The power of group savings plans
“Nothing is more expensive than a missed opportunity.” – H. Jackson Brown Jr.
There are many things in life that we have a hard time motivating ourselves to do. Homework. Laundry. Working out. Filing taxes. Just because we know we should do something and we understand that it’s in our best interests to get it done, that doesn’t always mean that we’re actually going to tackle it in a timely manner. This habit of procrastinating overdoing things that aren’t exciting or enjoyable is common to most human beings and it’s especially common when it comes to saving. We know that we need to save; we understand that if we don’t our retirement years won’t be quite as carefree and exciting as we might have hoped, but somehow, despite our best intentions, our savings balance isn’t as high as we’d like it to be.
Related article: Principles of Saving Money
For the majority of people, the trick to saving more is to make saving automatic. You can do this through your financial institution or, if you’re fortunate enough to work for a company that offers a workplace savings plan, you can save through payroll deductions. If you happen to be one of those people who’ve been procrastinating on joining your group savings plan, here are three reasons to consider signing up sooner rather than later:
85% of employers who offer a workplace savings plan also offer some form of matching incentive. Many employers will match an employee’s required contributions dollar for dollar – this means you get an immediate 100% return on your savings. When you consider this, it might seem surprising that anyone would choose not to participate in their workplace plan or choose not to contribute as much as they’re allowed to in order to get their full match but I meet people every week who, for one reason or another, just haven’t signed up. Employer matching can make a huge difference to your savings, especially if you stay with the same employer for several years, and it’s easily the biggest advantage of joining a group savings plan. However, it’s not the only one.
In 1989, Dave Chilton published The Wealthy Barber. His straightforward, “commonsense guide to becoming financially independent” has become one of the most widely read personal finance books in Canada. One key piece of advice that Roy the barber gave to his students was “pay yourself first.” While this simple concept is incredibly effective, it can also be hard to implement because it requires discipline.
Related article: Pay yourself first
Saving through a Group savings plan means that your contributions are deducted from your paycheque before your money hits your bank account. It’s a simple and effective way to save which is why many employers are starting to offer other savings plans such as group TFSAs as well as group RRSP or pension plans. The TFSAs don’t usually have a matching incentive but they provide an incredibly easy way for you to build tax-free savings for spending at a later date on anything you choose.
Group Savings Plans offer the advantage of the group negotiating power. This means lower management fees than you would normally be paying on the retail investments you have access to through your financial institution or financial advisor. Lowering fees is one of the easiest ways to increase investment returns (because more of your return stays in your portfolio)and it’s a key benefit of saving through a group savings plan.
Related article: Low fee investing
At the end of the day, if you want to build a solid financial foundation you need to spend less than you earn, eliminate debt and accumulate assets. It’s a simple philosophy but not always easy to implement. The automatic payroll deductions combined with the employer matching and lower fees make Group savings plans an extremely easy and effective way to build wealth. If you have access to a group plan that you’re not taking full advantage of, I would encourage you to make signing up a priority!
It may be safer to say that [Group Savings Plans MAY offer the advantage of group negotiating power.]There is no guarantee, and it’s also possible to be restricted to only some mutual funds of the company that administers the plan. An employer match would still make the difference, it’s just not all white (or black).
Unless you choose to invest your assets yourself by buying securities, there is a 95%+ chance that fees in group plans are lower