TD brings clarity to sayings like ‘Save for a Rainy Day’

savingsMany millennials turn to their parents and guardians for financial advice, and two-thirds (66 per cent) consider this advice worthwhile – but does it still hold true in today’s economy? According to a recent TD survey, the top three pieces of advice millennials have received from parents and caregivers include not living beyond their means (55 per cent), saving a percentage of every paycheque (52 per cent) and saving for a rainy day (47 per cent).

“While the essence of this advice is absolutely valuable, we need to unpack universal phrases like ‘save for a rainy day’ to understand what they really mean,” says Shirley Malloy, Associate Vice President, Everyday Banking, TD Canada Trust. “From there, we can turn these ‘truths’ into goals that are easily implemented and measured.”

To help, Malloy offers ‘Moneyhacks’ for the top pieces of advice that have stood the test of the time:

What they say: “Don’t live beyond your means” | What they mean: “Don’t mistake credit for cash”

Many past generations took this advice to mean avoid debt at all costs. While everyone should ultimately strive to be debt free, Malloy suggests that credit can be a valuable tool when used responsibly, and reminds us that not all debt is bad. For example, a mortgage or student line of credit can be considered an investment that helps generate income in the long term and increases overall net worth. The key is to have a plan in place to pay it back. On the other hand, those carrying a perpetual credit card balance to fund short-term lifestyle spending shouldn’t discount the age old advice.

“Understand what your ‘means’ are by evaluating money in vs. money out,” says Malloy. “Track spending against a budget that accounts for essential and discretionary expenses, savings and debt payments. An advisor can help set targets for each category based on your situation, but generally, if you need to lean on credit to fill the gap each month then revisit the budget and make the necessary adjustments right away.”

What they say: “Save for a rainy day” | What they mean: “Save for a rainy three to six months”

‘Save for a rainy day’ is another loaded phrase that, until you define ‘rainy day’, isn’t easily implemented. Malloy says everyone should aim to set aside three to six months’ income to provide a financial buffer against any unexpected life events. From a leaky roof to a sudden job loss, this can cushion the impact of unplanned costs or loss of income down the road. Having a buffer can also make it easier to relocate for a new job opportunity or go back to school.

“Building a ‘rainy day’ fund overnight isn’t realistic or attainable. To start, plan to save a two month buffer this year, and increase to four months once you’ve reached your goal,” says Malloy. “For someone who makes$65,000, saving $210 a week for a year would build up a two month buffer of around $10,800.”

What they say: “Save a percentage of every paycheque” | What they mean: “Save 10 per cent of every paycheque”:

This adage has spanned generations, and for good reason. Malloy points out that setting aside 10% of every paycheque allows you to invest in yourself, by funding vacations, educational pursuits and hobbies. While the idea of paying yourself first remains a top financial priority, millennials are stretched in many different directions.

“The best hack I can offer is to set up an automatic transfer of $50 to a savings account,” said Malloy. “Then, set a bi-monthly meeting in your calendar so you have time carved out to revisit the budget and look for opportunities to increase your savings slightly. Challenge yourself to reach your goal of saving 10 per cent each paycheque over time.”

“While it comes from a good place, many people don’t realize that unsolicited advice isn’t always helpful because it doesn’t take into account the individual’s unique financial circumstances,” says Malloy. “If you’re offered general financial advice, ask yourself if you can apply it in a realistic and measurable way, otherwise, politely tell them to keep their nose in their own pocketbook.”

About TD Mythbusters poll
TD Bank Group commissioned Environics Research Group to conduct a custom survey of 1,001 Canadians aged 18 and older. Reponses were collected between January 29 and February 2, 2016.  A subgroup of 264 Millennials are included in this report.  – CNW

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