For this week’s Reality Cheque column, we’re looking at how much money you really need to start saving in Canada.

By Sydney Loney

When some Canadians consider what it takes to be wealthy, they imagine a specific dollar figure on their paycheque or a certain make of car in their driveway. For others, wealth is subjective, says Tara Downs Rocchetti, a Hamilton, ON-based certified financial planner. It’s more about having enough money in the bank to feel financially secure.

Regardless of your salary, Downs Rocchetti says it’s a myth that you need substantial income to establish a wealth-building goal. “We should all be saving money and building wealth, even if we’re not millionaires,” she says. And it’s never too late to start—although the sooner you do, she adds, the better.

To grow money, define what wealth means for you

Before you do anything, decide what you can realistically achieve with the money you can save. “Think about what wealth-building means to you at this moment in time and map out how you’ll get there,” Downs Rocchetti says. (One method that works for many people is to pay yourself first.)

If you’re just starting out with your financial plan, she says, your initial goal may simply be to step back to really look at your finances and evaluate your spending. You can also increase your knowledge of how money works (and how it can work for you). As you progress, it may evolve into having a strategic amount in your portfolio that you can begin investing, or saving enough to retire comfortably when you want to stop working full time.

Embrace the process of saving money

Wealth-building requires a step-by-step approach, Downs Rocchetti says. “It’s like working with a recipe. There’s a process involved. It’s not, ‘Boom, instantly I have cookies.’” And this is true whether you’re a recent college grad who has just landed a first job or someone in their 50s who is trying to generate wealth while paying down a mortgage.

“If you’re just starting to save, I recommend creating an emergency fund first, and then working on your longer-term goals,” Downs Rocchetti says. An emergency fund should be an accessible savings account with enough to cover three to six months’ worth of expenses, which you can use in unexpected situations like a job loss, home repairs, and so on. 

The first step is building emergency savings. As that gets on track, establish wealth-building habits, such as paying bills on time and siphoning as much as you’re comfortably able into a savings plan. You could open a tax-free savings account (TFSA) or take advantage of a work registered retirement savings plan (RRSP) that your company matches, if that’s an option available to you. If you can put away as little as 1% or as much as 30% of your paycheque, “Any small savings amount you can manage is a step in the right direction,” she says. “You don’t need to save thousands of dollars a month to build wealth.” Just be sure that as your salary increases, you increase the amounts you’re setting aside. 

And, Downs Rocchetti cautions, if you’re spending more than you’re saving, then you’re not building wealth. The key is to manage your cash flow and be mindful of your spending. “Avoid creating debt as opposed to creating wealth,” she says. “Often people think that they’re saving, but then pull from their savings to pay off their credit cards, which means they aren’t really achieving anything toward their wealth goals.”

Look to the future for retirement goals

If you ask Downs Rocchetti when is a good time to start building wealth towards your retirement, her answer is “yesterday.”

That’s not to say you missed the opportunity, but that you need to get started asap. “The more time you give yourself, the less painful it will be,” she says. “You can set aside smaller chunks and grow wealth over time because you have the time. If you don’t start saving until closer to retirement, then you’ll have to buckle down and save bigger chunks all at once.” 

We will all retire at some point, or just work less, she says. And we don’t always get to choose when that time will come, so it’s important to be ready. “We all need to save, and we all need to be able to cover our butts in case something happens along the way. Saving and building wealth creates peace of mind, no matter how much you earn or what stage of life you’re at.”

Sydney Loney is an award-winning writer and editor with more than 20 years of experience in Canadian media.

Read more from this issue of The Get:

1. Is one bank account all you really need?
2. MVP: Camille Katona redefines beauty for the ages
3. When is the best time to buy a cell phone?
4. Budgeting for the holidays when money’s tight

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