4 tips to save for your financial goals
Unless you’re lucky enough to win the lottery, saving is a good strategy to achieve your financial goals, even the small ones. Here are 4 tips to help you get motivated to save, stick with it, and get the most out of it.
1. Embrace the joys of saving money
Don’t think about saving as something you only do for things like a house, kids or retirement.
Think about it for the short term, too. It’s an important tool in your life for a lot of different things. And you should start by establishing small, achievable goals. You want to make sure that the amount you need to save is realistic, and that you’ll have it when you need it.
You can—and should—save up for just about anything that you want but you’re not quite ready to go out and buy today. Like new skis or skates. Or for something a little bigger, like a 2-week #VanLife vacation around the Great Lakes.
- Start with a realistic plan, like this one
- Let yourself get rationally exuberant
- Repair, reuse and recycle (local and green!)
- Set achievable goals
It’s tempting, right?
2. Make it a habit
We could go on about savings for hours. But let’s make it quick. You can do yourself a big favour by closing your eyes, using your imagination and visualizing the road to your target:
- Role play: say you set up an automatic transfer for $50 a week
- That money goes into a separate account or savings plan
- In 1 year 52 weeks), you’ll have $2,600
Now go through that same exercise for your other goals. Just change the amount you’ll need and the time you’ll need to save it. It gives you a pretty accurate picture of what you need to do.
3. Take advantage of compound interest
Making money while you sleep? Why not? Let’s go back to that $2,600 saved up over a year. Maybe you found a great little used car you’re ready to buy. Great, let’s hit the road!
Now let’s also see what happens if you keep saving $50 a week between the ages of 25 and 65. By factoring in an average annual interest rate of 4%, you’d have approximately $250,000. In that $250,000, $150,000 would have come from interest or returns (the 4%).
Can you forecast returns and interest on your savings?
It all depends on the investment product you have. Guaranteed investments (like term deposit certificates) have an investment horizon and a return that you’ll know when you purchase them. But if you’re investing in the market (like investment funds and stocks), there’s no return guarantee. Still, if you know your goals, your investments, your timeline, and how comfortable you are with market fluctuations, you can, however, make a rough forecast of your anticipated returns. For help, contact your advisor. In the meantime, read about a few pitfalls to avoid.
4. Savings: Put them where it makes sense
You’ve got options. You just need to find the right one for your particular savings goal.
Daily expenses
A personal chequing account is your standard account. It’s where you make deposits, send or receive transfers, pay bills, make or cash cheques, and make withdrawals.
- Ideal for regular banking and everyday expenses
- Zero interest, so only keep as much in there as you need
Most people use their chequing account to make small purchases that don’t require a lot of time to save up for.
Short-term goals
If you’re saving a few dollars because you became a home baker this past year, or if you need to start saving for a new game console, try the Savings goals tool, available on AccèsD.
- Choose the project you want to save for
- Set your goal (for example, a total of $3,000)
- Slect the account in which your project amount will accumulate
- Set the amount and frequency for your automatic transfers
TFSA, for the medium or long term
A tax-free savings account is a great way to save and can also lead to attractive returns, depending on the type of investment you place your money in. Plus, any interest you make in a TFSA isn’t taxable and you can take your money out whenever you need it.
- Perfect for medium- or long-term goals
- Withdrawals aren’t taxable
- Annual contributionlimit
Maybe you’re planning a 2-week fishing vacation, or you can start saving for that brand new laptop you’ve been dreaming about.
RRSP, it makes sense for everyone
Avoid frequent withdrawals so your money keeps growing! Maybe you’re planning a 2-week fishing vacation, or you can start saving for that brand new laptop you’ve been dreaming about.
RRSP, it makes sense for everyone
A registered retirement savings plan is for the long-term. This is where the magic of compound interest really happens. Any withdrawals you make from an RRSP is taxable, except for these 2 circumstances:
For example, to buy your first home: withdraw up to $35,000 tax-free, but refundable, to make a down payment (Home Buyers’ Plan, or HBP)
- For example, to buy your first home: withdraw up to $35,000 tax-free, but refundable, to make a down payment (Home Buyers’ Plan, or HBP)
- To go back to school: withdraw up to $20,000, tax-free but refundable, thanks to the Lifelong Learning Plan (LLP).
You can access your money long before you retire! There are a lot of reasons to start contributing to an RRSP as soon as possible.
After a few months or years, you’ll reap the benefits of your discipline. Well done! Saving can be a long road with some tempting off ramps along the way. But staying on course always pays off. Our advisors are there to help you choose the best savings options based on what you want and need!