Life is hard. Between keeping your financial head above water, living in the moment, and simultaneously saving for the future, there are so many variables you have to manage. Do you buy that thing because it’d be nice to have? Do you stay in a lesser hotel to save a few dollars on your trip? For that show you’re seeing, do you spurge on orchestra seats or resolve to the upper mezzanine?
We deal with these dilemmas every day, and if you’re a saver, you probably pretty good at balancing the pros and cons of your spending options.
But despite your best efforts, there are still forces that work against you. They work against you no matter what your resolve is. And frankly, these forces suck.
Inflation
Ever walk out of the grocery store and think: “darn, my broccoli was expensive today!” That’s usually because of inflation. Inflation is “the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.”
Usually the target annual inflation rate for any central bank is 2%. So if you’re presently thrilled about your current 1.5% savings account, think again. You’re still falling behind 0.5% relative to inflation.
Taxes
There’s a reason why people say that the two inevitabilities of life are death and taxes. They’re frankly, largely unavoidable without doing something illegal.
I’ve written before about the importance of knowing your marginal rate and the shifts in tax rates across different annual income bands. No matter what money you make, what you buy, how smartly you invest, the tax man cometh eventually. Your only options are leveraging your registered accounts, such as the TFSA or RRSP (which is actually tax deferred).
But otherwise, you’re out of luck. That 1.5% in your savings account? Well, once you take taxes away, you’re even further away from keeping pace with inflation.
Systemic Barriers
My first ever post was about how the rich get richer and the poor get poorer. Rich people have greater purchasing power, can take on more risk, and can take advantage of a multitude of investment vehicles that the less fortunate don’t have access to (home ownership, anyone?).
The only way to possibly overcome some of these barriers is to improve your purchasing power. Save and attempt to increase your income. It will grant you with greater agency over your life than you’ve ever had before.
Uncontrollable factors
North Korea tensions. The oil glut. NAFTA. We can’t control any of these things, so we must wake up every day and accept whatever risks the market has priced in. Sometimes this works in our favour, sometimes not so much.
The key here is to think big picture and long term. As in Avenue Q, everything is only for now.
Time
How many of us regret not starting to save or invest earlier? I’m one of the lucky ones who realized the value of investing at 25, but even then I wish I had started earlier.
There are tons of articles out there talking about the value of compounding, but compounding only works when it has a long enough lead time to do its magic.
The good thing though: it’s never too late to start. Today is better than tomorrow when it comes to savings and investments. Always.
Well that was depressing… now what?
Saving is the easiest place to start. In my youth, I was a saver not to buy that next fancy thing (though some fancy things were bought…), I was a saver because I wanted more choice in my life. I remember being 24 years old, having never left North America, and having never seen a single ocean in my life. My friends who had did so because they had money and the opportunity to do so.
And the rest of my saving life is history.
On the investments side, my appetite to invest was sparked by one thought: “At the very least, I need to beat inflation with my savings.”
At the time, that meant my returns would only need to be roughly 2%. It was a conservative goal to aim for (but at the time, savings accounts paid 0.5% due to low interest rates), and so I entered the stock market. As I started to make more money, my taxes went up, and so the next goal was to beat inflation, after tax. And so on, so forth.
It’s easy to look at those who are already FIRE’d or well on their way and think it’s impossible.
But the key is taking those baby steps.
You take them enough, and those forces that work against you become less and less powerful. The road is long, but we’ve got to start somewhere.
Stretching My Money 