13 Savings Tips for Young Professionals

Saving for young adults and professionals can be challenging, especially in an age where wages are barely keeping up with higher rent and real estate prices. It can be especially tough if one is accustomed to an easier lifestyle under a care-takers roof with much fewer bills to pay. For many young professionals, it may seem like a battle against many odds.  

Here are some real-life tips that are relatable for young adults and professionals trying to get ahead of the curb on their savings.

• What’s in your grocery cart? 

Getting groceries is certainly an essential part of one’s monthly budget. However, when it comes to the necessity of specific items, you might be surprised by how much of a ‘mixed bag’ your groceries are. The next time you go shopping for groceries, ask yourself how much of your groceries are essential versus non-essential, what they cost, and whether or not they are aligned with your health goals. Of course, just like our eating habits, it is okay to treat yourself from time to time!

• Meal prep

This one is in line with shopping for healthier options at the grocery store. When you come from work and you have to make dinner, it is very tempting to reach for your phone and order through Uber Eats. It is a slippery slope (and I’ve been there). I can say with confidence that I save less in the months that I eat out the most (while also feeling like I need to change my eating habits). After all, we all need to eat! Meal prepping can save busy professionals time, money as well as calories. Eating out can really take a toll one’s ability to save especially considering the lower cost to make your own meals.  

• Communicate with your significant other

It is important to communicate with others in your household and be clear about your joint savings goals. After all, when you live under the same roof, you are both likely involved in financial decisions that affect everyone, whether you realize it or not. For example, one person overspending consistently every month can delay having enough of a down payment to buy a first home for the entire family. Having a common understanding about savings goals keeps you both on track and more likely to work as a team to achieve these goals. It is also important to always reassess and hold each other accountable and do so periodically (eg. monthly). Some basic questions to ask are: Is the budget working? Are there new expenses? How much is spent on each category? Can you give or take from one category to another?  

• Learn to say No

At the end of a long work week, a break is deserved. We all have those friends that like to go out and sometimes our friends have more ‘expensive’ tastes than we do. This is not to say one should not spend on fun experiences from time to time, but if done weekly, this can really affect your ability to save on a monthly basis. Being able to say no or even proposing other activities that are more budget-friendly can help. There are plenty of fun activities to do with friends while not breaking the bank. At the end of the day, there is no need to go to every event or activity you are invited to, especially if you don’t feel like it!

• Decide on specific numbers 

This is a part of the visualization aspect of goal setting. Having a specific number in mind should help keep you motivated to reach it. Specific numbers also help you track your progress and reaching short-term milestones can also help with ‘gamifying’ the process. It is also a good idea to reward yourself upon reaching specific milestones as it encourages you to keep going. 

• Automate your savings 

This is likely one of the most useful tips for someone having trouble saving. By setting a specific (realistic) amount of savings to be taken out of your pay cheque, you take the decision-making out of the picture. This also helps with being consistent with savings and can go a long way over a long period of time. It is much easier to act as if that money is not there in the first place or as if it is a ‘rent’ you pay to yourself than to have to decide how much to save each month. If you get stuck and really need that money, at least it’s there! 

• Use separate accounts

For young professionals, it can be tough to consider so many priorities. With this comes many things one has to start saving for: A down payment on a home, your children’s future education, retirement, a vacation you plan to go on in a year. Being organized is key here, and having separate accounts for different goals can be very helpful in keeping your cash flows organized and visually seeing your progress for each goal. Creating separate accounts for different savings goals is also a very intentional act. This may help those who have been having a hard time saving for these goals. 

• Be smart about windfall money

This is money that is not a part of your regular monthly income (eg. bonus, gifts, tax refunds etc). For many people, the impulse would be to spend it on leisure and entertainment such as shopping or a vacation. However, a smarter move might be to allocate (at least a portion of) it towards boosting your savings or investments. After all, saving money is generally harder than spending it! These boosts also put you ahead of schedule on your savings goals and can even act as a safety net in case the money is needed.

• Save a portion of your raise

This could be an extension of the previous point, however this is related to regular monthly cash flows rather than an irregular windfall. The difference is related to what you change about your monthly budget. Naturally, you may want to revisit your budget as soon as you get a raise since getting a boost in salary certainly adds to one’s flexibility. However, spending your entire raise on leisurely expenses only raises one standard of living in the short-term and does little for it in the long run. While certainly, a raise can allow one add to one’s leisure spending budget, one should also try to set a higher monthly savings target to make that raise matter even more.

• Got a raise? Use an RRSP

Getting a raise may also put you in a higher tax bracket, which generally makes contributing to an RRSP more worthwhile. A general rule that many follow is to focus more of one’s RRSP contributions during the peak of one’s career (salary-wise) as it results in a larger tax refund and may even put you in a lower tax bracket. RRSPs are also known to be more worthwhile when one is expected to be in a lower tax bracket in retirement than in the present. Of course, another advantage of contributing to an RRSP is that since it is meant to be a retirement account, the funds will be invested and given an opportunity to grow tax-sheltered.

• Take advantage of employer retirement savings programs and share plans

Many employers offer great matching programs that encourage employees to add more to their retirement pot and exclusive share plan options that help them build long-term equity in the company they work for. These are easy automatic deductions that are taken off of one’s paycheque that can really build up to a large windfall of cash (or income) for you in the future. The good thing about these programs is that you barely feel them being deducted from your paycheque and employer contribution matching is essentially free money.

• Have kids? Use a Registered Education Savings Plan (RESP)

Speaking of free money, taking advantage of government grants for RESPs (20% on up $2500 annually) is a smart way to save for your children’s education. Think about it, where else can you get a 20% guaranteed return on your money? On top of that, RESPs generally have long-term horizons so your contributions and grants can be invested and compound over time.

• Need a break? Try a staycation!

We all need a well-deserved getaway or vacation at times, especially as a young professional working hard to build your career. However, vacations with far destinations often come with high ticket items such as flights, hotels, car rentals, and eating out. These can really add up especially if you are traveling with a family. While there is nothing wrong with doing this from time to time, sometimes booking a getaway in a nearby city is all one needs to recharge. This eliminates the need for expensive flights (which one could save instead). The bulk of the expenses will likely be accommodations (eg. Airbnb or hotel) and you may even find enjoyment in kicking back and making home-cooked meals rather than spending on eating out every day.  

Luckily, young professionals have time on their side. The most important thing is to get started early and focus on developing the right habits so that they serve you well in the future. For better or worse, there is no guarantee that your situation will stay the same. In fact, this should be expected for younger professionals, arguably, more than those who are well-established in their careers. Opportunities and challenges will come up, but in any case, having good savings habits will serve you well in helping you adapt to changing life circumstances. 

Moez Mahrez, CFA

Analyst for 5i Research Inc.