Contributing to your financial future
Someone is sitting in the shade today because someone planted a tree a long time ago.
Warren Buffett, Chairman, Berkshire Hathaway, Inc.
It is early in the morning, and a man gets in his canoe to paddle across a lake to a distant shore. The water looks still in the early hours, but subtle currents are developing under the surface. If he stops paddling for a while, it feels fine at first. He can drift without putting in any effort and think, “Not to worry, I’m still roughly on course.” However, over time the gentle current starts to work against him and before he knows it, the shore he was hoping to reach is farther away than he thought.
Procrastinating on your financial goals can make you feel like a canoeist that stops paddling. The currents that end up working against you include inflation, fees, and missed opportunities. The way to make progress across the lake is to keep paddling, one small, steady stroke at a time. Each stroke might not look like much, but together they create forward motion that adds up.
What follows is an outline of the problem of insufficient savings and how you can help yourself by contributing to your financial future so, like our canoeist, you can reach your distant shore.
The problem of insufficient savings
Over the last several decades there has been a rapid shift among employers from offering their workforce defined benefit plans where retirement income, the benefit, is guaranteed by the employer to defined contribution plans where retirement income is not guaranteed, and the employer only agrees to contribute a certain amount to employee pension plans. While defined contribution plans offer employees flexibility in making investment choices, studies show that employees often contribute little or nothing to such plans.
More generally, the HOOPP / Abacus 2025 Canadian Retirement Survey found that many Canadians are worried about being able to retire. The survey results show 59% of unretired Canadians do not think they will ever be able to retire because of their financial situation and 39% say they have never saved for retirement.1 Moreover, according to Statistics Canada the household savings rate in Canada in the fourth quarter of 2025 was just 3.7%.2 The worrying survey results and meagre savings rate makes it hard for Canadians to reach their financial goals. That is the bad news. The good news is it does not have to be this way.
A simple plan to increase savings
A solution to the problem of insufficient savings was proposed by behavioural economists Richard Thaler and Shlomo Benartzi in their 2003 paper “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving.” The paper recommended a Save More Tomorrow (SMarT) plan which allows employees to allocate a portion of their future salary increases toward retirement savings.
Thaler and Benartzi used principles drawn from psychology and behavioural economics to address the problems of procrastination and self-control which lead to inertia and prevent people from contributing to their investment savings. For example, even when an employee actively takes part in a defined contribution plan offered by their employer, they may never bother to increase their savings rate over time or adjust their allocation of funds among stocks and bonds. By making future contribution increases automatic, the plan eliminates the need for additional actions and self-control on the part of the participant.
The reason the SMarT plan works so well is that inertia is a powerful force in human behaviour. If new employees are automatically enrolled in a plan, they must opt-out of the plan if they do not want to participate. Invariably, due to inertia, few will get around to opting out. In this way, inertia can be used to actively help employees save towards their retirement instead of having inertia work against that goal.
An idea is one thing, but whether it works is another entirely. Encouragingly, the authors found that initial implementation of the SMarT plan yielded dramatic results. The average saving rates for SMarT plan participants more than tripled from 3.5 percent to 11.6 percent, over a 28-month period.3
Even if you are not enrolled in a pension plan, there are ways to ensure you are contributing to your financial future. Here are some ideas anyone can implement in their own life.
Pay yourself first
One tried and true piece of financial advice is to pay yourself first. The idea being that we often spend our pay cheques on essentials such as rent and groceries as well as non-essentials such as vacations and entertainment before we contribute to our financial future through savings. The great insight of paying yourself first is to reverse the priorities. When you receive a pay cheque, why not automatically contribute to your registered retirement savings plan (RRSP), tax-free savings account (TFSA) or other investment and saving accounts before funding other expenditures? If a reasonable savings rate is set, people often find that they don’t miss the money that has automatically been set aside for saving and investing and learn to live with the income they have left.
Automation and budgeting
We can take the pay yourself first principle to a new level with automation hacks to help boost saving contributions. Online bank websites allow you to automatically deposit money into your investing or savings accounts on a recurring basis. For example, a deposit of $250 every two weeks works out to $6,500 per year in extra savings that you might not notice if you are practicing good spending habits and living within your means. Another idea is to put 100% of any salary increases straight into savings. This practice ensures that your income stays ahead of your expenses because you haven’t fallen into the trap of ‘lifestyle creep’ as your income grows.
Many people find keeping a budget to be tedious and time-consuming but there are ways to simplify the process. When thinking about your spending try implementing a 50/30/20 rule where you spend 50% of your income on needs, 30% on wants and 20% on savings. The breakdown will differ from person to person but having a rough idea of where your income is going is a good way to make sure you are putting away part of your income to savings.
Behavioural tricks
There are a lot of tricks we can use to make savings easier. One trick is to make use of a postponement period such as a 48-hour rule where you wait two days before making the decision to buy a non-essential item. Postponing a financial decision gives you time to think about if you really want the item or if it was going to be an impulse buy that you didn’t need.
Another trick is to implement a use cash-only rule where you spend physical cash on non-essential items, so it feels real. Also, today most people don’t carry physical cash around with them so having a use cash-only rule requires people to first go to their bank to get the money before going to the store to make their purchase. In this way, a use cash-only rule becomes another type of postponement period where people are forced to think about their financial decisions and decide if they really want the item.
InvestEd
We have seen that many Canadians are contributing insufficiently to their financial future and some of the reasons why this is the case. Fortunately, there are lots of ways to boost saving rates. By employing the principle of paying yourself first, implementing automation and budgeting techniques that work for you or trying some behavioural tricks, there are a lot of ways to up your savings game to secure your financial future. Saving more is possible but it requires savers to find the right combination of strategies that work for them and stick to their plan to increase savings.
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