Retirement & Savings

Automate Your Savings

With an automated savings plan, you can automatically withdraw a specific amount of money from your bank account and deposit it directly into a  savings or investment account. You can decide how frequently you want to make a deposit – once a month, biweekly, weekly – whatever works for you!

Many people set up an automated savings plan so each time they get paid, a certain portion is automatically deposited into a savings or investment account.

Why automate your savings?

The behavior of active saving is a key contributor to good financial-well being1.  You can think of your financial well-being as a measure of how financially secure you feel. If you have a healthy sense of financial well-being, you feel confident that you can meet your financial commitments. You feel like you can handle any unexpected financial obstacles, now and in the future.

Financial well-being is not about how much money you make, instead, it’s about having control over your finances and feeling like you can meet the goals you’ve established for yourself.

If you don’t have savings and investments or a plan for how you want to meet your financial goals, you may feel a lack of financial well-being. A lack of financial well-being can affect your overall contentment and is associated with higher levels of stress and a lower quality of mental and physical health.

Automated saving and the “pay yourself first” strategy

There are many names to describe the strategy of automated savings, including:

  • Regular savings plan or investment plan
  • Systematic savings or investment plan
  • Automatic savings plan
  • Pre-authorized transfers
  • Pre-authorized deposits
  • Pre-authorized purchase plan
  • Continuous savings plan

 

It’s a lot of different names to describe the same thing – automatically setting aside money at regular intervals to save and grow your wealth. If you want to maximize your savings through automation, you can consider implementing the “pay yourself first” strategy.

This strategy proposes that you put a portion of your income into savings before you do anything else. Before you pay your bills, buy your groceries, or put gas in your car. Think of it as “reverse budgeting.” With traditional budgeting you pay your bills first. Then, any leftover money can go towards saving and investing. The pay yourself first strategy turns budgeting on its head, putting your savings for the goals that matter to you ahead of expenses.

This strategy is often very effective because, by automating the savings process, you are removing the effort associated with saving as well as the temptation to skip a payment and splurge on something else. Plus, once you’re saving enough automatically to reach your goals you’ll get more joy out of spending the rest, worry free!

The benefits of automating your savings

According to a recent report from Stats Canada, more Canadians are struggling to save money 2. Savings in households across all age groups have decreased since the easing of pandemic restrictions with middle-income households and households with seniors seeing the largest dips.

One way Canadians can boost their savings is by implementing the pay yourself first strategy and then automating the process. There are several benefits associated with automation which is why it works.

  • Reduces decision fatigue. Decision fatigue describes how people tend to get worse at making decisions when they feel overwhelmed by too many choices. The average person can only handle so many decisions before their decision-making ability begins to disintegrate. This is the reason why people like Steve Jobs opted to wear the same outfit each day. It helped to eliminate one decision from their day. When you automate, you eliminate a decision – to save or not to save. Once you decide to set up auto-save and go through the initial process, that’s it. You set it and forget it (of course with the odd check-in to ensure things are running smoothly).
  • Dollar-cost averaging. When you set up automatic savings, you can also implement dollar-cost averaging. Many investors use this strategy to minimize risk by investing equal dollar amounts at regular intervals (once per month, bimonthly etc.). This is a good way to ease into investing and can be a beneficial strategy to get your money working for you as soon as possible, and at the same time benefit from “averaging” the cost of investing over time .
  • Compound growth. If you start saving early and consistently, you can take advantage of compound growth. Auto-saving takes the effort out of compounding by automatically investing your money at regular intervals.

How do we use automated savings at CI Direct Investing?

At CI Direct Investing, we can help you understand how much you should save to achieve your goals, and where you should save it (e.g., TFSA, RRSP, Savings, etc.). You can also schedule recurring deposits from your CI Direct Investing Dashboard, which can be invested into a diversified portfolio that’s right for you.

Talk to a CI Direct Investing financial planner for help understanding how much you should be regularly saving to reach your goals.

 

1 Government of Canada. “Financial well-being in Canada: Survey Results.”

2 Statistics Canada. “Distributions of household economic accounts for income consumption and saving of Canadian households, fourth quarter.”