Life is full of goals worth saving for; a new car, a house, a wedding, your dream vacation, and even retirement. While all this saving can be daunting, you can alleviate some of that stress by knowing that you can reach those savings goals faster by making your money work for you.
Saving for the future is something we are taught we need to do from a young age. That said, significant financial milestones like buying a home and retirement can sometimes seem so far in the future that it’s easy to deprioritize them. That is a mistake because putting off these goals now means you’ll have even more ground to make up in the future. Fortunately, the best time to start saving is today, and we’ve got helpful financial tips for saving and investing.
Tips for Saving Money
Saving has come a long way since you were a child putting your extra quarters and loonies into your prized piggy bank. Nowadays, Canadians have access to different savings accounts to help make their money work for them. Two options include tax-free savings accounts (TFSAs) and high-interest savings accounts (HISAs). Choosing these accounts for your savings is a great start, but you still need to develop a strategy for your various savings goals. Here’s how.
Pay Yourself First
The easiest way to establish the habit of saving is to pay yourself first. So, what does this mean? It means that you will prioritize saving before spending your money on non-essentials.
First, you’ll pay your bills from that amount when you receive your paycheque. You’ll then set aside a portion for your savings goals in a separate account. Finally, whatever is left over, you can spend on whatever you want. Paying yourself first removes the temptation to spend the money you ought to be saving.
Retirement coach Marco Sison recommends further levelling your savings by automating your deposits. “If you see your checking account with $500 at the end of the month, you might consider spending it. Instead, treat your savings like a bill on auto-pay. Most banks offer free automatic transfers between accounts. Schedule a “bill payment” online to your savings account after each paycheck. Don’t make saving a choice. Automate it, set it, and forget it.”
Tips for Saving Money for Life Events
Life is full of events and goals. Some events will occur at different times, but often you will be saving for multiple goals simultaneously. Here are a few ways to make this more manageable.
Set Realistic Savings Goals
Sure, your end goal is to buy a house. Or pay for a wedding. But how much do these life goals cost? Do your research and set a firm budget for how much you want to spend. Assigning a dollar value to your goals will help determine how much and how long you should save.
Create a Payment Schedule
Map out your monthly budget to determine how much you can afford to put toward your monthly savings goals. Marco Sison mentioned above that one of the smartest tactics you can take is to automate your savings so that you don’t need to think about it and avoid spending it by mistake.
Have Multiple Savings Accounts
If your bank offers savings accounts with no monthly fees, consider creating a separate account for each goal. For example, you could have a mortgage fund and a dream vacation fund at the same time. Then, you can prioritize them as you see fit while saving for more than one goal.
Tips for Saving Money for Retirement
The same tips shared above will also apply to saving for retirement, but in this case, where you save is important. Canadians can open a Registered Retirement Savings Plan (RRSP) to save for retirement. This tax-sheltered account makes it easier for Canadians to save for the future while keeping their retirement fund separate.
There are plenty of RRSP options available to the average Canadian. For example, you can save on your own, or your workplace may offer group RRSPs with employer matching (your employer may match your contributions up to a percentage of your salary). But be mindful that RRSPs also have plenty of rules, including limits on how much you can contribute each year.
Tips for Investing
Investing used to be something that only wealthy, privileged people did. But that is no longer the case. Nowadays, anyone with $100 can start investing, and you don’t have to pay hefty fees to do it. Here are some tips to get you started with investing.
When to Invest?
The first thing to consider is whether you are ready to start investing. If you are struggling with debt or can’t meet your monthly monetary obligations, your priority should be to get your finances in order first.
Once you have your finances in place and are ready to start investing, you should consider your goals. Keep in mind that some risk is involved in investing and is best suited to longer-term goals like retirement. If your savings goals are shorter (under five years), choose a more conservative financial product like cash savings or guaranteed investment certificates.
A higher-risk, higher-reward investment strategy is a good choice for long-term goals.
As for timing the market, Steve Orlowski, general manager of Review Home Warranties, provides the following advice; “Stick to your long-term investing goals. Try your best to ignore short-term market fluctuations and stay with the plan you originally set out to execute. You’re likelier to do better in the long run when you follow a strategic plan rather than reacting to every market peak and dip.”
Where to Invest?
As for where to invest, well, you have quite a few options.
Financial Advisor
A financial advisor can help you with investing and financial planning. A financial advisor is the most expensive option because they will charge you a fee, but you also get to discuss your strategy with an actual human. Financial advisors typically recommend investing in mutual funds along with stocks and bonds. If you don’t want to pay management fees, which are taken off the top of your investments, you can opt for a fee-based financial planner. A fee-based financial planner charges you upfront to help set you up on a simple financial plan that can include investing.
Robo Advisor
Another popular option is to look at a roboadvisor. With a roboadvisor, investing is managed by an algorithm created and monitored by professionals (humans, not robots). This type of investing is ideal for those who love the idea of a ‘set it and forget it’ strategy. While customer support is available if needed, roboadvisors don’t offer the same face-to-face service a financial advisor provides. However, they are also significantly less expensive than financial advisors.
DIY Investing
Finally, if you are knowledgeable, you can manage your investments independently. Plenty of DIY investing platforms available to Canadians allow you to invest in exchange-traded funds (ETFs), mutual funds, and more. DIY investing is the cheapest option available but can be pretty time-consuming.
Deciding When to Save and When to Invest
There is a time and a place for both investing and saving, depending on the characteristics of your goals. The most significant deciding factor is the time horizon for the financial goal.
- Short goals (under 5 years) = low risk (savings)
- Long term goals (5 years or more) = higher risk (investments)
Don’t forget that the type of account you choose can play a role in making your money work for you as well. As much as possible, try to focus on saving money and investing in tax-differed or tax-free accounts like TFSAs or RRSPs.
