Pay Yourself First: The Solution to Saving for Your Future

How often do you set financial goals for yourself? Do you have a financial plan in place to start saving for retirement, or are you waiting until the end of the month to see how much money is left over before deciding what to do with it? If this sounds like you, then your future may be in jeopardy. The solution is simple: pay yourself first.

Paying yourself first on a regular basis helps you to take advantage of one powerful financial tool – Dollar Cost Averaging. 

What is Dollar Cost Averaging?

Dollar Cost Averaging is a financial planning strategy that allows you to take advantage of market fluctuations. This helps you to smooth the volatility of your investment strategy by breaking down your contributions into smaller ones over time. When the market goes up you are buying less because prices are more expensive and when the market goes down, you are buying more because of the lower prices.

What are the benefits of paying yourself first?

  1. You are using a consistent wealth-building habit. You can set up automatic payments from your bank account to invest a fixed dollar amount on a recurring basis (weekly, bi-weekly, monthly, etc.).
  2. You are following a consistent investment approach. The ideal scenario for any investor is to buy at the lowest price and sell at the highest price. Unfortunately, this fantasy cannot be consistently nor successfully executed over time. However, by being systematic in your investments, you can smooth out the ups and downs of your investment journey.
  3. You can consider this a financial “easy” button. By paying yourself first on a recurring basis, you put your wealth building strategy on autopilot, requiring only occasional tweaks.
  4. You are putting your future first. Rather than prioritizing everyone first, your future gets the first cheque!

However, to pay yourself first, it is important to work within a financial plan that is aligned with your goals and future. Here are some things to think about when you are paying yourself first.

Time frame – When will you need access to your money? Is it a few weeks, months, 1-3 years, or in longer than 5-10 years?

Liquidity – How quickly will you need access to your money? For example, if you invest in a 5-year GIC, you will generally not be able to access that money beforehand.

Location – There are so many different accounts to invest your money, and they each have a specific job. RRSPs are used for retirement goals, non-registered savings accounts for shorter term goals and liquidity needs, TFSAs for tax-free long-term growth, etc. Work with your advisor to determine the right locations for your investment plans!

Bonus Tip:

If you have any consumer debt (such as carrying a balance on a credit card), pay these off before putting money toward your savings and investments. Because of the high after-tax interest rates that you are paying it is best to pay these off first.

It is important to think about your financial goals and how they align with your financial plan. You can use Dollar Cost Averaging as a way of smoothing out the volatility in market fluctuations by investing more money when prices are low and less when prices are high. The best time frame for paying yourself first is on a recurring basis, such as weekly or monthly. By taking these steps into consideration, you should be able to start saving for your financial future without it being an afterthought! Contact us today if you want help implementing this strategy with a financial plan tailored specifically around your financial goals and future.