Life after debt: how to plan for future goals
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Just as all good deeds deserve to be rewarded, so do good financial habits.
And 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 year (possible goals: down payment on a home, maximize summer cash flow)
Action: set up a Pre-Authorized Contribution (PAC) plan
During the years when you’re lower on the pay grid, it might be difficult to put any extra money aside. That’s where a PAC can make investing a little more educator-friendly, as contributions can be set according to what your budget allows. That amount is then automatically transferred to your selected investment account(s) on a weekly, bi-weekly, or monthly basis (the timeframe is totally up to you) .
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 interest rate.
Learn more about strategies to maximize your GIC returns when interest rates are lower.
Timeline: 5 to 10 years (possible goals: home renovations, take a 4 over 5)
Action: Tax-Free Savings Account (TFSA)
As you starting climbing the pay grid, you might consider contributing more money towards your investment goals. A TFSA is a really good place to direct those extra funds. With the ability to contribute up to $6,000 a year, there is massive earning potential. Then, when you have enough saved to make your goals happen, you can make a withdrawal and pay no tax on interest earned or capital gains 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: Registered Education Savings Plan (RESP)
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 annual contributions up to $2,500—up to a lifetime maximum of $7,200 in CESG.
Timeline: 15 to 20 years (possible goal: pay off mortgage early, maximize your savings for retirement)
Action: Accelerated Mortgage Payments
Your mortgage is, without a doubt, the biggest monthly payment you’ll ever make. So, 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.
Action: Registered Retirement Savings Plan (RRSP)
Sure, your OTPP/OMERS is the envy of many. But considering so many educators enjoy a longer-than-average retirement, should you be relying on your pension alone for the income you’ll need in retirement? That’s where an RRSP can complement your post-education income stream. Plus your RRSP contributions during your working years can reduce the amount of income tax you pay, which is another great benefit.
Action: Get educator-specific financial advice
Pay grid, union dues, pension contributions—you have a very particular pay structure. We totally get that. It’s the kind of deep-rooted understanding that comes from over 45 years of focusing exclusively on education members and their families. 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.
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