How to save (and invest) your first $100,000 - MoneySense (2024)

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A popular milestone goal for young adults just starting out is to save $100,000 cash. YouTube and TikTok are buzzing with videos on this very topic, and it makes sense—$100,000 is enough to give you financial breathing room and life-changing options, like making a down payment on a condo or house, buying a car, travelling the world or investing for retirement. Plus, reaching six figures is a big achievement.

But is $100,000 in savings good enough? How much interest would you earn on it? And how do you take the first step toward saving that much in cash? We’re breaking down smart strategies for saving your first $100,000, how long it will take and how to invest $100,000 in Canada, plus expert insights with the help of a financial advisor.

How to save money

The first step is to determine the amount you can save from every paycheque. That will depend on how much income you earn and how much you need for fixed expenses. Once you start setting money aside, lock it up and throw away the key, at least for now.

I consulted Scott Sather, founder and financial planner at Awaken Wealth Management, who explains that automated deposits are a solid savings hack to saving your first $100,000. He advises that the most convenient method is automatically deducting a set amount from your paycheque. Whether you receive your pay biweekly or monthly, an automatic transfer to a savings or investment account—ideally, one that is not easily visible—will help you stick to your plan and contribute consistently.

Sather recommends setting up a high-interest savings account (HISA) at a financial institution, like EQ Bank or Tangerine, that is separate from where you typically do your banking. As a rule of thumb, he recommends auto-depositing 10% of every paycheque to start, but the amount is conditional on how quickly you need the money. Say, if you need it for a house in five years, you’ll have to save more aggressively. (Check out my article on how to save money fast on a low income.)

“If you need [access to] the money within the next five years, then anything stock market–related should not be touched,” explains Sather. You should only look at savings accounts and guaranteed investment certificates (GICs), which are low-risk investments with terms of a few months to a few years.

How does compound interest work?

Compound interest means receiving interest payments on interest you’ve already earned. Using a compound interest calculator allows you to calculate future savings or debt.

For example, a $10,000 deposit with an annual interest rate of 3.5% will earn $350 in interest in the first year. The following year, you earn interest on $10,350, and the following year on $10,712.50, and so on. This compounding effect can occur yearly, monthly, weekly or daily, depending on the interest terms. Compound interest also works on debt. Not paying off a credit card or line of credit on time will lead to paying interest on top of interest, putting you even further into debt.

How long will it take to save $100,000?

It depends on how much money you make and how much you can consistently save. The average income of Canadians aged 24 to 35 is $53,500 a year, and the average income for those aged 35 to 44 is $68,000, according to the most recent data from Statistics Canada. For the examples below, we’ll use an annual income of $60,000 (monthly income $5,000).

Timeline to $100,000 on a $60,000 income using a 3.5% HISA

Naturally, the more you can save from your total income, the more compound interest will help accelerate your progress towards your first $100,000. Referring to the table, the $60,000 earner saving the recommended minimum of 10% will save $100,000 by year 14, whereas a more aggressive approach of saving 15% ($750 a month versus $500) will get you there in nine years.

The best way to invest $100,000 in Canada

How should you invest your first $100,000? It depends on your goals, how much and how often you contribute to the investment account, and your timeline.

If your goal is to buy a house or condo, the first home savings account (FHSA) is the best account to hold these savings, says Sather. “It gives you the best of all worlds, but you’re restricted to $8,000 a year to a maximum of $40,000. So, that only gets you to $40,000, not $100,000.” In this case, he advises supplementing that with a tax-free savings account (TFSA) or registered retirement savings plan (RRSP).

“A TFSA is a no-brainer because you put the money in, and it’s flexible; you can take it out,” says Sather. He adds that RRSPs are helpful for medium- to long-term goals like retirement, education or a home. In the case of education or a home, you can borrow money from your RRSP for these goals (through the Lifelong Learning Plan and Home Buyers’ Plan, respectively). But you’ll have to pay that money back over a period of time—or include it as income on your tax return.

If the goal is owning real estate, having both an FHSA and a TFSA is the way to go, he says. For a car, Sather recommends a TFSA. But for retirement planning, look to RRSPs and TFSAs, as well as investing with a non-registered (taxable) account, which has no contribution limits. “The TFSA makes sense as you pay no tax on the gains and interest earned, and you get your withdrawn contribution room back the following year after withdrawal,” says Sather. (Not sure which account you need? Read this comparison of the TFSA versus RRSP.)

Sather underscores the importance of seeking out the top interest rates from online banking institutions in addition to your brick-and-mortar banks that often deliver a superior return. Take, for instance, these top five high-interest savings accounts of 2024, with interest rates ranging from 3% to 5%.

Working with a financial advisor is another tip that may get you a better return. “The interest rates the banks offer advisors to give to clients almost double, if not triple, what clients are getting from the bank on their own,” says Sather. “The banks offer 4.65% to advisors on their high-interest savings accounts versus 2% or less for those at the branch.”

And, don’t forget to factor in inflation. The $100,000 you have today won’t hold the same value in five or 10 years. “You need something to outpace that inflation,” says Sather. “GICs and savings accounts aren’t that type of vehicle—they are meant more for a liquid place to invest that keeps your money safe.” Sather says you could add invest in stocks with a goal of with a goal of five years or more to help minimize inflation risk, if your risk tolerance permits. “Inflation is a risk of GICs and savings accounts, but given that these are meant for shorter-term goals—less than five years—it hopefully won’t affect it as much.” He points to equities as a better solution, but they require a longer time horizon due to their higher risk—plus you need to devote time and energy to learning about investing in stocks and exchange-traded funds (ETFs), for example, or work with a financial professional.

Now, thanks to the Financial Planning Association of Canada, you can apply for one-time pro bono financial advice. Check out the FPAC website.

What are the financial risks?

There are always risks when investing money, but when saving your first $100,000, Sather identifies two things to note: adding risk prematurely when your withdrawal timeline is 10 years or less, and inflation.

If your timeline is seven to 10 years, Sather says he might recommend putting your money in “more equity-related” assets. This does add risk. “When you talk about risk, the reason you don’t want to add [it right away] is if you need the money within the next five years, the last thing you want is you’ve hit year five, you need the money, the market does a downturn, and your $100,000 is now worth $75,000. You might be able to get a higher return off it, but you can also get a lower return. So it’s better to go with what you can get.”

What can you do with $100K?

A popular choice for young Canadians to use their savings is real estate—a condo, house or second home like a cottage or vacation property. You might also be considering purchasing a car, covering wedding expenses or taking a step toward retirement savings.

Thanks to the appreciation of real estate over time, how far can a $100,000 down payment take you, mortgage-wise? A quick analysis using the MoneySense mortgage affordability calculator reveals how large a mortgage you could qualify for in these Canadian cities:

• Toronto, Ontario: $534,555
• Vancouver, British Columbia: $547,792
• Winnipeg, Manitoba: $513,228
• Montreal, Quebec: $488,510
• Edmonton, Alberta: $564,707
• Halifax, Nova Scotia: $514,699

Variables used were the same $60,000 annual income combined with a partner’s income of $55,000. Check the current mortgage rates.

Five tips to help you save $100,000 faster

1. Live below your means and cut frivolous spending. Consider the “latte factor,” coined by finance writer David Bach. Some critics dismiss his advice as oversimplified, but do the math: If you spend $6 on coffee every weekday, that’s $1,560 per year—a decent chunk of change you could put towards your first $100,000.
2. Be hyper-aware of every monthly expense and ruthlessly cut back to save faster. Set yourself up with a budget and check it often.
3. Pay down high-interest debts like credit cards first. “If you’re only getting 3% or 5% on your GIC or savings and paying 9% to 19% on those loans and credit cards, well, you’re not getting any further ahead financially,” says Sather.
4. Find the financial institution that will get you the highest interest rate. “That doesn’t necessarily mean it’s the place you’re working with right now,” reminds Sather.
5. Consider taking on a side hustle, and always be angling for a pay increase at your day job. Every time you earn a pay increase, the amount you save should increase, too.

Read more about saving:

• How to afford a fun life
• 10 SMART financial goals to set
• The best way to save for retirement in your 20s
• How to make more money in Canada: 6 side hustle ideas