Setting up an automatic savings plan will help you grow your investments
Imagine you have two saplings to plant.
You carefully select a nice spot in your garden and plant them. Over time you pay attention to the one closest to the house; fertilizing and feeding the soil with plant food, watering it during dry times and carefully pruning it. The other you left to grow on its own still continues to grow, but doesn’t look quite as full and lush as the other tree.
Your savings plan isn’t much different from those two trees. You can deposit some money in an account and hope it continues to grow unattended – or you can invest some regular TLC.
Creating a plan to help grow your savings doesn’t require you to have a green thumb – but it does take a little commitment.
You’ve likely heard the expression “pay yourself first.” There’s a lot of truth – and importance – to that advice. A 2016 IpsosFootnote 1 survey found that 46 per cent of Canadians over the age of 55 worry they won’t have enough money saved for retirement. To avoid this concern down the road, it’s good advice to make regular saving part of your monthly household budget – even small amounts to begin can grow into something much larger when you commit to “paying yourself first.”
Automatic savings contributions
Once you have a budget established, working with your financial security advisor, you can set up a monthly pre-authorized chequing (PAC) contribution plan to automatically grow your savings. By creating a PAC, you can take advantage of compound growth and avoid the seemingly annual stress of finding money to contribute to your registered retirement savings plan (RRSP), before the tax filing deadline.
Reduce your income taxes
When you’re ready to set up automatic contributions, you’ll need to decide where to invest them. While non-registered accounts are an option, the most popular are RRSPs and tax-free savings accounts (TFSAs). Both options are government programs that provide tax-advantaged savings.
Depending on your situation and stage of life, you may want to explore the benefits of each and talk to your advisor about how they can work together to increase your savings – and tax benefits.
Make saving simple - Freedom 55 Financial
Narrator: Saving for something?
Description: Camera zooms out to reveal a single-storey house with a “For sale” sign.
Narrator: Here’s how to reach your goal sooner.
Description: A calendar enters the frame.
Narrator: All you have to do is set up an automatic contribution…
Description: Money is invested on the first Friday of the month.
Narrator: For whatever amount you want, whenever you want.
Description: The same amount is invested two weeks later.
Narrator: This way, money easily flows to your savings,
Description: The pattern repeats every month.
Narrator: And is invested automatically.
Description: Return to the house.
Narrator: Why wait? Your investments have the opportunity to grow right away and with compounding, could build more and more in size.
Description: The word “Sold” now covers “For sale” on the sign. A second storey, garage and landscaping are added.
Narrator: Otherwise, you’re catching up.
Description: A car drives into the garage.
Narrator: Save early, save often.
Description: The frame splits in half – with the house on the left side and “Save early, save often” appears on the right. The frame fades to reveal “Talk to your financial security advisor today.” with Freedom 55 Financial logo and legal lines.
Value of compound growth
By setting up automatic contributions, you’re well on your way to growing your savings. Compound growth can help your money grow even faster, and works similar to compound interest. With compound interest, you’re potentially earning interest on interest – you could earn interest on the money you put in at the start, as well as the money you add later, plus on all the interest that collects over time. This may give you a larger total amount to earn future interest on, leading to even more growth. Over time, you have a powerful recipe to help grow your money.
Do you have an employer-matching contribution program at work? Many companies offer this benefit to encourage and help employees plan for their retirement. When you enrol in these savings plans, you are essentially getting free money – all of which will go into your savings and help boost your opportunity to benefit even more from compound growth.
Saving early, and saving often, can also help you avoid those crunches when it’s time to set aside money for your annual RRSP contribution. With just a small amount going into your plan monthly, your savings may grow through the benefit of compounding – something those annual lump-sum contributions just before the RRSP season cut-off don’t take full advantage of. A financial security advisor can work with you to determine what savings strategies may be best for your personal situation.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
A description of the key features of a segregated fund policy can be found in the information folder and important information about mutual funds is found in Fund Facts. Please read these documents carefully before investing.
Mutual funds are not guaranteed. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund and segregated fund investments. Mutual fund and segregated fund values change frequently and past performance may not be repeated.
Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.