The top 5 reasons why you're unable to save

Canadians are struggling to save. 54 per cent of Canadians find it impossible to save and 38 per cent admit they don't have any savings at all, according to the TD Canada Trust 2011 Report on Savings.

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So what's preventing Canadians from building a nest egg? A whopping 39 per cent spend their disposable income to service debts, another 30 per cent do not have enough money to cover their living expenses and 12 per cent still shop beyond their means.

That's bad news for the 72 per cent of survey respondents whose top savings goal is paying off their credit cards. Jonathan Taylor, a chartered financial planner with Ross Taylor Financial, a financial planning firm based in Niagara Falls, Ontario, explains the five biggest mistakes that Canadians make when attempting to save.

1. You're not making the most of your credit card.
"I see people saving money in low to no interest accounts while paying 10 per cent or higher to have borrowed money on credit cards," says Taylor. "I see people paying down the low interest cards and holding onto high-interest debt. And I also see people not paying an annual fee for a reduced interest rate and paying top rates or not paying off the high credit card with lower interest rate cards." 

2. You're too heavily invested in your employer's stock purchase plan.
"The riskiest thing to do is save money in a stock purchase plan invested in the company you work for," Taylor warns. "If the company goes under and the stock is worthless, what do you have to fall back on? If you can withdraw from the plan partially from time to time to invest in other areas you can reduce your overall exposure."

3. You're not taking advantage of your Line of Credit.
"Using a Line of Credit (LOC) as a savings account when you still have debt can reduce your overall interest charges and allow you to pay your debt down faster than any other way I know," says Taylor. "If you have $20,000 on a LOC and your pay cheque is deposited into the LOC, having your bills come out of the same LOC allows you to shut down the interest charges for those days or weeks. The savings is the equivalent of 3-4 per cent interest that is tax free since the government does not tax you on saving money, just earning money."

4. You haven't spoken with a financial advisor.
"An advisor can help navigate you through the rules and regulations to maximize your return and reduce your overall cost in taxes," notes Taylor. "An advisor can look at the situation and provide many options on how to get to your goal with the least amount of effort and taxes."

5. You've come into a bit of extra money, and you don't know what to do with it.
"A case can be made to put that extra money towards your retirement savings or home mortgage if handled properly," Taylor argues. "That's because if you pay off your credit card debt, you may just find yourself with credit card debt again since you feel free to spend again. So, human behaviour would tell me to put the money towards retirement."

See related: Do men and women save and invest differently?; Can credit cards boost your savings? Yes, but dangers lurk

Published May 10, 2011

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