Give Yourself a Savings Raise

Regularly increasing the amount you invest is an effective way to build wealth.

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A great way to save for a short- or long-term goal is to put away a certain amount of money each week or month. These smaller amounts can really add up over time. And the earlier you start and longer you put away an amount that you’re comfortable with, the better. However, in order to keep up with inflation, you may want to give your savings a raise on a regular basis.

The impact of inflation

When saving for a long-term goal, like retirement, it’s important to remember the costs of goods and services tend to rise over time. Inflation reduces the purchasing power of your money, meaning something that costs you $100 now might cost you $150 (or more) in retirement.

Potential cost of basic expenses in 2047 (based on an average inflation rate of 2%)

Although the rate of inflation has been relatively tame over the past few years, that doesn’t mean things won’t potentially cost a lot more in 20 or 30 years.

Inflate your savings

Once you’ve made the initial step of regularly saving for your retirement, think about increasing the amount you save on a regular basis. Small increases in the amount of your regular investment can help offset the impact of inflation. This year, instead of saving the same amount as you did last year, give yourself a ‘retirement raise’ and save just a bit more, and a bit more the year after that, and so on.

For example, if you saved $100 a month last year, why not try increasing that monthly amount by $2 this year, and then plan to increase your monthly savings by another $2 next year. And, if it’s not too difficult within your current budget, try to keep increasing your monthly savings by a certain percentage (say 2% to 5%) each year. This incremental approach can have a big impact over the long term.

Indexing regular savings



Source: RBC Global Asset Management Inc. Graph shows growth of $100, invested monthly, at a 6% annual growth rate over 30 years versus growth of $100, invested monthly, but increased by 2% on January 1st each year, 6% annual growth rate, over 30 years.

The above graph shows the positive impact of giving yourself a savings raise every year. What a great way to recognize all your hard work sticking to your financial plan.

Talk to your financial advisor about establishing a savings strategy.


This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.

® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2017

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