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How to make your money work as hard as it can

HISAs, GICs, TFSAs, PACs—there are enough financial products out there they could make up their own word scramble puzzle. While most Canadians are interested in increasing their financial stability, the exact way to go about it can seem complicated. Those with little in the way of savings might feel like they don’t have anything to leverage, while others may be unsure about the best way to manage what they have. According to an annual study by Pollara Strategic Insights, there seems to be another component—age: Millennials are more likely to hold savings in cash (57%), compared to Gen Xers and Boomers who are more likely to put their savings into investment products (54% and 64%, respectively) so it can grow.

The good news is, no matter who you are—from a student just starting out to a salaried professional—it just takes a few simple steps to gain financial control and grow your funds. Here are some smart money moves in the areas of spending, saving, and investing to help you do that:

Spending smart: Evaluate your relationship with credit

Everybody spends, but not everybody spends right. Before you open your wallet, you’ll want to have a spending plan in place that maximizes your buying power while minimizing—or better yet, eliminating—your interest payments. “Put down the credit card,” advises Colleen Ciccozzi, Senior Manager of Wealth Management for Coast Capital. “If you carry any credit card debt at all, paying it down should be your first priority. The interest payments are astronomical for most cards and will far outweigh any benefits.”

The average Canadian holds between $4,000 and $5,000 in credit card debt. At a typical interest rate of 20%, they could be paying between $66 and $83 each and every month. That said, if you’re able to pay your balance in full every month, some credit cards, like cashback or rewards cards, can actually benefit your bottom line.

Robb Engen is a fee-only financial planner and blogger at Boomer & Echo, a personal finance blog that helps Canadians find financial freedom. “I like using a cashback credit card for my everyday spending to get 1% to 2% back on my purchases.” Like Ciccozzi, Engen stresses the importance of paying off your balance in full. But he adds that many Canadians use debit cards for purchases, and this can end up costing you money if there are fees attached. With cashback cards, “I can earn some cashback on spending I was going to do anyway while avoiding unnecessary fees that may come with excessive debit use or ATM cash withdrawals.”

Saving smart: Leverage your funds

Especially in times of uncertainty, it can be tempting to protect your savings by putting it into a no-risk savings account. But there’s a problem—these accounts offer very low-interest rates, often less than 1%. This means that while your money is safe, it’s not working as hard as it could be. Instead of parking your money in a regular chequing or savings account, consider these strategies.

  • Guaranteed investment certificates (GICs): These products are term investments, meaning that you deposit your money for a certain amount of time (this can range from one month to ten or more years) in exchange for a higher interest rate, payable when the term matures. “If you’re looking to improve your interest earnings without risking your savings, a GIC is a good choice,” says Colleen Ciccozzi, since the word ‘guarantee’ in GIC means that your principal deposit is safe.
  • High-interest savings accounts (HISAs): As the name suggests, a high-interest savings account is a savings account that offers a higher interest rate than one you might have with your bank. “A good rule for any savings needed within three years, like education, a house down payment, or a new vehicle, is to keep it in a high-interest savings account,” says Engen. HISAs are safe and flexible, allowing you to withdraw without penalty at any time. “Rates may not be great right now, but earning even 0.1% interest is better than earning 0.0%,” says Ciccozzi.
  • Pre-authorized credits (PACs): Sometimes figuring out how and where to put extra cash away is itself the problem. Enter pre-authorized payments. PACs are simply certain amounts of money (as small or as large as you like) that are transferred into your account regularly. By automating the process, you can remove the guesswork and ensure you’re not missing out on the opportunity to earn interest.

Investing smart: Balance risk and reward

One of the best ways to put your money to work is by investing it. But not everyone has the funds (or the fortitude) for the stock market. Luckily, there are ways to invest for all timelines, purposes, and levels of risk aversion. Here are an array of financial strategies for building your hard-earned cash:

  • Tax-free savings accounts (TFSAs): TFSAs come in the form of GICs, savings accounts, and also as investment accounts. The key is that however you choose to invest in your TFSA, you will pay no tax on the interest you earn. “This is a terrific option for an emergency fund because you can usually take money out of this account without penalty,” says Ciccozzi. The only caveat is that you have to keep track of your deposits and not exceed your yearly contribution limit.
  • Mutual funds: This type of product is considered a less risky investment path than individual stocks because your portfolio—and so, your risk—is diversified. Mutual funds are a good choice particularly if you’re able to leave your money alone for a long period of time. If you have some hesitation, also keep in mind: While the markets always fluctuate, they always also bounce back.
  • Rounding-up apps: If you’ve ever saved change in a jar you understand the thinking behind a rounding-up app. When you make a purchase, the app automatically rounds up your change to the nearest denomination and deposits it into an account of your choice. You can choose $1, $2, $5, and so forth, according to your comfort level. You might not miss the 67 cents change from your espresso but a month’s worth will add up quickly—and earn interest. While it may seem low stakes, sometimes the smallest moves can make the biggest impacts.
  • Financial advisors—and robo-advisors: Speaking with a financial advisor can be a good idea, particularly if you have financial goals on several different time horizons. You can book an appointment with one through your financial institution to hammer out a solid, actionable plan. If you’re not ready for a human or just can’t put your phone down, digital robo-advisors offer financial insights based on math and algorithms and are helpful to both new and seasoned investors, and particularly once your investment vehicles have been selected. “I’m a big fan of what robo-advisors have done for investors because they combine technology with evidence-based investing practices to give investors a low-cost, globally diversified, and automatically rebalancing portfolio,” says Engen.

Stay on course for building your future

Your salary, or how much money you earn, will only take you so far. The good news is finding a little extra is now within your reach. All your money goals—from having a bit of pocket change to funding your retirement—are possible when you use the tools at your disposal to effectively spend, save, and invest.

Talk to a Coast Capital Financial Advisor to better understand all of your investment options.

 

The stuff we have to say

Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan, and mortgage products. Coast Capital Wealth Management Ltd. provides investment and financial planning services. Worldsource Financial Management Inc. provides advice and service relating to mutual funds.

Mutual funds are not guaranteed or insured by any financial institution, government, or other deposit insurer. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees, and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.

The views expressed here are those of the authors and writers only and not necessarily those of Worldsource Financial Management Inc. The information is for general information purposes only and is believed to be accurate, however, no warranty can be made as to its accuracy or completeness. This information is not intended to provide specific personalized investment, financial, legal, accounting, or tax advice. Please contact us to discuss your particular circumstances. It may also include forward-looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate.

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