Answering Your Financial Questions
A lot of people feel like they shouldn’t talk about money. In our society, many of us are taught to stay silent about finances and that it’s not polite to talk about money or ask anybody any questions. Unfortunately, this often means that people don’t have all of the information they need.
We believe that talking about finances and asking questions about money is the best way to learn and develop strategies for building a stronger financial future. That’s why, every month, our experts answer questions about money, debt and finances. If you have a question for our team, ask us online on Facebook, Twitter or through our website.
Please keep in mind that the questions here have been condensed or rewritten for clarity and simplicity.
How much should I be saving each year?
The amount that you should be saving each year will depend on several factors, including your age, your financial situation, and your goals. A general number is that you should put aside at least 10 percent of your income each month for savings. Once you’re able to manage this, you might want to increase your savings to 20 or even 30 percent of your income. Of course, if you have a lot of debt, you may want to prioritize debt repayment, especially if you are paying a lot in interest charges.
Also, it’s important to remember that there are different types of saving. For example, you’ll want to make sure that you put money aside in an emergency fund. Life is unpredictable and you never know when you’ll need some extra money. You could lose your job, your car could break down, or you could need to make a repair on your home. If you don’t have money put aside in an emergency fund, you’ll likely need to go into debt to deal with these situations. That’s why an emergency fund is so crucial. Most experts recommend that you have enough money in your emergency fund to cover about three months of expenses. Start slow and build up your savings over time.
Another type of savings is putting money aside to reach a financial goal. For example, if you want to buy a new car, take a vacation, or purchase a home, you’ll need to save for these goals. This money should always be separate from your emergency fund as it’s earmarked for a certain goal.
You will also want to save for retirement. One day you won’t be able to (or won’t want to) work. For this to be possible, you’ll need to save some money to afford your expenses when you’re not working. To figure out how much you’ll need for retirement, you’ll need to figure out how much of your working income you’ll need when you retire.
Most people can live off between 50 and 70 percent of their working income in retirement, but this will depend on your situation. If you want to travel, provide financial support for your children, or contribute to charitable interests in your retirement, you may need to save more.
I just got a raise at work? What’s the best way to use that money?
When you get a raise, it’s common to want to spend the “extra” money, since it’s more than you had before and you “won’t miss it.” However, it’s a good idea to use this money in other ways to improve your financial situation. If you have debt, this is possibly the best use of your raise. They more you can pay down on your debt, and the faster you can pay it off, the less you will pay in interest charges.
Make a decision to spend your raise on paying down debt for a certain period of time. Eliminating your debt is a great financial move that won’t just get rid of the debt hanging over your head, but one that will also save you from spending more than you need to in interest.
If you don’t have any debt, it’s a good idea to put aside at least some of your raise as savings. That’s not to say that you’ll need to save absolutely all of it (of course, if you want to, you certainly can) but try to save around half of the increase each month. Putting it into an RRSP or TFSA can help improve your financial situation in the long run and let you retire more comfortably.