Does your bank account look a little thin after you pay all your bills? You’re far from alone. The Canadian household savings rate has been falling for the last 40 years, and the pace of the decline has been accelerating over the last decade.
If you’re one of the many Canadians who aren’t meeting their savings goals, the new year can be a great time to re-evaluate and re-establish your financial targets, especially with the upcoming RRSP season. Goals-based planning involves developing your savings strategy for specific reasons. Setting goals and working towards them over time can be an ideal way to fulfill your life’s milestones.
The power of goals-based planning
Goals-based planning starts with understanding what you want to achieve with your money over the short and long term. More immediate goals can include building emergency savings or enough for a new car or a down payment on a house. Longer-term, you may be looking to fund a child’s post-secondary education or planning for retirement.
Recognizing that no two goals have identical importance or timeframes, goals-based planning assigns a different savings and investment strategy to each, setting you up for greater success in accomplishing individual objectives.
Balancing multiple goals
Once you’ve identified your goals, you may discover that you have competing financial priorities that will force you to save for short-term and long-term goals at the same time.
Tailoring a savings and investment strategy specific to each goal allows you to incorporate your life events while remaining flexible enough to accommodate new developments, such as an inheritance or unplanned interruption in your career. The challenge is to have a holistic view of your goals so that you save strategically for all of your goals.
For greater clarity and structure to your plan, bucket your goals by priority and time horizon. This will eliminate any guesswork and help you understand the order of your goals and when you’ll complete them. Dividing your monthly savings amount across your various goal buckets to convert them into percentages can also help you visualize where your money is going.
Another proven and straightforward way to meet your goals is to pay yourself first through a regular savings plan. Use autopay for recurring bills and direct deposit for savings and other investment accounts that coincide with your pay periods. These approaches will not only help you reach your goals faster, but they can also help you avoid the temptation to spend money because it won’t just be sitting in your account.
Revisit your plan at least annually
A good financial plan isn’t a set-it-and-forget-it exercise. It should be one that you return to that includes flexible and realistic time horizons for realizing your goals.
A plan that’s outdated or doesn’t reflect your current life circumstances makes it harder to get ahead. It needs to be accurate and adaptable to account for unplanned transitions in your life, such as those triggered by a death, illness or unemployment, which can potentially derail your strategy.
Financial plans are important and need to be reviewed regularly. If you wait too long to re-assess your plan and its underlying goals, you may find it more challenging to make the necessary changes to stay on track.
Your accountability partner
Part of being a Financial Advisor is helping you define your goals, organize your finances and make decisions about your money as efficiently as possible. From tackling debt and building an emergency fund to managing your investments, we can work together to implement your financial plan. Ultimately, my role is to ensure you meet your many and diverse goals and enjoy the future you envision for yourself.
Contact our office today to talk about achieving greater financial well-being through financial goal-setting. The upcoming March 2 deadline for Registered Retirement Savings Plan (RRSP) contributions offers an opportunity to put that goal-setting into action.