Saving for long-term goals

Long-term financial goals: What are they and how to save for them?

Your financial goals are personal. Ask yourself: will I need this money less than three years from now? If your answer is no, then you’re likely thinking about a long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition goal. Saving for your child’s education or for your own retirement are two common long-term savings goals.

It’s important to define your goals — short or long-term — so you can choose the best approach to meet them. If you have multiple goals, narrow them down to a top three, and put them in order of priority.

Big financial goals don’t have a one-size-fits-all approach, so be realistic about what’s most important for your situation.

Consider the difference between saving versus investing. The potential for higher returns often makes investing a good choice for long-term goals. The accessibility of savings accounts can be better for short-term goals.

The advantage of time for financial goals

Whatever your goal may be, the sooner you start putting aside savings, the longer your time horizon will be. This is an important part of choosing the right investments to meet your goal.

If you’re investing for the short term, you may want to choose investments that guarantee your return, so your money is there when you need it.

If you’re investing for the long term, you may choose to take on a higher level of risk which can potentially yieldYield Your yearly return on an investment. It’s often stated as a percentage, such as 5%. With stocks, yield can be your yearly income from dividends. With bonds, it’s the interest you get.+ read full definition a higher return. But with higher-risk investments, there may also be a greater chance you could lose some or all of your money.

The key is knowing what kind of investor you are and creating an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition plan that is appropriate for you.

How to save for long-term goals

1. Know how much you need to save. Whether you’re saving for the vacation of a lifetime or a down paymentDown payment The money you put into buying a large item like a car or home.+ read full definition on your first home, you need a dollar amount to aim for. This goal number can also change if your circumstances change, or if conditions such as inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition or market conditions alter prices.
2. Check your budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition for how much you can save each month. If you have multiple savings goals, consider how much you can put aside for each. Know your priorities so that if you can’t meet every goal each month, you’ll know which ones to stick with no matter what.
3. Check for benefits and government help available. In Canada, we have many federal programs available to support saving and assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition building for the future. Some require you to make some contributions of your own, which can be a great way to start saving without taking too much out of your budget.

Are you saving for education? The Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) will help you save for your child’s education, within a Registered Education Savings PlanRegistered Education Savings Plan A savings plan that helps you save for a child’s post-secondary education. The money that you save in the plan grows tax-free.+ read full definition (RESP)

Are you saving while living with a disability? The Canada Disability Savings Grant (CDSB) and Canada Disability Savings BondCanada disability savings bond The federal government makes contributions to an RDSP. To be eligible for bonds, net family income has to be below a certain level. You do not need to make any contributions to your RDSP to receive the Bond. The maximum bond per year is $1,000, until the end of the year the beneficiary turns 49,…+ read full definition (CDSB) will help you save for the future within a Registered Disability Savings PlanRegistered Disability Savings Plan A savings plan that allows people with disabilities and their families to save for the future. Government grants add to your savings and your investments grow tax-free.+ read full definition (RDSP)

Are you saving for retirement? Both the Registered Retirement Savings PlanRegistered Retirement Savings Plan A plan that lets you save for retirement while lowering your income taxes. You choose how you want to invest your savings. You don’t pay tax on any money in your account until you take it out.+ read full definition (RRSPRRSP See Registered Retirement Savings Plan.+ read full definition) and the Tax-Free Savings AccountTax-Free Savings Account A Tax-Free Savings Account (TFSA) is a registered savings account that provides tax benefits. In most cases, investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn. There are annual contribution limits but you can carry forward any unused contribution room from previous years.+ read full definition (TFSATFSA See Tax-Free Savings Account.+ read full definition) can be used for retirement savings goals. See which one is right for you.

4. Consider paying down debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition. Saving versus paying down debt doesn’t always need to be an either/or situation. One of the main things to consider is how much interest you are paying on your debt, compared to the interest accumulated from your savings. If you continue to carry high interest debt, you might be better off paying down the debt before increasing your savings or investment contributions.
5. Speak with an advisor for additional support. A financial advisor can help you choose the savings or investment vehicles that are right for your situation. To make the most  of your conversations, prepare to talk about your goals, your level of risk tolerance, and how often you’d like to meet.