Almost half of Canadians (40%) are struggling to save, says the latest TD Canada Trust Report on Savings. They depend on loans, credit lines and family for extra funds.
Canadians are comfortable taking on debt for important purchases, however, such as a down payment on a home (61%), buying their first cars (57%), paying for education (54%), starting families (46%), and paying for their weddings (38%).
Based on these findings, advisors should warn clients that total monthly debt payments should not equal more than 40% of their gross monthly incomes, says Kevin Moffatt, vice president of TD Canada Trust. Shelter, transportation, and education are all essential, but clients should save for these purchases and reduce costs where possible.
Ways to save for major life purchases:
1. First car
Cars cost an average of $33,000 in Canada, not including the cost of insurance, maintenance, registration and gas. After working out what car your client can afford, tell them to save 20% for the down payment, says Moffatt.
2. Wedding and honeymoon
Weddings cost at least $20,000, so Moffatt tells clients to review their finances and set a realistic budget.
“Break down set amounts for the essentials, such as the venue, invitations, dress and transportation,” he says. After that, review plans to cut out unnecessary details and luxuries.
3. First home
A down payment should come from a homebuyer’s savings, and clients should aim to save 15% to 20% for their first homes, he says. They also need to consider how the on-going costs of homeownership will factor into their budgets.