It’s all well and good to tell Canadians they need to start saving. But what if you’re one of the many Canadians making a low income? A low income would be considered household income that falls below 50% of the median after-tax income of Canada. In this case, that would mean 50% of $68,400, as of writing, making $34,200 annually.
This amount certainly makes it hard to save for retirement if you’re just trying to get by, but it can be done. With these three tips and by starting early, you can start saving for retirement no matter what you’re making.
Start small but just start!
The worst thing Canadians can do is put off saving because they fear they don’t have enough. While investing takes research, saving does not. So, a great starting point is to just start! However, if you’re looking for a more concrete answer, here it is.
If you’re making a low income and have just started to budget and try to figure out savings, then start with just 1% of your income. That would mean putting aside just $342 every paycheque. From there, consider making a 1% increase in that amount every quarter, every six months, or whenever you get an increase in pay.
Even just that small amount could create savings of $4,104 in the first year! That makes you all that much closer to your retirement goals.
Safety first
If you’re putting savings aside on a low income, a large portion should be kept safe for as long as possible. In this case, consider investing in 10-year Guaranteed Investment Certificates (GIC) from banks. These fixed interest rates will add on that interest each year! For example, most banks offer a 10-year GIC, which can be around 4%, especially if you put it in a non-cashable GIC. This means you cannot take it out before that 10-year mark, however.
Even so, you’re now adding on 4% in interest each and every year for the next decade! Plus, you can put your cash aside, knowing it isn’t invested in the volatile stock market. Instead, you can look forward to increasing that cash and adding to it whenever you want!
Save some for dividends and reinvest!
Now that you have a large portion of your income towards GICs to keep safe, Canadians on low income can also consider dividend stocks. These are companies that provide passive income through dividends on a regular basis. The benefit is it increases your savings, but you can also use that cash flow to reinvest in other stocks, or your GIC.
For example, let’s say you went with a Canadian bank such as Bank of Montreal (TSX:BMO). It currently offers a dividend yield of 5.2%, as of writing. Here is what you could earn from that $4,104 in the first year, with shares increasing back to former 52-week highs.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| BMO – today | $111.57 | 36 | $5.88 | $211.68 | Quarterly | $4,104 |
| BMO – highs | $137.64 | 36 | $5.88 | $211.68 | Quarterly | $5,166.72 |
You’ve now earned returns of $1,062.72 from your investment in one year! And you can use the dividend income to continue investing in BMO stock, increasing your savings even further. Do this every year, while making your contributions automatic, and even on a low income, you’ll be able to create a large retirement nest egg over the next few decades.
