I have always been a saver. I understood from a fairly young age that I needed to save money if I wanted to do anything. I did not learn this from my parents themselves, unfortunately. “Saving” was not -and is still not- part of their vocabulary.
I think I became a saver in reaction to my parents’ non-saving habit. For many years, my savings were primarily for travel; then I saved to move to Canada.
By saving, I mean setting money aside in an account that would pay me variable, low interest. This is the whole principle of saving. Easy, isn’t it?
During my first years in Canada, saving came to a screeching halt, as I simply didn’t have money to save. When my finances were back on track, I resumed saving, but a thought was constantly nagging me: “saving is not enough”.
Most regular savings accounts earn from 0.5 to 1.5% of interest. As you probably have noticed, prices increase way more than this. The Bank of Canada has a very good inflation calculator here. $ 1 000 saved 5 years ago do not have the same buying power today.
Inflation is on average at 3% per year, although it has been lower over the last few years. Simply put, if you don’t want to lose your buying power, your savings need to earn more than the inflation rate.
This is when investing comes into the picture. Since a regular account doesn’t cut it, you need to choose another product, such as a mutual fund, an ETF, stocks, bonds…etc. All these can earn way more than 1%. Unfortunately, you could also lose money.
Feeling scared? I hear you. My introduction to investing was less than stellar. Then, I began educating myself, and doing my own research. I believe it is the key to investing. I also believe 0.85% -the interest currently paid on savings accounts by my bank- is not much for my hard-earned money.
After a thorough review of my personal finances, I switched to D.I.Y. investing and opened an online brokerage account. Contrary to popular belief, you don’t need a ton of cash to do so, nor do you need a salesperson to make financial decisions for you…and cash-in on your dollars in the process.
My experience has been a pleasant one so far. I only wish I had done it sooner! At the end of the day, no one cares more for my money than me…it should be the same for you.