Living Paycheque to Paycheque
Should we save?
I am not an accountant. I have no background in finance. I am not even a writer.
So why am I writing this? Because I followed the advice of certain financial advisors and ended up with less money than I would have by just leaving it in my bank. I am here to share my story — a story of the common man.
I would like you to avoid the traps of the financial system and become a richer person.
According to Chartered Professional Accountants of Canada, one in three Canadians live paycheque-to-paycheque [1]. Am I living that lifestyle now? No longer. But that is how most of us start our adult life.
Others don’t. But there are unprecedented events. Like pandemics. Writes Garth Turner, former Cabinet Minister in charge of CRA “. . . one in five people are likely to miss a major payment this month [2020 April] — mortgage, rent or credit card . . . No rainy day or emergency fund. No plan. Paycheque-to-paycheque.” [2]
So let’s start at the beginning.
There are few essential things in life that do not cost money, like the air we breathe. But most do, like food. A packet of rotis weighing 600 grams used to be priced a certain amount a few years ago. From last year the packet contains rotis weighing 500 grams; the packet price remains the same. So are we paying the same price? No: the amount of money which used to buy us 600 grams earlier buys us 500 grams now. The same amount of money buys us less quantity. Therefore we need more money to buy the same quantity. Economists call this inflation.
To keep up with inflation you have to save. When you keep money in a savings account, most financial institutions pay you some additional money, calculated at a rate which they call interest rate. If the interest rate is less than the inflation rate, you are losing your purchasing power.
So open a saving account with a financial institution which pays throughout the year at an interest rate more than the inflation rate.
Which financial institution to open an account at? We will discuss that next.
Citation:
[1] https://www.cpacanada.ca/en/news/canada/2019-04-02-income-volatility-study