How paying yourself first can help you reach your financial goals faster

Looking for an easy and convenient way to start building up your savings for your short- and long-term goals? With Pre-Authorized Contributions (PACs), you choose the amount you’d like to contribute, and how often – for instance weekly, biweekly or monthly.

The beauty of a PAC is that it’s automatic. Once it’s set up, you’ll be saving money without even thinking about it.

Even small amounts saved regularly can add up over time. When your cash flow improves, you can then decide how much you can increase your contribution. 

When it comes to saving, it’s sometimes easy to get sidetracked. A PAC allows you to make saving priority number one by ensuring you never forget to make a contribution.

With a PAC you’ll save automatically for your RRSP – all year round – and avoid the stress of meeting the RRSP contribution deadline and making a yearly lump-sum contribution.

Time is your biggest ally when it comes to saving. Saving over a longer period of time allows your money more time to grow and to benefit from compound growth.

When it comes to saving for retirement in particular, generally the earlier you start, the better off you’ll be, thanks to the power of compound growth. Saving for the long-term (e.g. for retirement) continues to be the leading financial priority for Canadians.¹

Let’s take a look at how Compound Growth works

Research has shown that investing on a regular basis is much more effective than trying to “time the markets” – especially during periods of volatility. 

With a PAC, you determine what you can afford to save. Get started with as little as $25 per month.

Setting up automatic contributions helps put you on the path to achieving your savings goals, but it’s easy to forget to adjust your plan as your financial circumstances change. It’s a good idea to revisit your PAC contributions on a regular basis – especially after major changes, like paying off student debt or landing a promotion. While it’s tempting to just set it and forget it, you’ll be amazed by how much more you can save by increasing your contributions – even a little.

In the graph below, we look at an investor who contributes $200 monthly for 15 years versus the same investor increasing their monthly contribution by just $25 each year.

Changing your contribution from a monthly basis to bi-weekly can be beneficial. You may be making bi-weekly mortgage payments. Do the same with your savings. It’s a small change, but the benefits can add up.  

The example below highlights the savings advantage provided by switching to bi-weekly contributions over a 20-year period. 

Market swings often make it difficult for investors to determine exactly when to invest – especially when trying to invest one lump sum each year. However, with PACs you can invest a fixed-dollar amount at regularly scheduled intervals.  By contributing on a regular basis, you take advantage of the market dips by purchasing more mutual fund units when your dollar goes farther and in turn, lowering your average cost.

The graph below illustrates regular monthly contributions of $250 at the beginning of each month. As the mutual fund unit price fluctuates from month to month, the quantity of units purchased also changes (when the unit price is lower, more fund units are purchased; when the unit price is higher, less fund units are purchased). 

Investing on a regular basis through pre-authorized contributions is a great way to build your savings easily and automatically.

As you set out on the path to saving and investing, you’ll need to determine which products and/or investment strategies are right for you and your financial situation.

To determine the most appropriate savings and investing options, begin by asking yourself these three key questions:

• What are you saving or investing for?
• What is your time horizon to reach your goal?
• What is your risk tolerance?

Your Scotiabank advisor can help you determine which accounts or investments will help you achieve your short- and long-term savings goals.

Try our interactive PAC calculator to see how your savings can grow.