Pay Yourself First
One of the key rules of investing is to "pay yourself first." Unfortunately, it's a rule that many of us repeatedly ignore. Fortunately, though, there is a simple and effective solution to this problem.
Any disciplined investment program begins with savings and the key to reserving money for your future is to view those savings as an expense. This means that you must put aside a pre-determined amount of money each month to pay yourself. These funds become a regular expense like rent, mortgage payments or bills. How do you do this? Consider setting up a Pre-Authorized Chequing (PAC) plan.
With a PAC plan, a predetermined amount of money is automatically transferred from your chequing account to any one of your investment accounts. The minimum amount may vary from as little as $50 to $250 and you can increase this amount at your convenience. Most withdrawals can be initiated monthly, quarterly or semi-annually. They can be debited from your chequing account on either the middle or last business day of the chosen interval.
One of the most common applications of the PAC plan is to facilitate RRSP contributions. Many investors struggle every year around the RRSP deadline to come up with a lump-sum contribution. However, with a PAC plan, you can contribute smaller, more manageable sums throughout the year. And because it's important to make your maximum contribution each year, the PAC plan can make that goal more achievable.
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