How to save (and invest) your first $100,000

How to save (and invest) your first $100,000
A bunch of $one hundred expenses, showing the cost savings (and financial investment) of $one hundred,000

Photo by PiggyBank on Unsplash

A well-liked milestone target for younger grown ups just starting off out is to conserve $a hundred,000 income. YouTube and TikTok are buzzing with videos on this very matter, and it helps make sense—$100,000 is enough to give you economic respiratory room and everyday living-modifying alternatives, like earning a down payment on a apartment or residence, shopping for a car, travelling the environment or investing for retirement. In addition, achieving six figures is a significant achievement.

But is $one hundred,000 in price savings good sufficient? How significantly curiosity would you gain on it? And how do you take the 1st action toward conserving that significantly in money? We’re breaking down smart strategies for conserving your 1st $a hundred,000, how prolonged it will choose and how to make investments $one hundred,000 in Canada, additionally skilled insights with the assistance of a economical advisor.

MoneySense is an award-successful journal, serving to Canadians navigate revenue issues given that 1999. Our editorial crew of educated journalists works closely with leading own finance professionals in Canada. To support you locate the best economic merchandise, we examine the choices from about twelve main institutions, including banks, credit history unions and card issuers. Learn much more about our promotion and trusted associates.

How to help you save money

The to start with phase is to establish the sum you can help you save from every single paycheque. That will count on how substantially earnings you gain and how substantially you require for preset bills. As soon as you commence environment revenue apart, lock it up and throw away the critical, at the very least for now.

I consulted Scott Sather, founder and monetary planner at Awaken Wealth Management, who points out that automated deposits are a solid discounts hack to preserving your to start with $100,000. He advises that the most practical approach is immediately deducting a established amount from your paycheque. No matter if you obtain your spend biweekly or every month, an automatic transfer to a cost savings or expense account—ideally, a person that is not simply visible—will enable you adhere to your strategy and contribute consistently.

Sather recommends environment up a significant-interest price savings account (HISA) at a money institution, like EQ Bank or Tangerine, that is separate from wherever you generally do your banking. As a rule of thumb, he suggests automobile-depositing ten% of every paycheque to start off, but the sum is conditional on how swiftly you need to have the dollars. Say, if you have to have it for a house in 5 a long time, you are going to have to preserve extra aggressively. (Check out my report on how to help you save income speedy on a minimal money.)

“If you want [access to] the revenue in just the up coming five years, then anything at all inventory market–related really should not be touched,” explains Sather. You should really only appear at financial savings accounts and confirmed expense certificates (GICs), which are small-possibility investments with phrases of a few months to a couple of many years.

How a 27-calendar year-previous accountant saved $100,000 in 5 yrs

Patrick Francis, a 27-yr-old accountant in Toronto, figured out about budgeting from his dad, and he considers that parental assistance and influence important. Also, consider adding what it was vital for, as it feels like we’re left hanging, e.g.: vital for his great money behaviors.. Preserving $100,000 was his target, so he determined to stay at residence for the to start with 5 several years of his vocation to realize it. He acknowledges that dwelling hire-free of charge, at minimum for a period of time, is a privilege and gain not anyone has, but he endorses it to everyone who can do it, to get a sound start early on.

Occupation options, like negotiating wage and selecting a perfectly-paid occupation, also assisted. Francis emphasizes diligent budgeting, slicing non-necessities and using superior-fascination price savings accounts. His approach was primarily frugal, as Francis admits he has not taken a vacation in around ten a long time. He only spends $250 a month on entertainment (commonly two dinners and a film) he’s conscious of avoiding “lifestyle creep” and he’s laser-focused on his lengthy-time period intention of purchasing a rental or a dwelling in the GTA (Larger Toronto Place).

How does compound fascination do the job?

Compound interest suggests getting interest payments on curiosity you’ve already acquired. Using a compound fascination calculator will allow you to calculate long term discounts or debt.

For instance, a $10,000 deposit with an annual curiosity amount of 3.five% will get paid $350 in desire in the very first calendar year. The subsequent yr, you generate fascination on $10,350, and the following 12 months on $10,712.50, and so on. This compounding result can occur yearly, month-to-month, weekly or everyday, dependent on the desire phrases. Compound interest also will work on debt. Not shelling out off a credit rating card or line of credit rating on time will direct to paying out curiosity on best of interest, putting you even more into debt.

How extended will it choose to preserve $one hundred,000?

It is dependent on how significantly money you make and how a lot you can consistently preserve. The common money of Canadians aged 24 to 35 is $fifty three,five hundred a year, and the typical earnings for those people aged 35 to 44 is $sixty eight,000, according to the most latest facts from Data Canada. For the examples beneath, we’ll use an yearly cash flow of $60,000 (regular monthly income $5,000).

Timeline to $100,000 on a $60,000 cash flow making use of a three.five% HISA

Years Conserving 10% ($five hundred a thirty day period) Saving fifteen% ($750 a thirty day period) Preserving 20% ($1,000 a month)
1 $6,517 ($17 fascination) $nine,776 ($26 curiosity) $13,035 ($35 fascination)
2 $twelve,746 ($246 interest) $19,118 ($368 desire) $25,491 ($491 interest)
three $19,192 ($692 interest) $28,788 ($one,038 interest) $38,383 ($one,383 fascination)
four $twenty five,863 ($one,363 interest) $38,795 ($two,045 interest) $fifty one,727 ($two,727 fascination)
five $32,729 ($2,269 interest) $forty nine,153 ($3,403 curiosity) $sixty five,537 ($4,537 fascination)
ten $seventy one,094 ($10,594 desire) $106,640 ($15,890 desire) $142,187 ($21,187 fascination)
fifteen $116,612 ($26,112 desire) $174,918 ($39,168 interest) $233,224 ($52,224 fascination)
20 $170,673 ($50,173 fascination) $256,009 ($seventy five,259 curiosity) $341,346 ($one hundred,346 fascination)
50 $788,780 ($488,280 desire) $1,183,one hundred seventy ($732,420 curiosity) $1,274,082 ($733,082 curiosity)
Use this compound desire calculator to plug in your genuine earnings details.

Obviously, the additional you can save from your complete income, the more compound interest will help accelerate your progress towards your initially $one hundred,000. Referring to the table, the $60,000 earner saving the advisable minimal of ten% will conserve $a hundred,000 by year fourteen, whilst a much more intense method of preserving 15% ($750 a month as opposed to $500) will get you there in 9 years.

The greatest way to spend $one hundred,000 in Canada

How need to you spend your initially $100,000? It relies upon on your objectives, how considerably and how typically you lead to the expense account, and your timeline.

If your intention is to acquire a household or apartment, the initial residence financial savings account (FHSA) is the greatest account to hold these cost savings, says Sather. “It presents you the very best of all worlds, but you are restricted to $8,000 a calendar year to a greatest of $40,000. So, that only will get you to $40,000, not $100,000.” In this circumstance, he advises supplementing that with a tax-free of charge price savings account (TFSA) or registered retirement personal savings system (RRSP).

“A TFSA is a no-brainer for the reason that you set the cash in, and it’s flexible you can get it out,” says Sather. He adds that RRSPs are practical for medium- to extensive-expression objectives like retirement, education or a dwelling. In the circumstance of education and learning or a property, you can borrow income from your RRSP for these ambitions (through the Lifelong Finding out Plan and Property Buyers’ Program, respectively). But you’ll have to pay out that funds again above a interval of time—or consist of it as earnings on your tax return.

If the objective is proudly owning authentic estate, owning each an FHSA and a TFSA is the way to go, he says. For a auto, Sather suggests a TFSA. But for retirement setting up, glance to RRSPs and TFSAs, as very well as investing with a non-registered (taxable) account, which has no contribution boundaries. “The TFSA will make sense as you pay out no tax on the gains and curiosity earned, and you get your withdrawn contribution place again the next yr right after withdrawal,” suggests Sather. (Not absolutely sure which account you need to have? Read through this comparison of the TFSA vs . RRSP.)

Sather underscores the value of seeking out the leading desire prices from on the internet banking establishments in addition to your brick-and-mortar financial institutions that generally provide a superior return. Consider, for occasion, these major five higher-desire price savings accounts of 2024, with curiosity costs ranging from 3% to 5%.

Doing the job with a financial advisor is an additional idea that may get you a far better return. “The fascination prices the financial institutions supply advisors to give to purchasers just about double, if not triple, what clientele are acquiring from the financial institution on their possess,” states Sather. “The banks provide four.sixty five% to advisors on their substantial-desire savings accounts versus 2% or significantly less for people at the department.”

And, really don’t overlook to variable in inflation. The $100,000 you have right now will not maintain the similar benefit in five or ten yrs. “You need some thing to outpace that inflation,” claims Sather. “GICs and cost savings accounts are not that kind of vehicle—they are meant much more for a liquid place to commit that retains your dollars risk-free.” Sather says you could add make investments in stocks with a intention of with a target of five several years or additional to assistance reduce inflation chance, if your threat tolerance permits. “Inflation is a danger of GICs and savings accounts, but specified that these are intended for shorter-expression goals—less than five years—it ideally will not have an impact on it as significantly.” He details to equities as a better answer, but they demand a for a longer time time horizon because of to their bigger risk—plus you have to have to commit time and electrical power to discovering about investing in stocks and trade-traded cash (ETFs), for case in point, or do the job with a monetary skilled.

Now, thanks to the Money Organizing Affiliation of Canada, you can implement for a single-time professional bono monetary information. Check out out the FPAC web page.

What are the fiscal dangers?

There are normally dangers when investing dollars, but when saving your 1st $a hundred,000, Sather identifies two matters to take note: including threat prematurely when your withdrawal timeline is ten several years or a lot less, and inflation.

If your timeline is 7 to ten decades, Sather says he could endorse putting your income in “more fairness-related” property. This does add threat. “When you speak about hazard, the purpose you never want to insert [it right away] is if you have to have the revenue inside of the up coming 5 decades, the past thing you want is you’ve hit year five, you need to have the revenue, the current market does a downturn, and your $a hundred,000 is now truly worth $75,000. You could possibly be equipped to get a increased return off it, but you can also get a decreased return. So it is greater to go with what you can get.”

What can you do with $100K?

A common decision for younger Canadians to use their discounts is genuine estate—a apartment, property or next house like a cottage or holiday residence. You may also be considering acquiring a automobile, covering wedding expenditures or getting a move toward retirement financial savings.

Many thanks to the appreciation of actual estate about time, how far can a $100,000 down payment take you, property finance loan-wise? A quick examination using the MoneySense mortgage loan affordability calculator reveals how big a home finance loan you could qualify for in these Canadian cities:

  • Toronto, Ontario: $534,555
  • Vancouver, British Columbia: $547,792
  • Winnipeg, Manitoba: $513,228
  • Montreal, Quebec: $488,510
  • Edmonton, Alberta: $564,707
  • Halifax, Nova Scotia: $514,699

Variables applied were the similar $sixty,000 annual profits mixed with a partner’s income of $55,000. Check the existing mortgage rates.

5 guidelines to assist you save $one hundred,000 faster

  1. Reside down below your means and slash frivolous investing. Contemplate the “latte factor,” coined by finance author David Bach. Some critics dismiss his information as oversimplified, but do the math: If you commit $6 on espresso each and every weekday, which is $1,560 for every year—a respectable chunk of modify you could put to your initially $100,000.
  2. Be hyper-mindful of each individual monthly cost and ruthlessly reduce again to help you save more rapidly. Established on your own up with a price range and test it frequently.
  3. Pay down superior-fascination money owed like credit rating playing cards initial. “If you are only obtaining three% or five% on your GIC or personal savings and spending 9% to 19% on people loans and credit score playing cards, nicely, you are not finding any more in advance financially,” states Sather.
  4. Obtain the economic institution that will get you the optimum interest level. “That doesn’t always mean it’s the position you are doing the job with proper now,” reminds Sather.
  5. Contemplate using on a side hustle, and always be angling for a spend raise at your working day occupation. Each time you generate a spend improve, the sum you preserve should really enhance, also.

Browse additional about preserving:

  • How to find the money for a fun life
  • 10 Sensible financial goals to set
  • The best way to conserve for retirement in your 20s
  • How to make a lot more funds in Canada: 6 aspect hustle thoughts

About Alicia Tyler

About Alicia Tyler

The Toronto-based mostly journalist has a lot more than eighteen decades of working experience as an editorial chief in digital and print media, specializing in buyer and services journalism. Her do the job has appeared in Clean up Eating, Flare and more.

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