The Learning Centre:
Life after debt: how to plan for future goals
Just as all good deeds deserve to be rewarded, so do good financial habits.
So what better way to reward yourself for getting your debt under control than to kick-start your financial dreams and goals into high gear?
Where would you like to be a year from now? Five years from now?
Whether you’re looking to reap the rewards of your financial prowess in the short term, long term, or both—mapping out a timeline is your first step towards achieving your goals. Once you have your timeline established, the next step is putting the right financial action in place to get the ball rolling.
Here are some possible action steps you can take to get you closer to achieving your goals:
TIMELINE: 1 TO 5 YEARS (possible goals: down payment on a home, travel in the summer)
ACTION: set up a PAC (Pre-Authorized Contribution plan)
During the years when you’re lower on the pay grid you might find it a little more difficult to put money aside. With a PAC, you contribute as much as your budget allows, so you don’t need to feel pressured into putting in more money than you’re comfortable with. That amount is then withdrawn from your account on a regular timeframe (weekly, bi-weekly, bi-monthly, monthly) and deposited directly into your investment account.
Another PAC perk: dollar cost averaging.
Market fluctuations make it difficult to determine exactly when to capitalize on an investment. However, with a PAC, you can benefit from a useful investment technique called ‘dollar cost averaging’. With this technique, you’ll be investing a fixed-dollar amount at regularly scheduled intervals. When the unit price is high, your fixed investment will buy fewer mutual fund units. When the price drops, it will buy more units. In doing so, your average unit cost will be lower and you’ll be eliminating the risk of investing in the market at the wrong time. The longer you use a PAC to invest, the more you’ll benefit from dollar cost averaging.
ACTION: Guaranteed Investment Certificates (GICs)
If the idea of investing has always made you feel uneasy because of the ‘uncertainty’ of it all, then a GIC could be the right choice for you. One of the greatest benefits of GICs is that they offer predictable investment growth that is guaranteed (yes, it really does what it says ‘on the box’). You can choose to invest as much as you want within a set term—the longer the term, the higher the guaranteed compound interest rate.
TIMELINE: 5 TO 10 YEARS (possible goals: home renovations, take a 4 over 5)
ACTION: TFSA (Tax-Free Savings Account)
Now that you’re perhaps higher up on the pay grid, you might be able to afford contributing more towards your investment goals. With the ability to put away $5,500 a year into a TFSA, it’s safe to say that the earlier you start contributing to this tax-free investment option, the more you will benefit from its earning potential over the years. Then when you have enough saved to make your goals happen, you can make a withdrawal and pay no tax on interest earned within the account! It’s definitely a win-win short or long-term investment option.
TIMELINE: 10 TO 15 YEARS (possible goal: save for your children’s education)
ACTION: RESP (Registered Education Savings Plan)
It seems every year the cost of post-secondary education increases. That’s where you and an RESP equal the perfect team when it comes to saving for your children’s future tuition. In addition to tax-deferred growth, you can also capitalize on the Canadian Education Savings Grant (CESG) where you will earn 20% on every dollar you contribute annually—up to a maximum of $7,200.
TIMELINE: 15 TO 20 YEARS (possible goal: pay off mortgage early, maximize your saving for retirement)
ACTION: Accelerated Mortgage Payments.
Your mortgage is without a doubt the biggest monthly payment you make. So obviously the sooner that debt is paid, the better. If you’re dreaming to be mortgage-free by the time you ride off into that retirement sunset, accelerating your mortgage payments during your higher earning years is one surefire strategy to make that dream a reality.
Check out 3 simple strategies to pay off your mortgage years faster.
ACTION: RRSP (Registered Retirement Savings Plan)
Sure, your OTPP is the envy of many. But should you be relying on it alone for the income you’ll need in retirement? (Especially when so many educators enjoy a longer than average retirement.) An RRSP has a lot going for it: your contribution can reduce the income tax you pay while you’re working; investments inside it can increase in value tax-free; and when you withdraw your funds you’ll probably be in a situation to pay less tax.
ACTION: Get educator-specific financial advice!
Whatever your dreams and goals may be—Educators Financial Group can work with you to develop a financial plan to get you one step closer to achieving the kind of future you have in mind.
Have one of our financial specialists contact you to kick-start your planning for future goals.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.