Are you falling behind on your Registered Retirement Savings Plan (RRSP) or other financial goals?
The solution to the problem may be simpler than you think.
It's possible to increase savings and investments just by ensuring that you set aside money before it's used for other purposes.
This technique, often called "paying yourself first," is a simple and painless way to boost savings.
Paying yourself first means committing a portion of your regular paycheque to savings before you meet other financial obligations.
This strategy works best when you use a preauthorized contribution (PAC) plan that automatically transfers money from your pay or financial institution account to savings or investments.
Most financial institutions offer preauthorized investment plans for RRSPs, TFSA and non-registered investments. Money is automatically deducted from your banking account and transferred into common stocks, mutual funds or other investments.
PAC plans let you transfer funds at a frequency you choose - typically, it's weekly, bi-weekly, monthly or quarterly. However, some plans may offer limited options.
In some cases, you can even invest regularly through workplace payroll
deductions that shift money into a group RRSP, company stock purchase plan or other vehicle. If your company offers match or contributes to your group RRSP take advantage of it as it is essentially free money.
You'll discover that regularly putting money aside throughout the year is easier than finding large lump sums to invest. And there's a bonus at least part of your money goes to work sooner,
increasing your wealth potential.
This is particularly important in an RRSP and TFSA, where tax-deferred and tax-free growth makes it paramount to invest as soon as you can.
Of course, if you don't have the money to pay yourself first, you'll have to find it. This may also be easier than you think. With a little financial repositioning, you can strike a happy balance between
today's needs and tomorrow's goals.
First, figure out how much you can
afford to regularly save and invest. The best way to do that is through a budget that lists your monthly income and expenses.
You can put together a budget with a computer spreadsheet program, personal finance software or just a pen and paper.
By subtracting your expenses from your income, you'll see how much you have left over for savings. But don't stop there. Take a second look. Where can you cut down on expenses to divert more to savings and investments?
Almost everybody can make changes to free up cash-for example, by cutting down on restaurant meals or paying off debt quickly.
Once you've figured out a way to pay yourself first, stick with it. Don't skip payments or abandon your strategy. It's better to pay yourself first and then find money for expenses elsewhere. It just means you may have to trim spending a little more.
To be sure you stay on track, work with a financial advisor who can show you how to boost your savings and investment potential.
Konrad Pimiskern is a Financial Adviser with Edward Jones. He can be reached at 250-765-8550. Member Canadian Investor Protection Fund.