Saving For Short-Term Goals
Retirement gets all the buzz, but…
When it comes to investing, many people focus on long-term goals like saving for a comfortable retirement, a child’s education or their first home. But short-term goals are important, too. How can you save for short-term goals without putting your long-term investments at risk? Define your goals
Canada’s household savings rate hit a five-year low in 2014.* At the same time, household disposable income growth also slowed.**
It can be tempting to charge a big-ticket, short-term expense to your credit card and worry about paying it off later. But that’s not a plan. Neither is putting your Registered Retirement Savings Plan (RRSP) or Registered Education Savings Plan (RESP) contributions on hold for a year while you save for a new car. At least, it’s not a very good plan.
Instead, start by deciding what you’re saving for. Here are just a few examples:
• Emergency fund in case the unthinkable happens, like you lose your job
• Annual vacation
• New car
• Furniture for a new house
Make a savings plan
Next, estimate how much you’ll need to save. For an annual vacation, for example, you’ll want to research the cost of flights, accommodations, meals and pocket money. Let’s say your ballpark figure is $2,500.
Try taking $100 from every paycheque and putting it into a separate savings account, money market fund or guaranteed investment certificate (GIC) as soon as you get paid. You might have to bring your lunch to work instead of buying it or skip your daily coffee. But you’ll be most of the way to your savings goal in a year and can travel debt-free.
If there’s no way you can skim $100 dollars from every paycheque, you might need to change your goal. Putting off your vacation for another six months will give you 18 months to save, which means you’ll need to put away closer to $70 a month.
Whatever works for your budget, be sure you’re choosing an appropriate short-term savings vehicle. Don’t just stuff your money in a jar on your kitchen counter and forget about it, because you won’t earn any interest, and every little bit counts when it comes to short-term savings.
On the other hand, if you go the money market fund route, pay close attention to any fees you’re paying, and make sure those fees don’t take your small rate of return into negative territory.
*The savings rate is defined as the ratio between net savings of the household sector and household disposable income. Source: Statistics Canada, 2014.
** Source: Statistics Canada, 2014.
To learn more, please call our office today.
The Penney TeamScott Penney, Steve and Jennifer Penney
4310 Sherwoodtowne Blvd, Suite 304
Mississauga,ON, L4C 4C4