You know it’s important to save regularly to help meet your investment goals. The more frequently you save, the more you’ll have in the end.
That’s the power of compound interest. With competing financial priorities, your best intentions to fit saving into your financial security plan can get railroaded.
A pre-authorized contribution (PAC) plan can help take some of the worry out of saving, allowing you to contribute regularly to your investments, directly from your bank account. It’s the idea of “paying yourself first” by treating saving like any bill or re-occurring payment.
This strategy is more effective because increasing the frequency of saving enhances the advantages of dollar-cost averaging. You can further accelerate your savings by including an additional option to your PAC that allows you to automatically increase your payment amount annually – either by a specific dollar amount or a percentage.
This is a convenient way to ensure your savings progress isn’t eroded by inflation. With RRSP’s, consider how a PAC can help take your savings to the next level. Say you currently invest $400 each month. After 20 years, the $400 monthly contribution would grow to $181,222, assuming a fixed rate of six per cent. However, if you saved $100 each week and increased that by 2.5 per cent per year – so the next year you would save $102.50 a week – at the same annual fixed rate, your savings would grow to $239,621.
Pre-authorized contribution plans are a simple and easy way to save for your future.
Your financial professional can help you to determine which PAC options and contribution schedules may work best for you.