Angela Iermieri, a senior business strategy advisor at Desjardins Wealth Management,i knows about the pitfalls that can keep us from saving. Here are 5 she recommends you avoid to optimize your savings strategies and achieve what’s most important to you.
1. Contributing at the last minute
Do you always wait until the last minute to make your registered retirement savings plan (RRSP) contribution? During that final sprint, you’re left scrambling and might feel overwhelmed by all the options. And you might not have the funds to invest as much as you’d like. Fortunately, there are some better options available.
Contribute well before the deadline
For your RRSP contribution to be deductible for a given year, you need to contribute by the deadline. For example, for a contribution to be deductible for the current year, you’ll need to make it no later than 60 days after the end of this year. But any time of year is a great time to contribute! So why get caught in the rush at the end of February when you can spread out your investment over time?
By contributing to your RRSP throughout the year, you’ll quickly amass tax-free funds, your returns can start adding up, and you can stay in the markets.
Invest through automatic deposits
Depending on the type of investment you’ve chosen, and if you’re able to make online transactions, you can set the amount and frequency of the deposits yourself. Instead of contributing $2,600 all at once in February, you could have $50 taken from your Everyday Transaction Account or paycheque every week and deposited straight into your RRSP. Life can get hectic, and automatic deposits mean you have one less thing to remember. It’s also a great way to manage your finances.
Besides making your life easier, automatic deposits can:
- Be easily worked into your budget
- Help you develop good savings habits
- Become part of your routine—no need to feel deprived!
- Be deposited in various investment vehicles
2. Waiting to invest
Getting into the habit of regularly saving small amounts allows you to build up funds for retirement, a down payment or any other goal, while barely noticing it. The sooner you start, the greater your chances of achieving your goals, like living the retirement of your dreams. We’ve done the math! Starting to save early can increase your potential growth over the long term. Take a look below to see what $50 a week can grow into over time.
3. Using a TFSA like a regular savings account
The Tax-Free Savings Account (TFSA) is much more than just a savings account. First and foremost, you should think of it as a savings plan. Whether you’re using it to build an emergency fund or save for retirement, this plan allows you to use different short-, medium- and long-term strategies to achieve your goals. An advisor can help you identify the investment options that best meet your needs.
4. Cashing out when the markets fluctuate
Not many people like stock market fluctuations, and most investors get anxious when the markets go up and down like a yo-yo! That’s completely natural. Remember what they say, though: most of the time, what goes up must come down, and the opposite is true, too. If you pull out of the market when it’s volatile, you may not achieve the savings goals you initially set.
A few important things to keep in mind:
Letting your emotions get the better of you can lead to rash decisions. But if you learn to manage them and stay on course, you’re more likely to reach your goals.
The biggest gains often follow market corrections. Staying focused on your long-term strategy can put you in a better position to achieve your objectives.
5. Not sticking to your investment strategy
As you know, all portfolios are based on a long-term investment strategy that takes your objectives, investor profile and risk tolerance into account.
All investments should be selected depending on whether they’re right for you or your investment strategy, not your parents or anyone else. Here are a couple tips to help you and your portfolio:
- Take a long-term view, stay focused on your own objectives and don’t change your savings strategy to copy someone else’s.
- Remember, complexity isn’t necessarily an indicator of diversity and doesn’t always add value to your investment strategy.
It pays to talk to your advisor!
Whether you want to discuss your goals, investment strategy, savings plans or the various investment options available, personalized support is yours for the asking.