How to have enough money to retire on without taking on a second job

In my post Retirement Planning in Canada, I told you I’d explain a simple system to help you with your retirement planning, but there’s more to this system than meets the eye, as it can also help you to lead a better lifestyle that you probably are right now – and you won’t need to take on a second job to make it work!

If you haven’t read David Chilton’s “The Wealthy Barber”, I highly recommend it. One of the things he teaches is that we should save 10% of our income and invest it for a safe, secure and possibly even wealthy retirement. That is GREAT information… but chances are you’re not doing it right now, are you?

Why not?

Because it’s easy to get caught in the trap of thinking we have to pay our bills and other monthly expenses first, and  hoping there will then be enough left over at the end of the month so we can “pay ourselves” by putting something into savings.

The problem is that for most people who manage their money this way, there’s usually more “month” than “money”.

Typically, most people have one checking account ( a joint account if they’re married or have a partner), and maybe a savings account.  Or, some couples prefer to each have separate accounts for “their own” money.

So what’s wrong with this system?  Well, think about it: if that’s what you’re doing right now, how’s that working out for you?  I’d venture to guess that if you’re like most people, you’re not saving 10% each month, are you?

Here’s a simple system that works if you’re consistent

The first thing you’ll need to do is to open 3 to 4 new savings accounts, and buy a “piggy bank” or something you can keep adding cash and your accumulated change to at home.

Here’s what you’re going to use them for every month

10% of your pay cheque goes into your retirement account or as I call mine, the “Financial Freedom Account”;if you have direct deposit, so much the better – because if you don’t see it, you don’t miss it.

10% goes into another account called long term savings. This is for those big-ticket  items like cars, new furniture, a down payment on a house, etc.; again, if you’ve got it set up, have it directly deposited into this account.

Another 10% goes into your “contingency” account. Remember Murphy’s Law: what can go wrong will. So be a good Boy Scout/Girl Guide and be prepared. Stuff happens. And even if you think that for some reason you’re immune, chances are you’re wrong.  Someday it’s going to rain on your parade. But, if I’m wrong and you’re right, and you never have to use your contingency fund, then look at it this way:  you end up with a nice little chunk of change to do anything you want with! When this account equals six months gross income, you can consider it full and stop adding to it. (And since you’re used to putting this money into savings anyway, why not just move it over to your retirement fund?)

55% goes for necessities. Yes, it is the largest chunk of your income, but please note: IT’S NOT FIRST on the list. Necessities include food, mortgage/rent, property taxes, clothing, etc.  these are your fixed monthly bills.

Next comes 10% into your “good times” account. This account is for costs such as dining out, splurging on a jumbo latte in the mornings, or impulse buys. Get this amount in cash when you cash your pay cheque, and keep it in a jar by your dresser, or in an envelope in your sock drawer.  Add your spare change to it throughout the month – the “round money” adds up over time.  Feel free to spend it every month.

And the last 5% goes to charity. This is your “pay it forward” fund – and if you’ve got the time to do this, you can make your contribution one of your time rather than your money, and then add the 5% to the account of your choice.

Here’s the main  reason this system works so well: by having multiple bank accounts, you will not be able to continually “borrow” from one account to pay for other things.  And by “paying yourself first” you’ll soon have some real money to help you plan for your retirement in Canada.

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