% for your RSPs (retirement savings plan). BEFORE ANYTHING ELSE. Before your rent, your phone bill, your grocery money, your car payment, etc.
Q: More about RSP’s…
A: Educating oneself on a Retirement Savings Plan is one of the most valuable gifts one can give themselves. Who do you work for? No, not _________ company. You work for yourself. Period. Which is why you should be saving that small percentage of your paycheque for your future, and it should be the first thing you do with your paycheque.
Q: I have too many responsibilities that I can’t afford to save 10% each paycheque.
A: Anyone can afford to save just 10% of their paycheque- trust me, you won’t even notice it’s gone. Many of my friends have stated that they couldn’t possibly afford to save 10% of each paycheque with their school loans etc., but somehow they can still afford to eat out and go to the club multiple times a week. Hmmm, suspicious. Am I saying that you shouldn’t go out and enjoy your young adult years? No, not at all. I am simply stating that there are priorities, and then there are wants. Taking 10% out of your paycheque will not leave you without spending money. Cut out the unnecessary things in your life; find the distinction between your wants and your needs. Personally, I’ve cut out all the little food trips I used to take, literally saving me tons of money each month. I’ve also had to limit my online spending habits… because fashion is my weakness. But every time I’m about to click check-out I think of Rod’s “disappointed face”, and oh boy you do not want to disappoint Rod. So, when you’re about to do some unnecessary spending, I give you permission to use this same trick.. just think ROD.
Q: How can I ensure to save 10% before spending my paycheque on any unnecessary purchases?
A: There are multiple ways.
- Create a budget. Then, as soon as you receive your paycheque, sit down with it. Take time out of your day and physically sit down with it.
-The very first thing you will do is take the 10% (or more) for yourself.
-The second thing will be tallying up the total amount you’ll need to pay for your necessary living expenses (rent, mortgage, daycare, loans, payments, gas, food costs- always maintain good credit). Creating a monthly/ annual budget will help you maintain your payments and spending habits. If you have a habit of forgetting your payments, phone the company in which you owe money and find your payments due date every month. For example, if you owe exactly $100 to MTS on the 16th of each month, then set a recurring reminder on your phone prior to the due date. If that is still too difficult for you, then you can always implement an automated pay transfer to MTS. Whichever the case, always keep good credit!
-Finally, the third thing is to calculate the remaining amount of money leftover from your paycheque. Now, with this money you may choose to allocate part of it to your holiday gift spending savings, your TFSA, your RSP, down payment savings, or leisure spending. It’s your choice! See, even with being financially stable you’re able to responsibly enjoy your young adult years.. and your future self will thank you for it.
2. Automated Transfers. I suggest meeting with your financial advisor for this. If you don’t have a financial advisor, get one asap. Setting up a reasonable automated transfer is ever so convenient. For instance, if you’d like to allocate $400 of your monthly paycheque to your RSP’s, then simply implement a repeated, automated transfer for every first of the month. Easy peazy lemon squeezy.
3. Leave your Credit Card at Home. If neither of the above options sound appealing to you a) that’s truly unfortunate and b) refrain from leaving the house with your credit card. I mean, it’s always smart to carry some money on you, but the less money on you the less money you can spend. Hah.
4. “I can’t afford to”. Never be embarrassed to turn down your friends with the excuse that you simply can’t afford it. They aren’t your true friends if they don’t understand that you have important financial responsibilities. It may not be that you literally can’t afford it, but just that you have greater priorities to take care of first. If you have a heavy billing month and can’t afford to spend the extra bucks on luxuries.. then don’t. I’m that friend that still goes out to restaurants with the girls, but will eat prior to leaving and just order water (yes, I’m that annoying customer- but hey, my friends are still ordering off the menu so the servers still get paid and get their tips!). Personally, I would rather save money by eating at home, but to each their own.
Hopefully this intro to finances has enlightened your spending habits, I will definitely be posting more regarding this topic. Stay tuned and thanks for reading!