How to Build Savings for Your Future

Picture yourself at 65 years old. What are you doing? Where do you want to be? Do you want to still be working a day job? Who are you with? Chances are, your answers all center around one thing: freedom. Having the freedom to do what you want with your life in retirement. Needless to say, a free tomorrow is impossible without starting to build savings for your future today.

In this post, you can expect to find an overview on the importance of savings, some common societal traps that people fall into, and also a step-by-step guide on how to start saving for anything you want. First, let's tackle the question: why save at all?

Why Should I Save?

Saving is the simple concept of taking money you have now and putting it away for the future. “I'm saving this cookie for later.” Same exact idea.

You can save for a lot of things: a computer, a car, a house, retirement. The idea is identical.

The importance of saving comes from the fact that there are expensive things that will happen later in life which you will want to enjoy. Without money saved up, you won't be able to buy these things. With enough money, you can even buy freedom. But more on that later.

Even if you want to build your own business empire or become an investor, you still need to save! Why? Because every endeavor in this world costs money. “What about online businesses?” Yes online businesses take a lot less money to start than brick and mortar ones but how are you going to pay for the laptop and internet without saving first?

Saving is Impossible

“Saving is easy though. Why do I need to read about it? I just won't spend all of the money I make.”

In theory yes saving is easy. But in today's day and age, saving is practically impossible.

This is because of two things:

1. Flex Culture
2. Instant gratification

Let me ask you this: what's your dream car? If you're like most people, you probably said a Lamborghini, a Ferrari, a Tesla, or any other expensive brand and model. But have you ever slowed down and asked yourself why that is? Functionally, what is the difference between a Ferrari and a BMW?

In today's society, success is seemingly measured in the fanciness of stuff that we own and the abundance of it. Couple this with social media and people's natural instinct to want to show off, and you get Flex Culture. Flex Culture is what you see on Instagram all day long: people showing off their fancy vacations and fancy cars and fancy clothes. This is why Gucci is still in business ($5000 for a freaking handbag???)

So you see EVERYONE ELSE (apparently) doing so well and having all this fancy stuff on social media all day long. Do you really have the willpower to resist spending your money to join in on the fun? If I give you $50,000, your first instinct probably isn't to put it towards your retirement 40 years from now. You're probably thinking about all the things you can BUY RIGHT NOW with it.

We live in a world of flex culture and when you see everyone else practicing instant gratification, it's impossible to save with will-power alone.

Society Doesn't Want You to Save

The reason why flex culture is such a big thing is because it promotes the economy. Even though spending all your money and not saving is terrible for your future, the economy LOVES it. Why? Because when you save, that money becomes yours for the future and the economy doesn't get to put it's hands on it. But when you SPEND, that money goes directly into the economy.

The economy doesn't give a crap about you or your future house or your retirement. All it cares about is how it can go as high as possible right NOW. The BEST thing you can do for the economy is to work, get a bi-weekly check, spend all of it on consumer items, then repeat until the day you die. The worst thing you can do for the economy is to live below your means, save enough money for retirement, then slowly siphon off those funds for the rest of your life.

So you have flex culture, which is tempting you every time you open social media, and the economy, which hates you saving, both working against you. With these two huge gears turning, it is impossible to get any real saving done without planning it out for yourself.

Saving is Easy

You might be thinking “but I don't make enough money right now to build any significant savings.” Here's the magic of saving: it's not a number that you need to hit, but a habit that you need to build. In other words, the actual amount of money that you need to store away is not as important as the percentage of your income that you are storing away. (And how consistent you are with that percentage.)

If you say to yourself “alright I wanna save $500 every month from now until the day I retire,” your savings plan is not going to be very effective. If you only make a thousand bucks a month and need to pay off expenses, $500 isn't feasible and you'll give up before you start. On the other hand, if you make $20,000 every month, $500 isn't going to mean much to you in the long run.

A fixed number is not the way to go. Instead, try allocating a percentage of your income (10%-20%) towards savings no matter what you make. This way, as your income rises, so do your savings! Do this throughout your life, and you won't need to worry about money.

The crazy thing is that you can actually go to the bank and make this process automatic. You can set up automatic savings once and never have to think about it again. This way, you can be building wealth for your future and still spend your money however you want, because you never even SEE the money that goes into your savings.

What to Save For

Two common purchases to save for are a car and a house. In this section I run a few calculations on how long it'd take to save up for these items using averages: average salary, average purchase price, etc. This is just because deep down, I love numbers and calculating things. I think that you can't start figuring out how to build savings for your future unless you know what you're saving FOR. If you just want to figure out how to set up the automatic saving thing, feel free to skip this part, but if you want to find out how long it'll take for you to buy certain major purchases, read on! (Also disclaimer and apologies to my American readers that this is in Canadian money but the same principles apply.)

A Car

• Median Canadian Salary: $60,000
• Average car price: $34,000
• Average down payment on car (amount of money you need before you can get a loan at all): 12%
• Average interest rate on car loans: 6%
• Savings rate: 10%

These numbers are rounded (to make calculations easier) but the end result should be pretty accurate.

How much money you'll save every month:

10% savings rate x $60,000 / 12 months = $500

If you save at a rate of 10% with an average salary, you should be able to tuck away $500 every month.

How long until you can buy a car:

• 12% down payment x $34,000 total price = $4080

You need around $4000 upfront to purchase a car.

$4000 / $500 a month = 8 months

You need to save for about 8 months before you can buy your very own car. But wait, there's still the rest of the price that you need to pay off. This part is a little trickier because there is interest involved but we can just use an online calculator for it.

• Loan amount = $34,000 – $4,000 = $30,000
• Interest Rate = 6%
• Monthly payments = $500

When we toss all of that into the “pay off loan” calculator we come out with 6 years. It will take you 8 months to buy the car but 6 years to OWN the car.

A House

This one will be shorter because we can use a whole bunch of numbers from the car section. Also, because housing is a huge expense for most people, I bumped up the savings rate to 25%.

• Monthly payment: 25% x $60,000 / 12 months = $1250
• Average Canadian house price: $500,000
• Average down payment on house: 15%
• Average interest rate: 3%

Alright, so how long would it take for you to save up for a downpayment?

• Down payment = $500,000 x 15% = $75,000
• $75,000 / $1250 = 60 months or 5 years

With a median salary and savings rate of 25%, it would take you around 6 years to save up for a normal house in Canada.

To pay off the whole thing:

• Loan amount = $500,000 – $75,000 = $425,000
• Interest rate = 3%
• Monthly payments = $1250

Again we'll use an online calculator for this:

To repay $425,000 with an interest rate of 3% and monthly payments of $1250 it will take you 760 months or around 63 years! So it will take you 5 years to buy the house and 63 years to OWN the house.

Yikes! That's a long time, but again, it highlights the importance of developing the habit of saving early.

How to Start Saving Now

By now you've probably realized the importance of saving. Just an average car and house will take almost your whole lifetime to pay off if you have an average salary (and live the average age.) Here are the steps you can take to start saving immediately. This is how to build savings for your future:

1. Open up your online banking (by phone or by computer)
2. Find the place where you can transfer money (for TD it is literally called “transfers”)
3. Click on “pre-authorized transfer service” or anything similar
4. Select the frequency to be however often you get a paycheck
5. Select the start date to be the date of your next paycheck
6. Select an amount of money that is proportionate to your income (at least 10%)
7. Select the account you want to transfer money to (Savings account)
8. Click next and confirm it

For step 6, just take the amount of money that you make on average and choose an appropriate percentage of it. Remember, the higher the percentage the quicker you'll reach your goals, but make sure you can handle it. Also, you can set up multiple savings accounts with your bank. So you can set up one called “car savings” and one called “house savings” and do the above steps twice to set up both of your automatic savings.

Start Saving Now!

So you've been shown the importance of saving, why actually consciously making a decision to save matters, and the steps needed to start saving. Remember, it's not about how much money you save, it's about building the habit of saving will will serve you in the future. Anyone can start building this habit as saving requires only a percentage of what you're already making. Get out there and start saving! Your future self will thank you!

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Thanks for reading through “How to Build Savings for Your Future”! I hope you learned a bit about saving money. To learn how to build wealth by INVESTING your savings, head over to this post here. For more about me, head over to this link here. Finally, if you want to follow along with my journey, drop your email in the “get updates” box (might have to scroll up a bit)! Let me know your thoughts and suggestions about saving in the comments!