What is “saving?”

By Gail Vaz-Oxlade on January 29, 2011
Estimated reading time: 2 minutes

People are always telling me that they’re saving, and then when I ask what their goal is, they tell me it’s to buy a new car, go on a lovely vacation with the kids, or put in a new kitchen. Hey, that’s not “SAVING”… not in my book.

If you’re accumulating money to spend – be it on a house, on a new motorcycle or on your sister’s birthday present – that’s planned spending. You’re planning to spend the money, right? How can that be “saving?”

Saving is what you do long-term to have money for another chapter of your life. You save for retirement so that come time to hang up your spurs, you’ve got some change in your pocket. You save for your kids’ future education so they don’t get buried in debt to get an education. You save an emergency fund. None of these “savings” are with an eye to getting stuff or having wonderful experiences. They are all done with an eye to providing an income if a time comes when you won’t have an income, or to produce an income.

The biggest contributor to the misinformation about “saving” is the naming of the “savings account.” A savings account isn’t a vehicle to save — although that’s how it’s sold. It’s actually an investment; it produces a return in the form of interest, has a very high level of liquidity so you can get at your money whenever you want to, and a very low level of risk, particularly if you’re savings account comes with CDIC (Canada Deposit Insurance Corporation) coverage.

If we stop looking at savings accounts as simply vehicles for saving (which an RRSP, TFSA and RESP all are), and start looking at them as investments, which they rightfully are, then maybe our standards will go up a little and we won’t be quite so willing to settle for the pittance often offered in interest. Why would you settle for an investment paying 0.25% when a very similar investment is paying 2%? Shift your thinking and you’ll make more money because you won’t be willing to settle for rip-off rates just because you’ve been convinced that you’re “saving.”