How to put your financial plan into motion
When it comes to your financial dreams and goals, where would you like to be a year from now? Five years from now?
Okay, so you probably can’t even think past the next few weeks let alone five years down the road. However, school years come and go—and before you know it you will have reached your 85 or 90 Factor.
Don’t let the years pass you by without spending some time on your financial goals.
Whether you’re looking to make things happen 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, next is putting a financial action in place to get the ball rolling.
Here are some of the possible action steps you can take to help you get closer to achieving your goals:
Timeline: 1 to 5 years
Goals: down payment on a home, buy new car, 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. Setting up a savings plan where smaller amounts automatically come out of your account on a bi-weekly, or monthly basis, is an easy way to save towards making those short-term goals happen.
Action—Guaranteed Investment Certificates (GICs): Available in a variety of terms, GICs offer a guaranteed interest rate on the funds you put in. This means that in as little as 12 months, you’ll earn predictable growth on your investments, which you can then put towards those short-term goals. If you choose a longer term, those investments will have time to grow and mature.
Goals: pay off student loans and/or high-interest credit cards…
Action—low-interest line of credit: In the early years of your career, you might only be making the minimum payments on your cards and loans, which can ultimately make it feel like you’ll never have that debt paid off. By consolidating all of your high-interest loans and credit cards, you’d be surprised how much interest you’ll be saving each month—and how much faster you’ll have all that debt paid off.
Timeline: 5 to 10 years
Goals: home renovations, international travelling in the summer…
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 now put away $6,500 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, simply draw from those earnings, tax-free. It’s definitely a win-win short or long-term investment option. Also keep in mind that with a TFSA, past annual limits accumulate, so if you haven’t contributed the maximum in in prior years, those amounts are added to your annual limit.
Timeline: 10 to 15 years
Goal: save for kids’ education…
Action—RESP (Registered Education Savings Plan): In addition to tax-deferred growth on your RESP, you can also capitalize on the Canadian Education Savings Grant (CESG) where you will earn 20% on every dollar you contribute annually—up to the amount of $500 on a $2,500 contribution, per child.
Goal: take a 4 over 5…
Actions—PAC, TFSA: Keep those Pre-Authorized Contributions coming out of your account, and continue to top up your Tax-Free Saving Account every January. Before you know it you’ll be enjoying that year off, just the way you want to spend it.
Timeline: 20 to 25 years
Goals: bid ‘adieu’ to school (aka: retire early), pay off mortgage…
Action—RRSP, TFSA, Accelerated Mortgage Payments: If you want to retire early AND be debt-free by the time you hear that last school bell, there’s a combination of things you could be doing now to set yourself up for a comfortable life in your ‘after school’ years. Sure, you’ll have your pension to rely on and that’s definite peace of mind. However, your pension income will only be a percentage of what you made while you were working.
If you’re accustomed to a certain kind of lifestyle, or if you have dreams of travelling the world or checking off all the items on your bucket list, you may want to have additional income to draw upon in your retirement. This is where maximizing your Registered Retirement Savings Plan (RRSP) and TFSA contributions over the years will provide you with that extra source of income to complement what you get from your pension. Of course, the best start to any retirement is one that starts free of debt. So in your higher earning years, consider accelerating your mortgage payments so that by the time you retire, you’ll be mortgage-free—giving you true financial freedom to enjoy retirement the way you want.
Of course the best way to put YOUR financial plan into motion is to get expert, educator-specific advice. Click here to have one of our financial specialists contact you.
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