# The best way to save.



## Savingmoney (Dec 28, 2009)

I would like anybody's input on which is the best way to save money?
Is it high interest saving account, dividend paying stocks, bonds, tax free savings account....ect http://saveyourgreen.webs.com


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## sprocket1200 (Aug 21, 2009)

best ways are easy.

cancel cable,
cancel cell phone,
only buy used cars and drive them into the ground, (or no car at all)
buy good quality products (get a subscription to consumer reports)
I hope by now you get the point...


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## ssimps (Dec 8, 2009)

1) Pay yourself first; act as if you owe yourself x amount of $ every month any pay it. 

2) Get rid of any debt you have. 

3) Then if you have $ maybe spend on things you 'want', but this is always going to be at the expense of saving. 

When you think about it, there are very few things we NEED (I can think of air, water, food, shelter, used clothes, transportation if you do not work @ home, companionship). Hopefully you do not need to pay for the first, second, and last things in the list.

This is a great way to save. 

What to do with the $ you save totally depends on your life goals, how much risk stresses you out, etc. 

This is actually not really meant to be that sarcastic of a reply, I think it is actually a root of building wealth.


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## Berubeland (Sep 6, 2009)

OP your post contains two subjects - how to accumulate money which to most people is saving.

The second is how to get that money to make additional money for you in the form of interest. 

The first is actually the hardest part for it seems far easier to spend money than to save.


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## Elbyron (Apr 3, 2009)

Given the OP's examples, a more appropriate subject might have been "The best way to invest". 
First I'd like to point out that any of the first 3 examples (savings accounts, stocks, and bonds) can be held within a tax-free savings account. And if you are going to choose any of these 3, and have contribution room in a TFSA, then you should definately use it to save yourself the tax on any income that you earn.
Most investers prefer to have some personalized mixture of low-risk and higher-risk investments. How each person decides on the mix is usually based on their goals and their personality. Another factor is how long you plan to invest for. Saving up to buy a new car in 3 years, a house in 10 years, or retirement in 20 years? Different types of investments are better suited for different terms. I'm not much of an expert, so I'm not going to go into much detail, but there are plenty of great resources on the web to help you decide what's best for you. Financial advisors can also help, but they will be biased towards investments that they get paid for (like mutual funds). 

Another alternative for those who already have a mortgage is to "invest in equity" by contributing savings toward paying down the mortgage faster. Mortgage rates are almost always going to be higher than GICs or high-interest savings accounts, which also require that you pay taxes on the interest or use up RRSP or TFSA contribution room. For example, my mortgage rate is 3.5%, and a high-interest TFSA account might get you 1.2% (the 3% offerred by ING right now is only temporary). Lets say I have $10,000 to invest, and all of my 2009 and 2010 TFSA contribution room available. In the TFSA at 1.2%, it would make $618 over 5 years. But if I instead use it as a lump-sum prepayment on my mortgage, it would reduce the interest that I pay over the next 5 years by $1911 (and if my mortgage rate was 5%, it would save me $2840). But this isn't really investing, because once you throw your money at the mortgage it's gone for good, right? That's what most people think, but it's really not that hard to withdraw from these mortgage savings. For instant access to your "savings" at any time, you can setup a Home Equity Line Of Credit (HELOC) on top of your mortgage provided you more than 20% equity in your home. If not, you can set one up later after you've contributed enough mortgage prepayments to free up that equity. All banks offer HELOCs, but you should inquire to find out what fees they charge for setup & closure as well as any balance requirements. These are always variable-rate loans even if your current mortgage is fixed. Another option is to wait until the mortgage is up for renewal, and then withdraw the savings by renewing with a higher amount. If timing your withdrawl with the renewal isn't convenient, you can also get an equity take-out at anytime, but there may be fees. One drawback to this investing strategy is that by setting up a HELOC or using equity take-outs, you might get tempted to withdraw more than the "extra" amount that you contributed, thus incurring additional debt. If you want to use your mortgage to get guaranteed tax-free savings, then you should carefully keep track of your contributions and never withdraw more than you put in - unless it's an emergency. Having the HELOC setup is a great way of having emergency funds available without having to set aside a bunch of funds in an account earning a piddly 1.2% interest.


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## Toronto.gal (Jan 8, 2010)

Elbyron said:


> Another alternative for those who already have a mortgage is to "invest in equity" by contributing savings toward paying down the mortgage faster.


Ditto! 

The only way to truly save, is by paying off your debts as quickly as possible & as Elbyron has pointed out, where you could save the most money in the long term, is by accelerating your mortgage payments (assuming you're in this position).

Seeing is believing:

http://www.start2invest.com/blog/bi-weekly-mortgage-shave-7-years-off-your-mortgage/

You could also do your own calculations by using an online mortgage calculator.


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## ssimps (Dec 8, 2009)

Toronto.gal said:


> Ditto!
> The only way to truly save, is by paying off your debts as quickly as possible & as Elbyron has pointed out, where you could save the most money in the long term, is by accelerating your mortgage payments (assuming you're in this position).


Another point people seem to often forget and banks never seem to mention is the cost of your home is what you paid for it PLUS the interest you pay for it. So for a simple example:

House cost: 300,000
Loan amount: 270,000 (so you are putting 10% down)
Interest rate: 4% 
Loan Term: 20 years
Payment: bi-weekly

Total inerest paid: $107,131.86

Total real cost of house: $407,131.86.

And this is assuming a very low 4% interest over 20 years. If you assume average interest rate of say 7% over the 20 year period, then the interest paid is $191,574.22 and therefore you have paid almost $500,000 for that '$300,000 house'

So pay your mortgage down as fast as you can, by using bi-weekly, by paying a yearly lump sum like some banks allow, by increasing your monthly payment, what ever you can do, do it.

When it comes to selling time, you need to factor in your interest paid as well as purchase cost (minus sales expenses) to truly figure out if you are making money on the sale or not.


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## HaroldCrump (Jun 10, 2009)

ssimps said:


> When it comes to selling time, you need to factor in your interest paid as well as purchase cost (minus sales expenses) to truly figure out if you are making money on the sale or not.


Totally agree. However, that would eliminate more than 75% of home-owners.
Compound interest is like fire - it can work in your favour but it can also work against you.
I have a simple spreadsheet where I keep track of how much I have paid for my house so far.
It doesn't take long to realize how much we are really paying for perhaps our biggest lifetime purchase.
Mortgages that are amortized over 20, 25 or more years are perhaps the single biggest fetter to financial prosperity and (early) retirement for most people.


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## Toronto.gal (Jan 8, 2010)

ssimps said:


> So pay your mortgage down as fast as you can, by using bi-weekly, by paying a yearly lump sum like some banks allow, by increasing your monthly payment, what ever you can do, do it.


That is exactly right and the point I tried to illustrate with the example included in the link. Banks will mention this fact in passing, but won't spend much time trying to convince you of how much more you would be saving by paying even a little extra, so here again is the savings example:

30 year $200,000 mortgage at 7%:
a) Monthly mortgage payment = $1330.60. 
b) Bi-weekly mortgage payment = $665.30.

With option a), interest amount over the 30 year period = $279,017.80.
With option b), interest amount over the same period = $207,917.46.

Option b) would therefore save you: *$71,100.34* in interest by simply paying the mortgage every 2 weeks instead of once per month, so the total cost of the house would cost you:
$407,917.046 instead of $479,017.80.


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## Oldroe (Sep 18, 2009)

$270,000.00 mortgage 25 year 5 term 4% payed weekly.

payment interest Principal Balance

Pmt 1 355.06 $205.72 $149.34 $269,850.56
Pmt2 355.06 $205.61 $149.45 $269,701.21
Pmt3 $205.49 $149.57 $269,551.64
Pmt4 $205.38 $149.68 $269,401.64
Pmt5 $205.27 $149.79 $269,252.17
Pmt6 $205.15 $149.91 $269,102.26
Pmt7 $205.04 $150.02 $268,952.24

How to save money.

At the 2nd payment you pay $600.00 exacter 

149.45
149.57
149.68
149.79
-------
598.49

You jump down 4 payments and you save

$205.61
$205.49
$205.38
$205.27
--------
$812.75

So you made 135% on your money. Find that return any were else.

Notice how you pay a little more principal off and a little less interest each pmt.
If you make lump payments, for the life of your mortgage, your moneys working that much harder. I this case it's .44 more principal every pmt. not a lot but over 25 years it's big.

Remember to always negotiate a better rate 4% down to 3.5% and pay at the 4% rate, that's another payment per year.


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## ssimps (Dec 8, 2009)

HaroldCrump said:


> Totally agree. However, that would eliminate more than 75% of home-owners.
> Compound interest is like fire - it can work in your favour but it can also work against you.


Yup, exactly the point why mortgage == bad, so pay it off ASAP.


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## ssimps (Dec 8, 2009)

Oldroe said:


> So you made 135% on your money. Find that return any were else.


Your example is an excellent case of how saving money == making money, and often way more money you will make by investing. The two together (saving cash and investing it) is the key


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## John_Michaels (Dec 14, 2009)

..the title perhaps should be "the best way not to spend" instead of "the best way to save". If the former doesn't happen, neither will the latter.

The best way to save is to delay gratification and to think of what you're spending in terms of pre-tax $, not post-tax dollars. That $1,000 t.v. is really $1,200++.

Regarding housing and mortgages? For the vast majority of people, house are NOT an investment, it's an expense. Housing typically appreciates at 5% a year. It would be very rare to get better than in a mortgage in PRE-TAX dollars. Housing is an expense that is to be reduced by paying off that debt as quickly as possible. Thus, the best way not to spend or the best way to save is to pay off all debt first (after emergency funds of course) and stay out of debt.


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## the-royal-mail (Dec 11, 2009)

I would add something about debt. I hear a LOT about this and feel that while it's good that people pay off their debts first, what's wrong with them never racking up debt in the first place? IMO the only circumstances that should lead to debt are adverse life situations (job loss, divorce, accidents, health problems leading to reduced income etc) but the debt I see people racking up lately has a lot to do with rabid consumerism, gadgets etc. Why can't people desire and spend less? And why doesn't anyone save the money FIRST before buying that item? Why buy first and pay later? This is totally backwards.


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## Oldroe (Sep 18, 2009)

The standard response is pay down your 10%.

That would be $27,000, not very likely for most people.

What you should get is pay something.

Housing is a necessity so weather it's an investment or a liability really means nothing.

The more you pay off, the more a bank needs you, the more negotiating on fees and rates on both sides you can do. 

Never accept the posted mortgage rate and never accept the posted GIC rate and never accept fees from banks.


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## mutant guppie (Jan 13, 2010)

Oldroe said:


> $270,000.00 mortgage 25 year 5 term 4% payed weekly.
> 
> So you made 135% on your money. Find that return any were else.
> 
> Notice how you pay a little more principal off and a little less interest each pmt.


It also works wonders if you're able to squeeze into a home that's in a lower price range. Having that freedom and making that last payment is a great feeling.


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## montyloree (Jan 16, 2010)

IMO it's all about the consumption mind set... if your mind set is: I need to have the latest gadget always, the biggest house, etc to keep up with the Jones, then you'll constantly be spending your money.
If you're never content with what you have, then you'll always be broke.

Example: my younger brother has to have the latest computer, TV, terrabyte drives etc. He's constantly looking forward to the next thing he's going to buy... He saves up and then buys it... ( he has to save up because he recently declared bankruptcy )

If you can be content with what you've got, then you'll naturally find ways to save money.. 
Example: We've lived in the same house since 1992. I've watched the same 27" TV for the last 10 years... I drive a 2009 Hyundai Accent.

We live pretty frugally, and we're okay with that ... For the things we want, like cable channels, we have the best. We've saved alot of money not moving every 5 years, and buying all of the latest toys.




Savingmoney said:


> I would like anybody's input on which is the best way to save money?
> Is it high interest saving account, dividend paying stocks, bonds, tax free savings account....ect http://saveyourgreen.webs.com


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## the-royal-mail (Dec 11, 2009)

Well said monty. You're exactly right. I think people need to take a closer look at their recurring expenses and keep them as low as possible. Save your money first, then make intelligent decisions about where to spend these large chunks. Luxuries like cell phones, expensive car payments and keeping up with the Jones at work and all their gadgets need to be left in the marketing departments of the companies that want your money.


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## Rickson9 (Apr 9, 2009)

Although my wife and I live far below our means, we can also be described by the phrase, "Don't live below your means, expand your means."


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## Ben (Apr 3, 2009)

Rickson9 said:


> Although my wife and I live far below our means, we can also be described by the phrase, "Don't live below your means, expand your means."


Good point.


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## ssimps (Dec 8, 2009)

Rickson9 said:


> Although my wife and I live far below our means, we can also be described by the phrase, "Don't live below your means, expand your means."


I have to also agree!, maybe I would have put it as:

Live below your means and expand your means, so the floor keeps rising.


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## montyloree (Jan 16, 2010)

Rickson9 said:


> Although my wife and I live far below our means, we can also be described by the phrase, "Don't live below your means, expand your means."



I agree with that as well... the best way to stay out of financial problems is to increase your cash flow... kind of like the Law of Attraction - Money 

Attract more money - not more debt and expenses.


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## canadianbanks (Jun 5, 2009)

Rickson9 said:


> Although my wife and I live far below our means, we can also be described by the phrase, "Don't live below your means, expand your means."


Very well put , and this is exactly what I do. If I need a bigger house, I think of ways of earning more instead of getting into debt. I constantly challange myself to be more productive and this has worked out just fine so far.


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## Y&T2010 (Dec 29, 2009)

It sounds really cheesy, but I think that the best way to save is to do it "automatically" (like the Automatic Millionaire preaches).

I automatically deduct a certain amount of $ each paycheck and have it funneled through to my high interest savings account (which is later distributed to my stock portfolio/ RRSP etc)

I dont' have to actively think about it and I don't have to feel too bad/guilty about "not saving" and not sticking to the budget (budget-sticking is really not that fun).


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