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Living paycheque to paycheque? You’re hardly alone. As my latest Financial Post blog reprises today, almost half of Canadian workers (47%) told the Canadian Payroll Association’s 2017 survey that they’d find it hard to meet their financial obligations if their pay cheque were delayed by even a single week.
You can find the full blog by clicking on the highlighted headline here: Nearly half of Canadians would face a financial crunch if paycheque delayed by even a week, survey shows. The article also appears in the Thursday print edition, page FP5, under the headline Nearly half of Canadians walk financial tightrope.
As I point out at the end of the FP piece, there’s some irony in that the way out of this savings conundrum is to make an effort to save paycheque by paycheque: a strategy the CPA and other financial experts generally term “Pay Yourself First.”
That means using your financial institution’s pre-authorized chequing arrangements (PACs) to automatically divert 10% of net pay into savings the moment a paycheque hits your bank account. Just like income taxes taken off “at source,” the idea is that you won’t miss what you don’t actually receive.
Pay Yourself First
Pay Yourself First was one of the key messages in David Chilton’s perennially bestselling The Wealthy Barber. It’s also the main principle of follow-on books like David Bach’s The Automatic Millionaire. It simply means that when you consider your list of creditors, you put your FUTURE you at the top of the list of payees, and you do it consistently, off every paycheque, year in and year out until you reach your financial objectives.
After the FP blog ran, the CPA sent me a note saying that in addition to setting up a PAC with a financial institution:
“employees may also be able to do this ‘at-source’ through their employer, by asking their payroll department to have the funds automatically diverted into a separate retirement or savings account. Currently about 61% of employers offer this option and of those that don’t, one-third are looking into offering it. We encourage employees to speak to their payroll department to explore their available options.”
Either way, of course, consistent saving requires living within your means: spending less than you earn and banking the difference, which is the underlying philosophy of the Financial Independence Hub. As the Didi character says in my financial novel, Findependence Day, “You can’t climb the tower of wealth until you climb out of the basement of debt.”
While the survey paints a dismal picture of Canadian saving habits across the board, the survey numbers are worse for Millennials and Generation X: more than half of them would be in a jam missing a single paycheque (55% Millennials in their 30s; 51% GenXers in their 40s).
For young people in particular, but really just about anyone still in the saving and wealth-building phase of life, I’d suggest they start a PAC directed to Tax-free Savings Accounts (TFSAs), which in time will automatically create a necessary cushion of emergency savings.
The CPA survey uncovered the astonishing fact that 22% of Canadians across the country say they could not come up with $2,000 within a month to meet an unexpected emergency expense like a car repair, fixing the furnace or any of the other big-ticket occasional expenditures that life tends to throw our way when we least welcome it. The TFSA should be your one of defence for such emergencies, as well as the go-to-first vehicle for saving up for big purchases like a car or scrounging up a down payment on a home.
