Most women working in fashion can feel the pressures of wearing the latest trends and looking the fashionista part at the office. This was certainly true at the NET-A-Porter offices when I worked there and I am sure it is the same scenario at the majority of all fashion brand offices. Every day at 4 p.m. the queues of designer-clad women would form on the office theatre stairs to collect their bags of staff purchases. All spending too much of their paycheques on the coolest and latest pieces and willing to eat beans on toast until payday rolled around again.
The power of fashion and brands is a mighty thing, elevating products and the ownership of them to ‘Wonders of the World’ status. So as lovely and possibly deserving as this mighty Gucci handbag might be of such a wondrous title, it turns out that Einstein has a different opinion and is famously quoted as saying that, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
I wish that my future fashionable-self had told me, 28 years ago, about the power of a small slanted line with two circles on either side – the percentage sign. How can it be that, until recently, I had never heard Einstein’s quote before? I consider myself fairly well read and an intelligent woman, yet it seems that I never realised how much not saving for retirement at a young age was costing me. I suppose my ego got the better of me, thinking that I had all the time in the world, until one day I woke up and realised that time was catching up with me and that I was 40 something with no significant savings.
Andrew Sather from einvestingforbeginners.com suggests that “compounding interest doesn’t care if you are black, white, Asian, gay, lesbian, woman, man or child. Compounding interest affects everyone the same because it depends on time.” Its avalanche effect is powerful because it starts from a small place and builds slowly until it is an unstoppable force.
As overwhelming as this scenario might sound if you find yourself in a similar position (too many shoes and too little savings), know that hindsight is 20/20 and that it’s not too late to rescue your retirement. Interviewing my future-self I realise that it is impossible to recoup fully but I can start now and still use compound interest to its full advantage, maximizing my savings as much as possible to turn a late start into a well-funded retirement.
So you may be asking, what is compound interest and how exactly does it work? Eli Keledorme, Co-Founder, Alchemist Finance explains it in simple terms, “Let’s say you invest $100 in fixed income this year and earn 20% on it. At the end of the first year, your money now grows to $120 ($100 + 20% interest). The following year, you do the same thing but invest the $120 and not the initial $100. At the end of the year, money grows to $144 ($120 + 20% on $120). You made $4 more investing the extra $20. If you keep adding the interest to your money and not spending it, in 20 years your initial $100 will turn into $3,833.76.”
Whatever your reasons are for not saving for retirement, don’t beat yourself up but do get on track now because doing something is better than doing nothing. According to the TD Retirement Savings Poll, Canadians in their 40s state that they have not prepared adequately for their retirement, and 32% have not opened a registered retirement savings plan (RRSP). The survey also states that only 12% make the maximum RRSP contribution every year, resulting in 38% of 40 somethings who are concerned they aren’t saving enough for retirement.
Still, with as little as five to 20 years left, it’s not too late to save, but it will require sacrifices like vacations and meals out. This may seem drastic, especially if you are used to living off 100 % of your income but the alternative is living off of a $15,000 per year Canada Pension.
Ok, so if you are like me, you need an easy fail-safe plan. Lay out a road map and follow these six tips to take it one step at a time. Here is what you and I have to do: “Save. As much as you can. Starting right now” (Updegrave, 2016).
Step 1. Don’t Procrastinate – Work smarter and take advantage of this compounding interest thing today to make your money work for you. Invest the same amount every month and make money every second of the day.
Step 2. Get Financial Advice – Investors Group states that, “Working with a financial advisor to create a fully comprehensive financial plan brings great benefits, including increased investment discipline and greater savings.” Andrea Phillips, vice-president, retail savings and investing, TD Canada Trust also advises working with a financial advisor to create a plan to contribute as much as possible to an RRSP and automating regular payments that are compatible with the amount of diversification and level of risk in your portfolio. Once your money is in an RRSP, it will grow by investing and by that lovely compound interest. Remember that an RRSP is a savings vehicle, not an investment itself.
Step 3. Get a handle on your Spending – The best thing to do is to write down all your expenses each month to see where your money is going. There are many budgeting apps available that really make it easy to track your spending. If you spend less, you can save more. I know it’s tempting to splurge on designer items if you are a fashionista but honestly, take it from a reformed fashionista and purchase great key seasonal items from shops like Zara and H&M. You can still wear the latest trends without breaking the bank. It’s actually quite freeing once you start doing it and living within a set clothing budget. The more you spend now, the less you will have to maintain your standard of living in retirement. You might also want to make a retirement budget worksheet.
Step 4. Educate yourself – It is important to start reading and learning about what products and choices are out there. You are more likely to achieve your goals if you take control and understand the rules about RRSP’s and other tax-free savings accounts like TFSA’s that may be beneficial to your savings plan. If you work in fashion, then treat it like you are looking at the latest fashion week shows, or researching the latest trends and styles. You can read books, magazines, and subscribe to online finance websites. I especially like Moneysense magazine, its accompanying website, and Investors Group website for informative financial articles.
Step 5. Work a Little Longer – This is the other single biggest thing you can do to boost your retirement, work a couple years longer. Every extra year you work boosts your investments and is one year less that you have to tap into your savings in retirement. It also decreases the chance of your money running out. If you are not able to continue working full-time, then you should consider working part-time or doing contract or consulting work. You should also take advantage of investing any extra funds from tax refunds, savings, and raises to help boost your new best friend, compound interest.
Step 6. Review, Review, Review – The more you look at your money, the more you are likely to make progress and achieve your goals. It is a great idea to work your way through the retirement planning checklist on the Government of Canada website and also sit down with your advisor to conduct an annual review of your investment plan.
Now that you have six clear and simple steps, you need to get started. If you are not convinced or think that you still have time, you are wrong. I have no regrets in life but this is the one piece of advice I have and the one thing that I wish that I had taken more seriously because I really didn’t need that Viktor and Rolf trench coat or those Prada shoes. What can you do straight away? Find out your unused RRSP contribution limit from Canada Revenue Agency, get information on finding an independent financial advisor, check out the MoneySense website, and at the very least go to your bank and start a monthly RRSP contribution.
I am proud to say that I now value the real Eighth Wonder of the World and my future-self looks forward to living comfortably in retirement. Thank you, Einstein.