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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-term 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 yield 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 investment plan that is appropriate for you.
How to save for long-term goals
- Know how much you need to save. Whether you’re saving for the vacation of a lifetime or a down payment 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 inflation or market conditions alter prices.
- Check your budget 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.
- Check for benefits and government help available. In Canada, we have many federal programs available to support saving and asset 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 Plan (RESP)
Are you saving while living with a disability? The Canada Disability Savings Grant (CDSB) and Canada Disability Savings Bond (CDSB) will help you save for the future within a Registered Disability Savings Plan (RDSP)
Are you saving for retirement? Both the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) can be used for retirement savings goals. See which one is right for you.
- Consider paying down debt. 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.
- 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.
