Pay yourself first. You may have heard this widely used personal finance mantra before, and for good reason.
This strategy involves saving a portion of your income on a regular, automatic basis. Integrating a “self-payment routine” into your budget, alongside your other necessary expenses – like your phone bill or buying groceries – can set you up for success.
1Investing regularly allows you to invest smaller amounts on an ongoing basis, which is easier on the wallet compared to the alternative of coming up with a large lump-sum investment at some later date.
2By making the contributions automatic, you’ll soon find you don’t miss those few dollars a month but you’ll really start to see the savings add up over time.
|Monthly contribution amount|
|Number of years invested||$50||$100||$250||$500|
Assumes a 4% annualized rate of return.
Source: RBC Global Asset Management Inc.
The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on investment in the mutual fund. Actual results may vary.
The term “dollar cost averaging” refers to what happens when you invest a fixed amount at regular intervals regardless of market performance. When markets are down, you automatically take advantage of the opportunity to buy more units of your investment at a lower price. When markets are doing well, the money you’ve already invested is benefiting from that performance. The discipline of paying yourself first puts the power of dollar cost averaging to work for you and can limit the impact of emotional investing during periods of market volatility.
The easiest way to get started is to establish regular, automatic contributions. Work with an advisor to determine how much you need to pay yourself each month to achieve your long-term goals.