The 20% Rule (and Why It Works)

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Many financial planners recommend the 50/30/20 rule:

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• 50% of your income goes to needs

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• 30% to wants

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• 20% to savings and debt repayment

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This isn’t a hard rule—it’s a starting point. That 20% might include contributions to a TFSA, RRSP, emergency fund, or paying down debt.

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Why 20%? Because it creates breathing room. Saving 20% of your income over 20–30 years (with modest investing returns) can make financial independence possible—even without a massive salary. According to Fidelity, saving just 15% of your income from age 25 could provide enough to retire by 65 with a comfortable lifestyle.

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But what matters more than the exact number is the habit of saving consistently over time. Even 10% saved consistently will outperform 0% saved perfectly later.

Average Savings by Age in Canada (Reality Check)

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Let’s look at what Canadians are actually saving, based on recent StatsCan data:

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• Under 35: Median savings ~$12,000

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• 35 to 44: Median savings ~$35,000

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• 45 to 54: Median savings ~$65,000

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• 55 to 64: Median savings ~$112,000

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These numbers reflect registered and non-registered savings. While they might seem low, they also highlight a powerful point: starting early, even with small amounts, can separate you from the average.

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Start Small, Win Big

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Saving doesn’t need to be dramatic—it needs to be automatic. Behavioral finance research shows that people are far more likely to stick with saving if it’s automatic and frictionless.

 

Fact: A 2023 Vanguard study found that people who set up automatic savings saved 74% more over time than those who made manual contributions.

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Whether it's $50 per paycheck or 10% of your income, the key is start where you are—and grow from there. What matters most is momentum.

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Emergency Fund vs. Long-Term Savings

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The first goal for most people should be an emergency fund—ideally 3 to 6 months of expenses. This isn’t about making money; it’s about preventing debt. A 2022 survey by Borrowell found that over 47% of Canadians couldn’t handle a $500 unexpected expense without borrowing or using a credit card.

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Once that’s in place, shift your focus to long-term savings, like investing through a TFSA or RRSP. These accounts grow your money faster thanks to tax-sheltered or tax-deferred benefits.

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Your Savings Rate Matters More Than Your Income

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High income is great—but without saving, it doesn’t matter. In fact, studies show that many people earning six figures still live paycheck to paycheck because their lifestyle expands with their income.

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As Housel writes, “Wealth is what you don’t see.” A person earning $60,000 who saves 20% will retire richer than someone earning $120,000 who saves nothing.

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Stat: The personal savings rate in Canada averaged just 5.1% in 2023, down from the pandemic peak of 27.2% in 2020.

You don’t need to match your income to your neighbor—you need to control your savings rate. It’s the only factor you can completely control in your financial journey.

Final Thought: 

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How much you should save depends on your goals. But the act of saving itself is always worth it—because it buys options, freedom, time, and security.

You might not know exactly what the future holds. But when you save, you give your future self the resources to handle it well.

Start small. Stay consistent. Increase as you go.

 

Want to Save Smarter?

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Open a Questrade Account Here and start putting your money to work—whether you're building an emergency fund, saving for retirement, or just getting started. With no monthly fees and powerful investing tools, Questrade makes it easy to save and grow, automatically.