Save more Spend less

Two strategies for efficient debt repayment

Debt repayment can feel like an unending, especially unique form of torture. You make your minimum payments every month, and yet the number you owe seems to shrink so, so slowly. Will it ever be paid off?

There are two common strategies that some experts say can help you pay down your debt faster. They’re called the snowball and avalanche strategies, and while they sound real cutesy, there’s some real tactical cleverness behind them.

Wanna learn what they are? We’ll tell ya!

Debt snowball and debt avalanche applications

The first thing to know is that these two strategies only work for folks with multiple debts. Maybe it’s a car loan and a credit card, or a handful of credit cards, or a line of credit and a personal loan. They both offer a strategy for tackling numerous debts more efficiently.

Both methods also require you to make payments in varying amounts. For this reason, they don’t work on debts like mortgages, which typically require a fixed payment on a fixed schedule.

Minimum payments suck

The second thing to know is that minimum payments are designed to keep you in debt longer.

What? Really? But don’t lenders want me to pay them back?

Yes, they do—but they want you to pay them back slowly, over a long period. This allows them to assess more interest charges and collect more from you over time. This is why debt can cost you more the longer you hold it.

So if you’re making only minimum payments on your debt, the first thing to do is consider if you could afford to accelerate your payment schedule. Even if you can only afford to up those payments by a few dollars, it could really help.

The interesting thing is both the snowball method and the avalanche method rely on minimum payments to work. In this scenario, the payments work more like maintenance fees while you work through your debt in stages. This is basically the only time making minimum payments on your debt might be reasonable.

What’s the debt snowball method?

The snowball method tackles the mental game of debt repayment.

In this strategy, you make your minimum payments on all of your debt except the smallest debt you hold. On this debt, you chuck any extra cash you have onto those payments.

If you hold three debts, one $1,000 debt, one  $700 debt, and one $100 debt, you’d make the minimum payments on the first two, but would make accelerated payments on the $100 debt.

The idea is that this can help enable you to pay off the smaller debts faster, which feels like a huge win. When you pay off your $100 debt, you start paying off your $700 debt at an accelerated rate. Lastly, you tackle your $1,000 debt in the same manner.

The “snowball” name comes from the momentum you build as you tick each debt off your list. According to a recent study from the Harvard Business Review, this repayment method is the best of the bunch, noting “focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress – and therefore their motivation to continue paying down their debts.”

If you struggle with the mental commitment required to pay off your debt, this could be a great strategy for you.

The biggest criticism of this method is that by focusing on the debt with the smallest value, you may be letting other higher interest debts drag on, costing you more over time. You should review your interest rates to determine if this concern is relevant to you.

The avalanche method

Then there’s the snowball method’s big bro: the avalanche method.

Instead of tackling your smallest debt first, the avalanche method looks at the debt with the highest interest rate. This could be your smallest debt, your biggest debt, or the one smack in the middle; high interest rates can be what traps us in a debt cycle, so focusing on eliminating the debt with the highest interest rate is meant to reduce the cost of your debt over time.

Say we have the same debts: $1,000, $700, and $100. The first and third have the same interest rate, say 12%. But the $700 debt has a 24.99% interest rate.

A minimum payment on a $700 debt could be around $20 depending on your credit score. If you only made the minimum payment on that debt, it would take approximately 16 years and 4 months to pay it off, and you’d pay $1,098 in interest.

Yeah. You’d pay more in interest than the principal balance owing, and by the end, your debt would be old enough to hold a learner’s driver’s license in most parts of Canada.

By redirecting any extra funds to tackle that high interest debt first, you’re intending to shorten your repayment period and save money over time. If you have debt that has a high interest rate, the avalanche method could be perfect for you.

The challenge is that it takes real commitment and discipline to stay consistent in your debt payments, which is critical to the success of this strategy.

Which debt repayment strategy might be right for me?

Your circumstances are totally unique, so only you know which may be the best debt repayment strategy for you. But you can embrace a few helpful ideas that might make your journey to debt freedom a bit easier.

First, don’t take a loan from a company you don’t trust or with terms you don’t understand. Our friends at Mogo offer personal loans, for example—but their entire goal is to help borrowers pay their debt off ASAP. Check out their site to get a quick pre-approval that doesn’t impact your credit score and a transparent loan experience that will help you get debt-free faster, so you can get back to saving.1

You could also consider debt consolidation. By obtaining a loan at a lower interest rate and using that loan to repay your other higher interest debts, you could save money in interest charges over time. You can read more about that here.

You might also hold the type of debt that doesn’t—strictly speaking—need to be paid down right away, like a student loan or a mortgage. Read more about that here.

Ultimately, the best debt repayment strategy is one you can stick to. Make more than your minimum payments if you can, pick a plan, and stick to it. You can be debt free—just keep at it.

Save more

Tax terms you need to know

Whether you’re filing taxes for the first time, or you’re new to Canada, or you’ve never filed on your own before, it’s frustrating to pause every few minutes to Google a specific term.

With any luck, we can take some of that pressure off here, with a crash course in some basic tax terminology.

Your tax dictionary

What is a T4?

A T4 is the slip that employers use to report the income of employees. Whether you are employed full time, part time, or on contract, your company will issue a T4 for you every year. Normally, you’ll receive this document by mail.

T4s, like most tax documents, come with many numbered “lines” that are used to code and record amounts of money. When doing your taxes, all you need to do is match the number affiliated with each line and fill in the corresponding amount. For example, line 23600 reports net income. Simply enter the amount on line 23600 on your T4 in the corresponding box labelled 23600 in your tax software or on your paper return.

Net and gross income

Depending on the type of your employment, you will report your income differently to the government. If you are an employee, you’ll find values on your T4 for your net and gross income.

The difference between net income and gross income is easy. Gross income is your total income, like the salary on your employment contract. From your gross income, many employers will preemptively deduct taxes “at the source,” including income tax, your mandatory contributions to the Canada Pension Plan or Employment Insurance. After those taxes are removed from your pay by your employer, your actual take home pay is considered your net income.

When you file your income taxes, you’ll report both of these numbers. Using these (and other factors), the government will decide if you’ve already paid enough in taxes (which would zero you out), if you have not paid enough (meaning you would owe money), or if you paid too much in tax throughout the year (which would get you a refund).

Conversely, because self-employed people don’t have a salary in which the company deducts tax at the source, self-employed folks have to manually deduct and save the equivalent amount all year long. Then, when tax time rolls around, they should have a lump sum ready to pay what is almost always an amount owing.

What is a tax refund?

Every year, it’s recommended you fill out a tax return to ensure you’ve paid enough tax to the government over the course of the year. If you haven’t, you are obligated to submit a return and pay the balance owing. The sometimes clunky mechanisms of the tax return system are in place to make sure all citizens and the government are “square,” or, they don’t owe each other anything.

Tax refunds occur annually for many Canadians. They occur when, over the course of the year, Canadians pay too much in taxes, which are often collected “at the source” by their employers.

Pro tip: don’t spend it all in one place! (Check out our 5 smartest things you can do with your tax return)

What are tax deductions or credits?

Tax deductions and tax credits, while they function differently, are our friends.

A credit is an amount that the government effectively forgives. If you are given a credit valued at $15, you may subtract $15 from your overall amount owing. Unfortunately, you can’t use tax credits to increase a potential refund; you can only use it to reduce the amount you owe.

Deductions, or write offs, work slightly differently and mostly apply to self employed people. Deductions allow Canadians to shelter part of their income from tax. If you earn $100, and have deductions valued at $10, you would only be taxed on $90.

Did you know! Contributing to an RRSP (Registered Retirement Savings Plan) account can shelter portions of your net annual income, which could come in handy during tax season! When it’s tax time, your taxable income = Net Annual Income – RRSP Contributions.

Let’s say you pay your income tax every payday and your net annual income is $50k. If you contribute $10k to your RRSP, you will only be taxed on $40k, which means you could potentially qualify for a tax refund.

(Reminder though, if you withdraw funds early—such as with the Home Buyer’s Plan—your repayment contributions don’t count as net new RRSP contributions. And, you still get taxed on your RRSP savings withdrawals when you retire.)

You may want to opt to use an accountant or a tax software to get tips on optimizing your return with credits and deductions because they can be a bit tricky.

What is a tax free allowance?

This amount changes every year—it rises, to keep up with inflation—and considers your net income, not your gross income.

For example, Canadians earning under $13,229 in the 2020 tax year will not owe income tax to the government.

This personal allowance is intended to let Canadians living at or below the poverty line have a break from paying income tax.

This allowance is part of the larger tax bracket, or progressive taxation, structure which undergirds Canada’s income tax system. The idea is that the more you earn, the more tax you pay.

For example, say all Canadians were taxed at 50%, meaning, 50% of their income went to the government (we chose 50% because it’s easier on our pea brains; this is not the basic tax rate in Canada). This would mean that a Canadian earning $5,000 would pay taxes of $2,500, leaving them only $2,500 to live off for an entire year. Conversely, a Canadian earning $5M per year would pay the government $2.5M, leaving them a roomy $2.5M to live off.

Using a progressive tax structure means that folks earning under $13,229 are not taxed, while folks earning $10M+ are taxed proportionally more.

It’s Almost Tax Time!

The submission deadline of April 30 is closer than you think! Make sure you start on your taxes early so that you’ve got enough time to do them well. Whether you’re using an accountant, a software, or roughing it all together yourself by hand, make sure you’re taking the time to do a good job, and to understand what you’re filing for. After all, noooo onnnneeee in the world wants to suffer through an audit.

Hang in there! You can do it!

Save more

How to reach your financial goals

Whether you set a financial objective (say, saving $1000 dollars a year) or another goal like learning the piano or starting a small business, there are key strategies to get started and to stay motivated. Here are our five best pieces of advice.

1. Break your goal down into smaller, more attainable steps

Imagine your goal is to run a marathon. The prospect of running an entire marathon is pretty daunting, but if you break down your mission into smaller steps (for instance, running 5km without stopping, and then 10km, etc) it immediately seems much more achievable. 

When you work in realistic stages, it’s easier to keep up a good pace (see what we did there?) and stay motivated. It really boils down to identifying objectives and concrete actions that can be implemented in days, weeks, or months. This type of action plan should have specific and measurable “mini goals” that add up to your ultimate one. 

Taking one boxing class a week to build strength and skill is a more quantifiable and measurable plan compared to deciding to become a professional boxer. Breaking your ultimate goal into steps will not only help you reach the finish line, but the small wins along the way will help you stay motivated.

2. Keep the benefits of your goal in mind

Speaking of motivation, it can be easy to lose your drive if you lose sight of why you set the goal in the first place. If your aim is to put aside $100 dollars a week, but you don’t know why you’re doing it, you’ll have a hard time sticking to it.

If, however, you keep in mind that this $100 a week will help you pay for a luxurious vacation at the end of the year, you’ll be much more likely to follow your own plan. To make the one-year wait feel shorter, you can set a few milestones. For example, you can choose to save X amount after 3 months, X amount after 6 months, and so on. 

Side note: Moka can help you with financial planning! The app allows you to set specific goals and set money aside to achieve them. 

3. Hone your inner grit

Call it courage, endurance or resolve. Grit is a word that describes your strength of character and ability to persevere through difficult times and to meet challenges head on. Everyone has grit, and you can definitely cultivate this quality. 

This form of tenacity makes it possible to accomplish whatever task you set for yourself regardless of talent, skills, or circumstances. Popularized by American psychologist, Angela Duckworth, the concept of grit proves to be very useful when pursuing objectives. We strongly recommend reading her book, Grit: The Power of Passion and Perseverance.

4. Set a deadline

Depending on their nature, some goals don’t necessarily lend themselves well to deadlines. Setting deadlines, however, is a good strategy for creating incentives. If you recall our marathon example, the mission to run a marathon as a one-day challenge might mean setting yourself up for failure!

If you decide to set milestones over a set period of time to train for the marathon over two years, however, you’ve created a sound action plan that’s achievable. For long-term goals, such as learning to play a new instrument, break them down into specific steps and set deadlines for each of them.

5. Conduct regular check-ins

To help you stay on track, it’s important to regularly review your progress. These daily, weekly, or monthly check-ins are an excellent way to make sure you’re sticking to your action plan, and provide the opportunity to ensure your goal is aligned with your true needs and desires. Periodic check-ins also give you the chance to change your goal or even to set new ones! The main thing to keep in mind is to not feel guilty—you always have the right to change your mind.

Finally, consider writing down your objectives in a notebook (in order of importance, if necessary), and reread it regularly. You can also use the power of positive visualization throughout the day or before you sleep if that’s the best time. These methods can positively influence your unconscious; strengthening your motivation and helping you turn your dreams into reality.

Now go on, you’ve got this!

Save more

Inflation: What does it mean for you?

Remember when shops closed in March 2020? And then they just… didn’t reopen? For like, a long time? Something about a pandemic?

That closure and others like it were necessary to keep people safe. But those closures also had expansive economic impacts that Canada is now attempting to recover from. 

To put it in a nutshell: in order to encourage strong economic activity within Canada, the Bank of Canada decided to leave the cost of borrowing money low. This meant people would  borrow—and crucially, spend—more money, keeping currency circulating in our economy. 

But choices like this one can bring on inflation, which can be a good thing or a bad thing. This post looks at what inflation is, what makes it happen, and what it means for us. 

What is inflation?

Our friends at Investopedia explained it simply when they wrote “inflation is the decline of purchasing power of a given currency over time.” No faff with those guys. 

Often, inflation is illustrated by imagining a grocery basket full of eggs, bread, and… wine. (This “basket” has to include a variety of products and services to be a good measure of inflation, and is often represented by the Consumer Price Index, or CPI.) This basket we’ve got will cost us $10, say. 

When inflation increases at a nonoptimal rate (i.e., when there’s too much inflation), the cost of goods rises. We might return to the grocery store to purchase the exact same basket of goods only to find the cost is now $15. 

This means that our power to buy goods, per unit of currency, has diminished. This is how inflation “erodes” the real value of cash, and cash holdings or savings, over time. 

Economists have been expecting an uptick in inflation; its absence is in part what encouraged the Bank of Canada to take the actions it did and leaving interest rates low. 

But this choice, and a variety of other factors, means we could see a rise in the rate of inflation in the next several years.

What causes inflation?

There are three general types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. An optimum level of inflation is actually a good thing, because it encourages economic activity and employment. 

Demand-pull inflation happens when an economy is well stimulated, and consumer demand for products actually outpaces the production capacity for those goods. As a product becomes more scarce, its price can rise. A classic example of  supply and demand.

Cost-push inflation is the opposite. This happens when the cost of production rises, and that cost is passed along the supply chain to the consumer with the ultimate price increase of said product. 

Built-in inflation is related to what can be called the wage-price spiral. When consumers see the cost of living rise—even a little—they assume it will continue and demand higher wages to compensate. These higher wages are reflected in the cost of production, which, again, drives prices, and so on. 

In Canada, we’re seeing bits of all of these types of inflation. This article itself could be considered a product of built-in inflation. Here we are, telling you that based on our research, increased inflation could occur in the next few years; this could drive you to change your behaviour. 

Similarly, as the Bank of Canada keeps the cost of borrowing low, consumers will likely continue to spend, potentially driving up prices. And ongoing problems in the global supply chain—remember when the big boat got stuck?—could force higher production costs down the supply chain onto the shoulders of consumers. But only time will tell!

What does inflation mean for me?

Inflation can have several impacts on the average consumer, both positive and negative. If inflation falls, it means your purchasing power grows. If it rises, it means your purchasing power falls. 

Inflation is always a possibility, and there are a few things you should be aware of. There are a myriad of potential impacts of inflation, but here are three you might find more likely to impact you. 

Consumer purchasing power may fall

Your wine, coffee, eggs, bread, furniture, car, rent, and imports (for example) may cost more than they do today. Some experts say it’s possible to insulate your savings against inflation by not holding cash, but rather other instruments like equities. Holding specific financial products may help counteract the erosion caused by inflation, but every scenario is different. 

Talk to a financial  advisor or broker if you’re worried about your holdings. 

Borrowing costs may increase

To counteract inflation, the Bank of Canada may opt to raise interest rates. If you have a variable interest rate on a personal loan, student loan, line of credit, or mortgage, this may impact you, as the interest rate on your balance owing may increase. Talk to your bank or broker if this concerns you. 

Spending may increase

When interest rates climb and inflation gets out of control, people tend to withdraw from the market. Worried about the economy’s future, they feel they should save what they already have. 

But in the early stages of inflation, oddly, the opposite tends to happen. 

With continued inflation in the forecast, consumers often actually increase their spending. This makes sense: the value of the dollar will likely fall, but the real use-value of a pair of new running shoes with room to grow for little Tommy or a new coat for wee Jimothy that’ll fit until  he’s older stays the same. The idea is to buy now, when prices are lower, investing in goods that won’t themselves lose value. But this increase in spending can actually drive inflation, as in the demand-pull scenario. 

Inflation: we can’t avoid it. That’s why it’s important to have a good understanding of economic trends like these so we know how to best respond and adapt as our economy recovers in unpredictable ways. 

Save more

Why you need a financial plan

We all have goals. Whether career, life or family, there’s usually something that each and every one of us envisions for ourselves. Owning our own home, being our own boss, or retiring somewhere warm—where there’s no snow, amirite?

When it comes to financial goals, achieving them is usually easier said than done. Enter the financial plan. A financial plan is your personal roadmap to financial security and, eventually, financial independence. Think about it like a business plan: In order to succeed in business projects, companies will lay out a business plan to help them bring their projects to fruition and ensure their business sustainability. Financial plans act the same way as a business plan in that they will guide you at every step of your financial life.

Here are some of the benefits of having a plan for your financial goals.

  • Build a better, more secure future for yourself

With a financial plan in place, you’ll have a better understanding of your spending habits compared to your income. This will help you track your expenses and increase your net savings every month. 

  • Have enough for an emergency

A good financial plan should include an emergency fund that will help you cover any unexpected expenses or support you in case of an income loss. It’s usually recommended to have 3-6 months of your living expenses in your emergency fund.

  • Prepare for retirement

Your financial plan should not only include your short-term goals like saving for a trip or a car, but also your long-term goals like saving for retirement. 

It may seem tedious and—let’s face it, no fun at all—to start saving for your retirement when you’re young. However, the sooner you start saving , the better prepared you’ll be for a comfortable retirement. Your older self will thank you.

The road to financial independence

Imagine waking up every morning and being able to choose how you want to spend your time: do you want to work today or do you want to take advantage of the beautiful sunny day to go for a walk or hike instead?

This is exactly what financial independence is all about: having the choice to work or not.

Being financially independent means having saved enough money to cover your essential and leisure expenses. You no longer need to go to the office to pay your bills.

Since everyone’s situation is different, we recommend you meet with a financial planner to figure out what’s needed for you to achieve financial independence.

Unfortunately, there’s no blueprint to reach this goal: your financial situation and essential and leisure expenses may be different from those of your neighbour.

An expert can also help you establish a savings and investment plan to achieve financial independence in the most efficient way.

Save more

A Canadian Dream for everyone

So what is the Canadian Dream?

Our friends at Mogo wanted to find out for themselves, and recently carried out a survey with members of the Angus Reid Forum, where they found that Canadians consider financial security and climate health as essential elements of the Canadian Dream.

Financial security certainly helps Canadians pursue their goals, but achieving these goals all starts with access to financial services. As financial technology companies continue to develop innovative tools that empower Canadians to save and invest more, they enable each and every one of us to unlock success and pursue our Canadian Dream. 

The financial challenges that we face are different from our parents’ generation, so we need different financial tools. Luckily, we have more financial options available to us than ever before, and when used correctly, they can get us closer to achieving the dream. 

Canadian Dream study: Key findings

From an online sample of 1,000 Canadians, the study found a clear picture of the top priorities for Canadians today.

When asked what they think the most important aspect of the Canadian Dream is to them, the number one choice for Canadians was ‘financial security’ (33%). In second place was the ‘freedom to follow personal dreams’ (24%), followed by buying a home (11%) and living without discrimination (11%), with ‘having a family’ coming in last (6%).

Asked what is most important to them personally, 33% of Canadians said, ‘providing for their loved ones,’ followed by ‘enjoying life right now’ (29%), ‘protecting the environment’ (13%) and ‘building wealth’ (11%).

Based on the above, we can see how essential economic stability is for Canadians to achieve what’s important to them. 

How can Canadians achieve this dream for themselves?

Financial technology companies exist to make financial services more accessible and affordable for Canadians. With the wide array of tools available, it’s now more possible than ever before for Canadians to achieve their dream. We’re excited about what Mogo’s building to help Canadians gain control over their spending and get on the path  to building real wealth—all while helping the planet at same time.  

Mogo’s goal is to empower Canadians to build a secure future—both in terms of personal financial security and a healthy planet. And with the help of the MogoCard, it could be easier than ever.

For many Canadians, building wealth to secure a comfortable future is the most important aspect of achieving their Canadian Dream. The path to financial security might include never spending more than you earn, paying down debt fast, and then investing what you don’t spend (but everyone’s circumstances are different).

The MogoCard is here to help Canadians on their journey to financial security. Loading up your MogoCard with the amount of money you know you have available to spend gives you a set spending budget. Plus, you can stay on budget with helpful push notifications that are sent every time you make a purchase. According to another Mogo survey, some MogoCard users reported saving an average of $201 per month just by using their card, and 91% said the card helps them better control their spending.1 

That could be put towards an extra debt payment, or a bigger monthly investment. 

With financial security and climate health being deeply interconnected, how Canadians manage their money can play a big role in achieving the Canadian Dream. Mindful consumption could help Canadians build wealth responsibly, so you can still live the life you want while saving up for your future (and helping to protect the planet).

This is why Mogo’s built a climate focus into many of their products. Take the MogoCard, for example, for every purchase made with the card, Mogo will plant a tree on your behalf with the help of their friends at veritree. Planting just 10 trees a month could make you climate positive by removing more CO2 from the air than the average Canadian produces. That’s only 10 taps of the MogoCard per month!2 It’s a smart way to spend money while helping to fight climate change.

The Canadian Dream is simple

All of this taken together, the Canadian Dream is a simple one. Canadians want to be able to live comfortably and securely in a healthy climate that doesn’t put them or their families at risk.

These two tenets of the Canadian Dream are deeply interconnected, and access to financial services that help Canadians manage their money plays a central role. 

Just like each of us is unique, so are our financial situations. Taking a few minutes to understand the tools and services that are available to us, can set us up for financial success, and maybe even the Canadian Dream.  

Mogo Inc. is the parent company of Moka Financial Technologies Inc. (“Moka”), and Mogo Finance Technology Inc. (“Mogo”) is an affiliate of Moka. This blog is provided for informational purposes only, is not intended as investment advice, and is based on findings of a study/survey conducted by Mogo Inc. from September 10-14, 2021, with a sample of 1,000 online Canadians, outside Quebec who are members of the Angus Reid Forum. The study/survey was conducted in English only. The precision of Angus Reid Forum online polls is measured using a credibility interval. In this case, the poll is accurate to within +/-3.1 percentage points, 19 times out of 20. All sample surveys and polls may be subject to other sources of error, including but not limited to coverage error and measurement error. If you want to read more about the key findings of the study, those can be found here.

*Trademark of Visa International Service Association and used under licence by Peoples Trust Company. Mogo Visa Platinum Prepaid Card is issued by Peoples Trust Company pursuant to licence by Visa Int. and is subject to Terms and Conditions, visit for full details. Your MogoCard balance is not insured by the Canada Deposit Insurance Corporation (CDIC). MogoCard means the Mogo Visa Platinum Prepaid Card. To apply for any Mogo product, you must open a MogoAccount and pass identity verification. MogoAccount is currently only available to individuals in Canada (excluding Quebec).

1-Based on an online survey of active MogoCard users by Mogo Inc. conducted between July 13, 2021 and July 16, 2021, with 1,446 respondents to a combination of multiple choice and fillable text box questions. 91% of respondents agreed that the MogoCard can help them better control their spending. 66.5% of respondents reported that they were spending less on discretionary spending now that they were using the MogoCard, with respondents reporting that they believed to have an average savings of $201 per month (based on 902 respondents who specified an amount and excluding 60 respondents who did not specify any amount).

2-An average Canadian emits approximately 42,000 lbs of CO2 in one year. Each tree will absorb approximately 500lbs of CO2 over its lifetime (approximately 25 years). For every purchase made with the MogoCard, a tree will be planted. If you used your MogoCard for 10 purchases each month, 10 trees would be planted. If 10 trees were planted every month for a year, that would be 120 trees, and those 120 trees would absorb a combined total of 60,000 lbs of CO2 over their lifetimes (25 years), making the average Canadian climate positive. Learn more: Blog. 

Save more

How to prioritize your savings goals

A down payment or a new car: which takes priority in your savings plan?

Canadians often have complicated, even competing, financial goals. 

Saving for retirement, a down payment, this year’s vacation and a new couch? If you’re struggling to do any of these things efficiently, you’re not alone. 

Assigning priority to our savings goals—and designing saving strategies to complement this priority—is no easy task. But it’s necessary if we want to reach our goals as quickly as possible. Here are a few tips to help along the way.

For the purposes of this article, we’re assuming that you don’t have any debt to pay off. If you do have debt—that’s OK! Everyone’s situation is different so it’s important to do your own research and make decisions based on your personal circumstances. That’s the smart thing to do anyways—you know your finances best!

Determine the cost of your goals

The first step? Figure out the cold, hard facts.

Want a new car? What is it actually going to cost you—payments, interest, insurance, gas and all? 

Maybe you want to go on vacation. Think big picture: a trip to Paris is going to cost more than just a plane ticket, hotel, and a pass to the Eiffel Tower. You’re going to need transit fare, a budget for dining out, and probably some extra money for souvenirs. Oh, and don’t forget the exchange rate!

What about purchasing a home? Maybe as a first time home buyer, you’re eligible to purchase a home in Canada with only 5% down. But is that worth it? You may be charged more in interest over time, or face greater penalties if you default on your payments. Is it actually cheaper to purchase with 10% down? 

Once you’ve got the figures—and be realistic here!—you’re ready to start prioritizing.

Rank your goals based on necessity

Next, think about necessity. 

It’s a good rule of thumb to first save for emergencies. If you don’t have an emergency fund, you’re vulnerable to sudden expenses like a broken down car, a leaky roof, or even medical bills. Saving this lump sum first enables you to quickly get onto your real savings goals—with added peace of mind!

Then, thin the herd. Do you really need to go to Paris this year? Honestly—what about next year?

Ranking your goals by necessity is not intended to suck the fun out of your goals. But it’s a simple fact that dividing your income up into several portions for several savings goals will slow down your progress on all of them. 

So, try asking yourself: do I need a new car right now? Yes? Maybe I should move the Paris trip to next year and double down on buying a new car sooner. 

Set deadlines for your savings goals

This tip is probably the most important when it comes to prioritizing your savings goals—and deciding which strategies to use to reach them.

The idea is simple: when are you going to need this money? The answer to this question will determine how much you need to save and which tools you need to use. 

If you’re saving to replace the transmission of the car you use to get to work everyday, you would probably want to allocate as much money as you can to this short-term goal. This might look like re-allocating money from elsewhere in your budget to increase the amount you can contribute this month, growing your principal savings balance. 

If you’re saving for a down payment on your first home, by contrast, you’re probably looking at a couple years of focused, consistent saving. 

In this case, it probably doesn’t make sense to save every single spare penny, leaving no funds for fun, vacations, or other “wants”. You still need to be able to live your life. Instead, you might consider opting into a tax free savings account (TFSA) which you use to invest into low cost exchange-traded funds (ETFs). Investing your savings—even over the course of five or six years—can really contribute to its growth. 

Meanwhile, your retirement fund is also a different beast. If you’re retiring in 40 years, you’re probably going to be counting on the magic of compound interest. It probably doesn’t make sense, therefore, to pour *every* *single* *dollar* into your retirement savings starting today. 

Instead, you may want to find a reasonable percentage of your income to contribute every single month. But because you’re on a much longer timeline, this amount might be lower than what you’d contribute to a medium-term down payment savings account or a short-term car repair account. 

Saving is about strategy

To summarize, short-term savings goals are the least able to take advantage of amazing tools like compound interest, and as such, these probably need more capital contributions up front. The longer the term of your goal, the more you can simply set it and forget it. 

Using these tips and your budget, you can figure out how much money you should be directing into which savings account every month. As always, consistency is key. But being thoughtful about your savings strategy and accurately prioritizing your savings goals is a close second. 

You got this! 

Save more

Emergency fund: Why you need one

There’s an astonishing amount of content on the internet that says you don’t need an emergency fund. But in all likelihood, that isn’t true. No matter how great your insurance is (or how expensive it is!), an emergency fund is always something good to have on hand. 

You need an emergency fund. Every Canadian does. Luckily, these funds are some of the simplest to amass and the easiest to maintain. 

What is an emergency fund?

An emergency fund is a fixed amount of cash that is kept on hand for use only in emergencies. 

These funds are generally saved up only once, and then topped up as the funds are used. They’re not something you contribute to forever.

These funds are intended to pay for unexpected expenses that require immediate action and that aren’t otherwise covered by Canada’s social security net, like employment insurance or medicare. 

Emergency funds are designed to help prevent you from going into debt, or from being unable to pay for something you desperately need. They enable you to handle surprise expenses without tapping your savings.

How much should I save in my emergency fund?

This number is different for everyone, but the ideal emergency fund would pay for six months of your living expenses, assuming you had absolutely zero income during that period. 

This might sound like an intimidatingly large number to save, but once you have it, you can rest assured that losing your job or needing a car engine replacement wouldn’t put you heavily in debt. 

Many Canadians live paycheque to paycheque, and any sudden strain on their finances could jeopardize everything. With an emergency fund, you have a cushion to fall back on. 

To calculate your ideal emergency fund value, add up the monthly cost of the things you need to live, and multiply by six. These items may include:

  • Your monthly food budget, possibly excluding dining out and alcohol purchases
  • Your rent or mortgage payments
  • All insurance payments, such as home, car, health and pet insurance
  • Utility bills, including phone and internet bills
  • At least your monthly minimum debt payments, but ideally, 1.5x that amount as minimum payments do little to actually pay down your debt

If you lost your job tomorrow and weren’t going to find another position for six months, you would need to treat your emergency fund with care. For many Canadians, losing income would require families to rein in expenses.

It’s important to be realistic about what it would cost you to live comfortably but perhaps sparingly for several months and start there. 

What are emergency funds for?

Emergency funds are for expenses you’ve probably encountered before and have had to scramble to manage, or have had to withdraw money from your savings to cover.

These include things like:

  • Insurance deductibles following a car or home accident
  • Dental or eye care which is either an emergency or simply required but not covered by your insurance
  • Big home repairs, like a leaky roof or cracked foundation
  • Deductibles and related expenses for pet health care, like emergency surgery
  • Or even a new laptop if yours breaks and you need one 

Emergency expenses are one of life’s givens (along with death and taxes). The best way to handle those expenses is to be prepared in the first place. Then, when you’re faced with a scary expense, you know there’s money set aside for just that reason.

It’s a win-win. Emergency funds are good for your financial health and your peace of mind.

How do I create an emergency fund?

When saving an emergency fund, it’s important to be thoughtful about your strategy. 

For example, saving up this cash in your chequing account may expose it to accidental use. Therefore, it’s important to find a safe place to keep it (not in your mattress or a hole in the backyard, though, k?).

You may choose to open a savings account for your emergency fund. When selecting an account, ensure that:

  • You pay very low or no fees, 
  • There are no penalty fees for withdrawing funds at any time, 
  • You earn interest on the money you save.

Here are some more tips on building your emergency fund from the Government of Canada.

Moka’s automatic roundups are another way to help you build your emergency fund and savings. Your spare change is automatically rounded up and invested in a fully-managed, diversified portfolio of exchange-traded funds (ETFs), making saving money easy and effortless. Plus, you can speed up your savings by setting up recurring weekly deposits or multiplying your roundups. 

Once you’ve selected your saving strategy, determine how much you’d like to save every month. Budget for this amount, and be consistent in your savings. With that, you’re well on your way. 

After you’ve reached your desired amount, you may choose to reallocate your monthly savings to another savings goal. If you use your emergency fund, top it up. Rinse and repeat.

Save more

Managing debt: Where should you start?

When it comes to tackling your debt you might find yourself wondering, where to start? This is totally normal! It’s easy to feel overwhelmed but with a few first steps, you can create a repayment plan that will set you on course to becoming debt free. 

The first step is to list all of your current debts. This includes not only your loans and credit card balances, but also your unpaid utility bills, phone bills or even a loan you took from your cousin’s neighbour’s colleague months ago. 

Having an overall picture of your debts ensures that you don’t forget any creditors when creating your debt repayment plan.

The next step is to determine your ability to repay your debts. To do this, you need to analyze your budget by listing all of your expenses, and whether they’re essential or discretionary. This will allow you to see how much you have left each month to pay off your debts comfortably.

Finally, prioritize one debt at a time, this way you can  focus all your efforts on eliminating them one by one. You should still continue to make your minimum payments on your other debts during this period so that they don’t affect your credit report.

This leads us to our next question…

Which debt should you prioritize first?

You should always prioritize the debt with the highest interest rate, since  they cost you the most. 

It’s important to know that your debt payment is broken down into two parts: one part of your payment is the interest payment, which goes to pay the interest fees, and the other is the capital payment, which pays the principal (the original amount borrowed). The higher your interest rate, the higher your interest payment will be, and the lower the capital payment to actually pay down the principal.

Note that the principal payment is your real payment toward your debt. So, when the interest portion of your debt payment is higher than the capital payment, it will take you longer to pay off your debt. That’s why higher-rate debt should be tackled first.

If you’re deciding between two debts with equal rates, choose the one with the smaller balance. Remember, paying off debt isn’t  a sprint, but a marathon. You need to break down your ultimate goal of paying off debt into smaller goals to keep the motivation you need to get through your plan. That’s why paying off your smallest balance first (when the rates are equal) will motivate you to keep going.

If you have multiple high-interest debts, it’s recommended that you use the Avalanche strategy to accelerate your debt payment. With this strategy, any time you pay off one of your high-interest debts in full, the freed-up money that would have been used for that debt payment is allocated to the payment of your next highest interest rate debt and so on. As you pay down each debt, the extra money will increase over time, which will help you get out of debt faster.

Save more Spend less

Rent and food: How much should you be spending?

Here, we take a look at how much you should really be spending on rent and food and what you can do to lower these fixed costs.

How much should I be paying per month on food? 

Eating. Groceries. Cooking. We all have a love-hate relationship with food for a myriad of reasons. Planning your next meal can sometimes be fun, while other times, not so much. No matter how or where we consume it, we’ve all wondered: am I spending too much on food?

There’s no one size fits all answer to how much should be spent on groceries since how much food you need varies from one household to the next. Your food needs may be different from those of your neighbour: for example, a family of two adults and four children will have different needs than a person living alone.

The Credit Counselling Society estimates that you should spend between 10 to 15% of your budget on food. This means between $4,000 and $6,000 per year for a person earning $40,000.

If you feel that your food expenses exceed this percentage, here are some tips to help you spend less in this category:

1. Cook in large batches: This not only saves you time but also prevents you from wasting food. You also avoid buying pre-made meals during your busier times.

2. Avoid pre-made meals: Cooking for yourself is not only healthier but also better for your wallet.

3. Shop around for specials: Always be on the lookout for price reductions to save money. To do this, try using the Flipp app, which scans local grocery store specials every week.

4. Avoid processed foods: These are generally more expensive than raw foods. It’s also  better to chop, grate or grind food yourself to save a few bucks.

5. Plan your meals for the week and make a list: Having a plan will help you manage your expenses and budget your grocery spending. 

Am I paying too much for rent?

Housing expenses (rent, utilities etc.) are a significant part of everyone’s budget, so it’s important to pay close attention  and how much you’re spending on them every month. 

Rent prices vary from one city to another. For example, the average price of a one bedroom apartment in Vancouver is 2,100$ per month, compared to 1,350$ in Montreal. So, be sure to use comparables with the options offered in the same city.

To make your search easier, try using Zumper. It’s both a search tool for available apartments and it analyzes their prices.

If you think you’re unable to find an apartment or rent price that fits your budget, you can  always try house hacking: find a friend,relative or  colleague to share your apartment.

This will not only reduce your rent costs but also allow you to split other bills, like heating, electricity, internet—and even some grocery expenses.