Your financial preparedness checklist

In the face of conflicting financial priorities, here are five tips on how to balance current financial responsibilities with long-term wants and needs.

Define goals and timelines

Clearly defining your long-term goals is the first step. Ask yourself questions such as: How much money do I need to live each month? Does this include a regular holiday? How much do I need for that second property I want? How much of a buffer do I want for emergencies such as healthcare issues, or family emergencies? Then, work with your advisor to develop a financial plan to achieve your goals.

Consider investment rather than saving

For long-term savings, investment (putting your money into assets such as mutual funds) rather than saving (keeping money liquid but with a relatively low return) will get you the best return for long-term goals. Vehicles such as certain kinds of Tax-Free Savings Accounts (TFSAs) can mix the benefits of both, but ultimately, a diverse portfolio will give you more flexibility. You will need to speak to an advisor about the appropriate mix for your situation.

Start small

Don’t let a small savings capacity put you off. Saving just a few dollars each month will have an effect over time, thanks to compound interest. If you’re not saving in an account with low levels of guaranteed interest, then you may also benefit from dollar cost averaging, in which smaller, regular investments shield you from volatility in the market by leveling out the average price at which you buy.

Pay yourself first and make it automatic

The oldest trick in the book is still the most effective. Transferring money automatically from your pay cheque into a savings account on the day that you are paid makes it easier to save, because you don’t have to think about it. And if you don’t see it leaving your account, the chances are that you won’t even miss it – especially if you’re budgeting effectively.

Get professional help

Meet with an advisor to plan how you will reach your lifestyle and savings goals. Ask for advice on how to grow your nest egg while managing debt and minimizing the impact of interest charges. An advisor can also help you set up pre-authorized withdrawals that make saving automatic.

Source: Manulife Financial