How Do I Make the Most of the Money I've Saved?
Whether you have quite a bit of money saved up, are just starting to save, or are somewhere in between, optimizing the way you save can be the key to accelerating the success of your financial goals.
If you’re already investing and consistently saving towards your goals, you’re on a great path to reaching them. But maybe there are ways you’re looking to save more money, and achieve a return on your investments that you’re comfortable with. Or if you’re just beginning to invest, you might be wondering how you can start by maximizing every dollar you save.
Here are four tips to help you make the most of your savings, whether you’re a seasoned investor or are new to the practice.
Keep costs low
If you haven’t done so recently, look at your investment fee statement. How much are you paying in fees? Of course, there are some costs to investing. But how do you know when you’re paying too much? In Canada, we have some of the highest mutual fund fees in the world coming in at 2-3%. Don’t think 2% is much in the grand scheme of things? That’s $20,000 for a $1-million account a year. By shaving 1% off your investment fees, you could save a significant amount of money and put those funds back into your savings. If you’re evaluating different investment options, look for one that keeps fees low, and is transparent about costs.
Choose the right account…
…and take advantage of government programs for registered education savings plans (RESPs) and registered disability savings plans (RDSPs), and tax-favoured accounts like registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs).
Investing in the right account for your situation and goals will help you further your savings, and help you reach those goals more effectively. For example, if you’re saving for your child’s education, using an RESP gives you access to an annual grant of up to 20% of your contributions, and up to lifetime maximum of $7,200 per child. Or if you know you’ll be making a large purchase, like buying your first home, taking advantage of a TFSA is a flexible way to grow your money tax-free, as you can withdraw your savings at any time, for any reason, without paying a penalty.
Take the right amount of risk
Risk is essential to the world of investing. Whether you’re comfortable with a high-risk, high-reward approach, or choose to err on the conservative side, it’s important to understand how risk fits into your portfolio, and that the risk you assume reflects your time horizon. For example, if you’re looking at a long-term goal, like saving for your retirement in 25 years, you can afford to take on more risk as you won’t need to access your savings for a while. However, if you’re saving for a goal that’s only a few years away, like a wedding, you’ll likely take less risk as you’ll need to access those funds sooner, and can’t handle as much volatility. Taking on the right amount of risk will help you maximize your savings, but it’s important to understand what your risk tolerance and appetite are, and how they relate to your goals.
Don’t track it every day
Ignore the headlines about the most recent global event and remember your goals are long-term. The market will go up and down, and we can’t predict how other investors will react to changes in the economy. What we can do is keep our eyes on the horizon and remember that we’re investing for the long-term, so some short-term volatility is expected.
It’s important to keep in mind that consistently paying into your goals is the best way to ensure you’ll reach them, but there are things you can do to optimize the way you save. Follow these tips and track your progress towards your goals, and you’ll be headed right for the finish line.
Josh Miszk is the vice president of investments at Invisor, an online financial advisor in Canada that provides personalized investment management and insurance services.
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