Breaking free from the Joneses: Why it’s time to reset your financial benchmark

Long before there were influencers and reality TV, everyone was focused on keeping up with the Joneses. Unlike the surreal lives we see portrayed on TV and online today, the Joneses represent the real-life pressures we feel when it comes to matching – or surpassing – our neighbours’ wealth.

Comparing your lifestyle to others’ isn’t very productive, since everyone’s circumstances are different, but having a benchmark to chart your financial progress and your financial goals can be useful. Knowing where you stand can provide reassurance that you’re doing better than you think. And if you see you’re falling behind, you can devise a plan to get back on track.

Rather than looking at what your friends have, these personal finance stats should give you a better sense of how you really stack up and help you determine where you can improve.

Limit your borrowing costs.

No one likes to owe the bank money, but holding some debt – for a mortgage, a car payment or school – is a normal part of life. It’s a concern when your debt exceeds your income, or if you’re needlessly eroding your savings by carrying a balance on your high-interest credit card.

As a country, we are no strangers to debt, with one of the highest debt-to-income ratios among G7 nations. In 2023, household debt topped $2.3 trillion – yes, that’s trillion with a “t” – up almost $100 billion, or 4.2%, over 2022.1 It sounds scary, but many families continue to find ways to deal with their debts without sacrificing what’s important to them. Still, no one would argue against having a little more wiggle room that they’d enjoy by paying down those debts.

One of the main culprits for the increase: mortgages, which have been steadily climbing to cover the higher cost of homes and rising interest costs. It can be hard to wrap your head around such a big number, but here is one everyone can understand: as of mid-2023, Equifax reported that the average household mortgage was around $350,000, up 7.4% in a year. Canadian consumers’ average credit cards balances have been rising even faster, on a percentage basis, up more than 16%, to $4,119, from $3,727 in mid-2022.1 While credit card debt may not be the largest sum Canadians owe, the high interest rates can make it the hardest to pay off.

What to do about it?

For starters, try to eliminate your debt – or at least your bad debts, which are debts that don’t provide any sort of return (like a mortgage or education). If you carry a balance on a credit card, find ways to pay that off. If you have access to a line of credit or a home equity line of credit, consider using those funds to pay off your credit card. You’ll still carry debt, but the lower interest rate will allow you to pay it off faster.

You can also look for ways to boost your income. Haven’t had a raise for a while? Try asking for one, or consider pursuing a higher-paying job. Flex your creativity and apply that energy to a side hustle. Sell things you don’t use.

And rather than worrying about what others are making (or spending), focus on what you value. It’ll help you live within your means and focus on the things that matter to you most.

Watch your savings.

Seeing the latest trip your friend just enjoyed may make you feel envious at times, but you might not feel the same way if you could peer into their bank accounts. Many Canadians aren’t saving as much as they have in the past: according to Trading Economics, in the third quarter of 2023, the savings rate in this country sat at 5.1%. While that’s within the range it’s been at for most of the past 20 years, it’s well below the 10% to 15% savings rate that persisted from the late 1970s to the early 1990s.2

What to do about it?

With the cost of living rising faster than incomes in recent years, saving has been challenging. That’s why it’s important to make sure the money you’re putting away is working as hard for you as it can. Consider using tax-advantaged accounts, such as the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA), and staying invested even in volatile markets. The longer you keep your money in the market, the more time you’re giving those dollars to grow and compound. (Learn more about compounding, often called the eighth wonder of the world, with Fidelity’s growth calculator.)

Staying invested, even through difficult periods, could also work in your favour, because the timing and direction of markets is difficult to predict. Selling when times get tough, rather than staying invested, could cost you some serious coin down the line. For instance, missing the ten best days for the S&P/TSX Composite Index between August 2002 and December 2022 would have cut your return roughly in half.

Over time, you can try to find ways to amp up your savings rate by setting aside more money when you get a raise or cutting out unnecessary expenses. For example, one U.S. study found that consumers drastically underestimate how much they’re spending on subscription services. Having a plan that helps you gauge whether you’re saving enough – or even too much – can go a long way, too.

Know your money.

One of the easiest ways to get a handle on your money is by learning basic financial concepts. When the Ontario Securities Commission posed a series of financial literacy questions to investors in 2022, respondents were only able to answer about half of them correctly.3 In fact, people struggled most with questions related to investment costs and how to protect their portfolios.

What to do about it?

Learning about finance may be intimidating at first, but it can also be empowering (if you’re reading this, you’ve already started that journey). Taking a few minutes a day to read a personal finance article – you’ll find plenty on Fidelity’s site – could help you gain confidence when investing and allow you to make more educated decisions that can help you grow your wealth faster.

Try to find ways to work financial literacy into your routine so it’s not a chore. It can be as easy as tuning in to the business news or a podcast when you’re out. If you are looking for one way to build a strong foundation for your investing knowledge, be sure to check out the Fidelity video series Money Gains.

Map out your retirement.

If you really want to get ahead of the Joneses, start saving for retirement. According to a recent Statistics Canada report, while more Canadians are contributing to RRSPs, the median contribution amount was just under $4,000 in 2021.4

If you’re putting at least that much away for retirement, then take solace that you’re doing better than half of the country – but don’t take your foot off the gas. Assuming you contributed that amount every year for 25 years and earned an average 5% return year over year, then you’d have saved up about $200,000 for retirement, before tax. It sounds like a good number, but considering how the cost of living will also rise over that time, many Canadians may still feel squeezed come retirement.

What to do about it?

Making regular contributions to your RRSP is one way to stay ahead. With an RRSP, your contributions may help you get a tax refund, while the money within the account grows tax-free until withdrawal. Automating those contributions so they are taken from your account as soon as you get paid will also help keep your savings on track. Chances are, you won’t even miss the money coming out of your account – although you’ll certainly notice the difference in your retirement returns.

Also, make sure you’re finding other ways to save. If your company offers a pension plan, sign up for it. And if your employer offers any matching contributions or top-ups to the plan, then that’s free money you don’t want to pass up.

How much should you save for retirement? There’s no single answer, and how you approach your savings will evolve at every stage of your life. This guide will help you plot your savings journey, and if you want to see where your retirement savings stand, check out our retirement calculator.

With a few simple changes to the way you assess your financial progress, you can worry less about keeping up with the Joneses – they’ll be looking to try to keep up with you.