Summer is right around the corner, yay! We welcome the longer days, blue skies and the ability to turn off our furnaces for a few months! For many young families, summer also means kids’ camps, camping trips and family vacations. Costs all add up and unfortunately it does not end there. Once into the school season it is tuition and supplies, new clothes for the growing kids and the ever costly extra curricular activities. Raising a young family is challenging to begin with, but when you throw into the mix the associated costs, it can become overwhelming.
Well, we have put together a few thoughts on how to survive those ‘crunch years’ and perhaps even set aside some extra funds for retirement. An ambitious goal? We will let you decide.
Hobbies - Consider Specializing
When the kids are small it is fair that you want them to experience a breadth of activities to see what they enjoy. However, as they get older, and the demands of homework increase, it could be an ideal time to have the children specialize in just one or two extracurricular activities. This will reduce costs, not to mention reduce the cost of gas from all the shuttling between various activities!
Budget on the Luxury Travels
Travelling can be considered money well spent and there is so much to learn when going abroad and experiencing a new culture. But a family vacation does not have to be two weeks in Europe. Living on the west coast, and Canada in general, there are so many beautiful places to explore that one does not necessarily have to go very far to create some wonderful memories. Ask most kids and it is likely they would rather camp at the lake versus tour a museum abroad (again, for the most part!). So, it ends up a win-win.
Save FIRST
Often people start with their paycheques, pay off the monthly bills and other expenses and whatever is left over--if anything--goes into savings. However, we think saving first is a better approach. Regularly setting aside small amounts avoids having to come up with a large RRSP contribution at the end of February and if you are tempted to skip out on retirement savings for a few years, don’t! The effects of compounding interest in the early years within a tax-deferred vehicle is so much more valuable than trying to catch up in later years. Lastly, do not forget the additional benefit of making an RRSP contribution – it lessens your taxable income, which will hopefully lead to a bigger tax refund.
Take Advantage of Benefits
For those of you fortunate enough to be in a workplace where some sort of company pension or group RRSP is offered, capitalize on any available employer matching programs. In tandem with the previous point, be sure to similarly take advantage of automatic debiting from your paycheque in order to make such contributions. It tends to be less painful and chances are you will not miss the money that never made it to your bank account. It is a mind hack! One last subtlety, and an extra bonus, is that contributions deducted directly off your paycheque are not subject to payroll taxes, meaning you pay less tax upfront.
Get a Bigger Paycheque
Okay, so we do not actually mean demanding a raise, although banking raises such that anything extra goes towards savings is an excellent strategy. Instead, we are referring to having less tax deducted at the source which means you get a bigger paycheque. This is only applicable to those in the category of regularly receiving a tax refund and you will need to file a form annually with the CRA to show this. Of course, some actually enjoy receiving a large refund once a year, so if you fall in that camp make sure you are at least allocating a portion to your savings.
Before we close, we want to acknowledge that we have referred to the word savings somewhat broadly. We are primarily speaking to saving through a retirement vehicle, such as an RRSP. We recognize that for some, saving is done through paying off debt and garnering equity through their principal residence. We would encourage investors not to depend solely on their home as their retirement nest egg; however, we appreciate that the struggle is real during the ‘crunch years’ of raising a young family.
If you are having difficulties regularly budgeting savings into your day-to-day cash flow, consider using an app that helps you track your expenses. Mint is a popular one, as is EveryDollar.
Lastly, if this article has given you the sweats, do not despair. Start small and remember that setting aside something is better than nothing at all.