This is not a new concept. If Canadians put this plan in place, they can retire rich. The secret to saving and accumulating wealth is to ‘Pay Yourself First’.
Have you heard of this simple financial magic? It is taking a certain percentage of your monthly income and investing it. Simple!
Every month, the first bill you pay should be to yourself. Pull your savings from the top, then relax and live on the rest. By doing this, you are establishing saving as a priority. You are reminding yourself that your future is important. Your future is your responsibility.
Regular and consistent contributions to investing go a long ways toward building a secure financial future. Paying yourself first gives you the opportunity to have some short-term freedom and flexibility as well.
Are you waiting until your children leave home? Til your car payments are done? Til gas prices go down? There will always be reasons not to save. The longer you put it off, the harder it is to start and create good financial habits.
Ideally, this ‘Pay Yourself First’ habit should start in the teenage years. If you have teenagers, teach them now! Help them start this healthy financial habit.
Three steps to make this happen:
Calculate your 10% amount. Look at your take home pay and take 10% of this. For example, if your take home pay is $3,300 per month, you will be looking at an amount of $330 per month for ‘Pay Yourself First’. Is your first reaction – “I can’t afford that”? Rest assured, you will get used to incorporating this into your budget. It might be an adjustment for the first few months. You may look at more
ways to be savy with your money. Cook meals at home, choose just one or two evenings out per month, shop around when purchasing clothes, furniture, household items and travel.
If this 10% amount is still very unreasonable for you, start smaller with $200 per month and increase it gradually to $330 over the next months. Aim for 10%
Before you know it, your money will accumulate and you will have saved for things that are important to you. The great news comes after about six months. You look at your statement and it shows an account value of about $2,000. There is no looking back now!
Set up your 10% monthly amount to automatically transfer from your chequing account to your savings/investment account.
Choose your investments. This decision takes into account many factors including your age, assets and goals.
Choose where to invest this money. TFSA’s are very popular and flexible. With the current annual TFSA contribution limit of $6,000, you can contribute up to $500 per month.
The real benefit of TFSAs is the tax-free growth. Over the past many years, investors have contributed to their TFSA and may have $30,000 or $50,000 in their accounts. If a $50,000 TFSA grows by 6%, this means that they receive growth of $3,000 and it is tax free. TFSAs are a win-win plan.
Review – you may wish to tweek your investment options over time. You may increase your monthly amount.
Once you establish this monthly savings habit, you can save for your short term goals – a big-ticket item, vacation or a new car. Open a free online savings account and nickname the account ‘vacation’ or ‘boat’.
Paying yourself first means putting money into your savings account first, as soon as you get paid and before you spend money on anything else.
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