We have had lots of guests at our house in the last two weeks. A lot of great conversations and great discussions. Inevitably, the discussion turns to my boasting for my goals of 2009, one of which was to read 200 books (it turns out that is much more difficult than it sounds...I am only at 33 so far so my revised goal is 52 books).
As they go by my bookshelf which shows my reading accomplishments for 2009, they come across "The Automatic Millionaire" and they say "I wish I had that book, I can't save anything". With the discussions that my family had with my aunt and uncle, they borrowed the book (along with "The Wealthy Barber") to give to their adult kids to put them on the path to savings.
Other discussions with other friends turned to stories of how they would never be able to save enough for a house. This post goes out to all of you (and you in cyberspace) that need a push to getting started on savings.
Most people who read financial blogs (myself included) have been savers for years and don't remember the first time they began saving. For myself, I had just read the "Wealthy Barber" and decided to go to the bank and take advantage of the automatic withdrawal and automatically contribute $50 each paycheque to my RRSP. I had read in that book (or a book similar) that you would be able to do it, and that you wouldn't notice the difference in your spare cash, and it was right.
It also mentioned that savings is a little addictive. Meaning that it feels good to see your assets rise. The reason for this is because of compound interest and the fact that the more you save, the more you earn.
My best advice is just to start saving with automatic withdrawls. The best way is to use an RRSP, which can be purchased from whatever bank you want from as low as $25 at a time. I would recommend an Index Fund, because of the low costs. If you aren't sure that you can afford it, just put the minimum in ($25 per paycheque). My other recommendation is that whenever you get a raise, to put half of the raise into your savings. So if I started this year with $25 per paycheque in my RRSP and then I got a $100 raise, I would have $75 per paycheque put into my RRSP after the raise.
The advantage to using an RRSP is the immediate 30% tax exemption that you get for it (or whatever your tax rate is). Some of my friends have begun RRSPs as soon as they hear the amount that you get in taxes back. No one wants to pay taxes, and this is the best way to do it immediately.
If you are saving for something other than your retirement, like a house, a great option is the Tax Free Savings Account. In this account, you can earn interest tax free (unlike regular investments where you have to pay taxes on your earnings within the account, and also unlike RRSP where you pay taxes on the money that you withdraw). You can also purchase mutual funds within these accounts.
It should be mentioned that if you are purchasing a house and live in Canada, you can take advantage of the First Time Home Buyers tax credit and can withdraw up to $25,000 from your RRSP towards your down payment. Please note that it has to be repaid over 15 years.
In the end, please just begin to save. With the automatic withdrawals, it is done automatically and after the initial setup takes literally no willpower at all. Then you will look back after a few months and say "Wow, I have just saved a lot of money!".