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FINANCIALLY AESTHETIC · GUIDE 04/37
GOALS, AUTOMATION & THE MONTHLY MONEY REVIEW
FA-1.4 · The Money Operating System
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START HERE
Goals stay vague until they have a number, a date and a recurring action.
Setting Financial Goals
Savings and investments can help you achieve your financial goals. It’s a good idea to write down your goals.
To find the investments and investments that are right for you:
- Set your goals, such as savings for retirement or a down payment on a home, and prioritize them
- Set a specific dollar amount for each goal
- Set a timeline for achieving your goals
As your life changes, so do your financial goals. Review your savings and investment plans regularly.
Remember that it’s usually best to pay off your debts first, because the interest you pay on those debts is generally higher than the returns your investments generate.
Determine your short- and long-term goals. Incorporate savings into your budget to work toward these goals.
Here are some examples of goals:
Short-term goals:
- Repay your credit card
- reduce your weekly expenses
- Start building an emergency fund
Long-term goals:
- Repay all your debts
- save to buy a house or a car
- save for having children, going to school, or retiring
Time Horizons and Their Impact on Planning
Your goals may be:
- short term (2 years or less)
- medium term (3 to 5 years)
- long term (6 years or more)
The time you have to reach your goals can influence how you save and invest.
If you’re saving for an emergency fund or a major purchase within the next year or two, you can focus on your savings. The goal is to protect your money while keeping it easily accessible.
Short-term savings and investments:
- savings accounts
- short term deposits
- short term guaranteed investment certificates (GICs)
- cashable savings bonds
Ask your financial institution or financial advisor about the different types of short-term investments they offer and how they work.
For the long term, investment options include bonds, such as Canada Savings Bonds, mutual funds, index funds, stocks, long-term deposits, and guaranteed investment certificates (GICs). Note that some investments are complex and involve risks. Talk to an investment professional or financial advisor to find the investments that are right for you.
Long-term savings options include the Registered Retirement Savings Plan (RRSP), the Registered Education Savings Plan (RESP), the Registered Disability Savings Plan (RDSP), and the Tax-Free Savings Account (TFSA).
Many investments offer the potential for higher rates of return but carry a certain risk level. This risk becomes more acceptable if your goals are long term, since you have more time to recover from any financial losses.
Your level of risk tolerance depends on your emotional willingness to accept risk and your financial ability to absorb losses. This is known as risk tolerance or risk appetite.
Turning Goals into Automatic Savings
Choose the savings amount, the date, and the frequency at which you want to save. Then set up an automatic transfer from your checking account to your savings account.
You can set up an automatic transfer on payday. That way, the savings amount will be transferred as soon as your paycheck is deposited into your account.
Make it a habit by incorporating savings into your daily routine. Try these tips:
- Put your loose change in a jar when you get home
- Set up a savings reminder on your smartphone or computer
- circle your savings dates on a calendar in advance
- Stick notes on your desk, mirror, or fridge to remind yourself to save
Setting up monthly payments allows you to spread out your various one-time expenses (taxes, gas and water bills, insurance contributions, etc.) by dividing them into monthly installment payments. You enter into a contract with the company or government agency, and your money is automatically deducted each month on a set date. This helps ensure you don’t forget to pay! Keep in mind that you can stop this payment method at any time.
When a large payment is coming up, be sure to set aside a portion of the amount each month so you’ll have it available when you need to pay it. Pay all your fixed expenses on time. Otherwise, take the initiative to discuss the issue with your creditor or banker.
Be careful: if you take out credit - in any form - don’t forget to include the repayments as a new fixed expense, and adjust your other expenses accordingly if necessary.
Cut expenses from your budget and add those amounts to your emergency fund. Your current budget won’t be affected, and your emergency fund will grow faster.
Take advantage of every opportunity to boost your emergency fund. Deposit extra money into your savings account whenever possible. For example, you might have extra money when:
- you receive a tax refund
- you receive a wage increase
- you sell something (such as a car, jewelry, or furniture)
- you receive money as a gift
- you receive a cash bonus for labour
When you’ve finished paying off any type of loan, this is a great opportunity to boost your emergency fund. Take the amount that was set aside for your monthly payment and deposit it into your savings account. These payments are already part of your budget, so why not put them to good use?
What Automation Can’t Replace
Remember that the account used for automated savings must remain suited to its purpose: your account should be separate from your everyday checking account, have no transaction fees, impose no penalties for withdrawals, and offer interest on your savings. Contact your financial institution to find out about the different accounts available to you. Make sure this account will help you reach your goal of building an emergency fund.
It’s best to start with a small amount so you don’t get discouraged. Begin by determining how much you can set aside each week. Whether it’s $50, $20, $5, or a few coins, the important thing is to start now.
Review your financial goals regularly. Your family, personal, or professional situation can change quickly, and this can affect your budget. Even minor changes can impact how long it will take you to reach your savings goal.
These changes may include:
- the arrival of a newborn ( not that lol )
- buying a new home
- an increase in your property taxes
- a rise in electricity costs
When these events occur, you need to adjust your budget accordingly so that your emergency fund remains a priority.
Keep Proof of Payments
This basic rule is often overlooked. However, by keeping your receipts, bank card statements, and carefully filling out your check stubs, you’ll always be able to verify that you haven’t been charged for anything in error. If you have any doubts or can’t remember an expense listed on your account statement, you should be able to find it among these documents. If not, you’ll be able to dispute the charge with confidence. Finally, by keeping these documents, you’ll have a clearer picture of the expenses you’ve already incurred, which will help you determine in advance whether you can afford a purchase or not.
Don’t forget that your smartphone often has budgeting apps, which are very useful and often very well designed. These apps, offered by traditional banks or fintechs, are numerous and varied. And since many customers use multiple banks, today’s apps usually provide a clear and instant overview of all their accounts from a single app.
The Monthly Review: Comparing Projections with Actual Results
Now that you have a budget, try to stick to it and improve it as you go.
To help you, try the following:
- Keep all your receipts and bills
- Limit your expenses as much as possible to what’s in your budget
- Update your budget with any changes, such as a wage increase or a lower bill
- Compare your budget to your actual expenses at the end of each month
Review your budget from time to time. If your actual spending often differs from your budget, adjust your figures to make them more realistic.
Once you’ve completed this exercise, you can “save” your projected budget or print it out, and track your progress month by month.
When comparing your budget to your actual spending, ask yourself the following questions:
- Are there significant differences between your actual spending and your budget?
- In which categories are the discrepancies the largest?
- Are these discrepancies due to an unexpected event, or do they pose a risk of recurring every month?
- Are you saving enough money to reach your financial goals or repay your debts?
Continue this exercise every month. You can set a reminder or block off time in your calendar to review your budget regularly. If you make this a habit, you’ll be more likely to stay on track.
Assess and Adjust After a Bad Month or a Life Change
The results section provides insights into average expenses. These averages show what Canadians typically spend or save in each budget category - such as food, housing, clothing, and insurance.
Take a look at the different alerts you receive for each category:
- green thumbs-up: this amount is within the average
- yellow warning sign: this amount is slightly above average
- red hand alert: this amount is above average
These alerts will help you determine which categories to focus on and which costs you might try to reduce. Everyone’s situation is different, and these guidelines may not apply to everyone. However, they are a good starting point.
In the “Next Steps” section, the tool provides personalized suggestions based on your situation and the information you entered in your budget. These suggestions help you determine your next steps, whether you have money left over or have incurred too many expenses.
Before using all or part of your emergency fund, first determine whether you’re actually facing an emergency. Perhaps this expense can wait until you’ve had a chance to save the required amount.
If you’re not sure, go back to your list of needs and wants. An emergency is a major, sudden need that isn’t part of your current budget and wasn’t planned for.
When it comes to an emergency, don't hesitate to use your emergency fund. The purpose of the emergency fund is to keep you from having to resort to expensive credit options.
Although your emergency fund should always be easily accessible, don’t be tempted by its balance. Leave it untouched for a true emergency.
SYSTEM CHECK
Automate the useful defaults, then run a short monthly review instead of relying on motivation.
- Investor.gov - Savings Goal Calculator - United States - goal planning.
- CFPB - Your Money, Your Goals toolkit - United States - consumer financial education.
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