Feb 8: Control spending and debt, and you’ll free up money to save: Gail Vaz-Oxlade

February 8, 2024

The classic book Never Too Late, by Gail Vaz-Oxlade, is absolutely brimming with great saving advice that still stands up today.

In the past, she begins, no one worried about saving for retirement, and for good reason. “You got to 40 or 45 and you died. No problem there. But then life got easier, health care got better, and people started living longer. A lot longer. And a new industry was born: the retirement-planning industry,” she writes.

This book, she continues, is for anyone who has “been avoiding the whole issue of planning for your future… and (who thinks) your current approach might not really be the best way to have a happy life down the road.”

Her four key points are to “stop worrying, start saving,” to “be sensible” and avoid bad plans, like carrying debt into retirement, to take action (actually doing something) about saving and to “take control” of your finances.

Vaz-Oxlade presents her “four basic rules for managing money,” which are:

• Don’t spend more money than you make.
• Save something.
• Get your debt paid off.
• Mitigate your risks.

You need to figure out, to the penny, how much you own (bank accounts, registered retirement savings plans, TFSAs, etc) versus how much you owe (mortgages, car or other loans, lines of credit, credit cards, investment loans, student loans, etc.), notes Vaz-Oxlade.

“Subtract what you owe from what you own. That’s your net worth. If you have a positive number, it means you own more than you owe and you’re on your way to building up an asset base. If your number is negative, it means you owe more than you own and you must get busy paying down your debt and building up your savings,” she writes.

To start saving, Vaz-Oxlade introduces the concept to the personal savings rate, or PSR, “a measure of how much money you save out of the money you make.” To get to this number, add up your monthly income from all sources, then tote up what you are spending each month. Subtract what you spend from what you make.

“If you come up with a positive number it means that you’re not spending more than you make and have some savings. Good for you. If you spend every penny you make, your personal savings rate will be zero… if you end up with a negative number, you’re spending more than you make,” she explains.

No matter how pressing things are with your finances, Vaz-Oxlade stresses the importance of starting to save.

“If there is a single message I want you to hear it is that YOU MUST SAVE…. You don’t have to start by saving a whack of money. If you’ve never set a penny aside, making just a small commitment today can make a huge difference to your financial future. So, it doesn’t matter how little you have to start, the important thing is to start,” she writes.

On government retirement benefits, Vaz-Oxlade warns that “if all you will have access to are government benefits because you don’t have access to a company pension and you don’t plan to save anything while you’re working, you’ll have to lower your expectations about what retirement life will look like… in all likelihood you’ll just be making ends meet.”

At the time the book was written, Vaz-Oxlade said 11 million Canadians lack a company pension plan, “in which case you’re on the hook for all the money you’ll need to set aside for the future.”

She notes that 20 per cent of those who are eligible for a workplace retirement program “don’t participate. Really? Your employer wants to give you more money and you won’t take it?” Get to HR tomorrow and sign up if you can, she urges.

She says that a lot of what’s written about retirement focuses on the idea that “we’re gonna need a bazillion dollars if we ever hope to retire,” an argument that makes many folks depressed, or scared into “sticking their heads into the sand” on retirement saving.

All saving will be of help. She gives the example of Frank and Jeff, twins who are both 20, who know they need to save for retirement. Frank “opens up an RRSP right away, contributes $2,000 a year for 14 years, and then stops.” Jeff procrastinates, starts at 30, and puts $2,000 a year away until age 64. Both get compound gains of six per cent annually.

At 65, Frank has $283,400 and Jeff, despite having put in more than twice as much money, has just $139,200. Because “the interest he earned on the interest he earned” happens over a longer time period, he ends up with more, explains Vaz-Oxlade.

So, don’t be fazed, and start saving. “If retirement is rushing towards you like a speeding truck, do something. Find a way to cut $5 a day from your spending. Drop coffee, lunch at work…. Skip a take-out meal or night out and enjoy some good ol’ home cooking…. Invest that five bucks a day – just five bucks – using an automatic monthly savings plan in either an RRSP or a TFSA, and in 20 years at a return of five per cent, you’ll have over $61,655.”

In a section on retirement living, Vaz-Oxlade reassures us that for most people, retirement will consist of “the simple pleasures that make your life lovely to live. Think of sleeping in. Think having time to spend with friends you were always too busy to see. Think time with the grandkids or with your church pals.” Don’t expect to “completely revamp your lives” at the end of work.

A nice idea, once you have figured out what your retirement income will be from all sources, is to practice by living on that amount prior to actually living on it.

“Practising living in your future retirement circumstances lets you develop a feel for what it will be like and get ready to make the adjustments necessary. By simulating your retirement life, you not only see how you will feel, you’ll get some experience with what you’ll have to do to make it work.”

She offers a number of savings steps for those of us who haven’t started. Get started, even if you are putting a toonie away in a jar each week.

When you get a raise, “live on your pre-raise income,” and bank the raise. Tax yourself on spending – “every time you pick up a coffee, grab a burger, or hoe through a muffin, drop a buck in your bank.”

When you finally pay off a debt, put half of what you were paying each month into savings.

If you save $10 on groceries, put that $10 in the bank. Consider using a cash back credit card, as long as you pay off the balance in full each month, and bank the cash back.

There’s a rich section on how to invest on your own covering fixed interest and equity investments, mutual funds, and exchange traded funds. When investing, Vaz-Oxlade writes, pay attention to the fees you are being charged, as they “will eat into how much you end up investing.”

Vaz-Oxlade also talks about annuities, which provide monthly income for life. “During periods of high interest rates an annuity can really make your hard-earned money sing since you’re locking in that high rate for the life of the plan,” she observes.

Make sure you have thought about what you are going to do with all your newfound time before you retire, she concludes.

This is a truly great book for any of us who have yet to get started on saving for retirement. There’s lots of humour and the tone is one of a supportive coach’s advice. Definitely worth adding to your collection.

With the Saskatchewan Pension Plan, it’s you who decides how much you want to contribute. Contributions can be made automatically, and you can bump them up in future when you get a raise. And when you retire, among your choices are a lifetime annuity payment each month, or the flexibility of SPP’s Variable Benefit. 

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Gail Vaz-Oxlade

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