Think about your financial goals
Saving and investing can help you reach your financial goals. Writing goals down is a good idea.
To figure out what savings and investments are right for you:
- identify and prioritize your goals, such as saving for retirement or a down payment for a house
- set a dollar amount for each goal
- set a timeframe to reach your goals
As you get older, your financial goals will change. Review your savings and investing plans from time to time.
Keep in mind you're generally better off paying down debt first. This is because the interest you pay on debt is usually more than what you can earn by investing.
To help you get started, fill out the investment goals worksheet.
Get tips on managing your debt.
Set a date to reach your goals
Your goals may be:
- short-term (2 years or less)
- medium-term (3 to 5 years)
- long-term (6 years or more)
The amount of time you have to achieve your goals can affect how you plan to save and invest.
Save and invest for the short term
If you're saving for an emergency fund or a major purchase within a year or two, your focus will be on building your savings. You'll want to keep your money protected and easily accessible.
Short-term savings and investment options
- savings accounts
- short-term deposits
- short-term guaranteed investment certificates (GICs)
- cashable savings bonds
Ask your financial institution or advisor about the different types of short-term investments they offer and how they work.
Save and invest for the long term
If you’re putting money away for a long-term goal, such as your retirement or your child's education, you may want to consider a broader range of investment types.
Longer-term investment options
- bonds, such as Canada Savings Bonds
- mutual funds
- index-linked deposits
- stocks
- long-term deposits
- long-term guaranteed investment certificates (GICs)
Keep in mind that some investments are complex and can be risky. Talk to an investment professional or financial advisor to find the investment that is right for you.
Longer-term savings options
- Registered retirement savings plans (RRSPs)
- Registered education savings plans (RESPs)
- Registered disability savings plans (RDSPs)
- Tax-free savings accounts (TFSAs)
Figure out your comfort with risk
Many investments offer the potential for a higher rate of return but also involve some level of risk. However, the risk may be more acceptable if your goal is longer-term because you have more time to recover any financial losses.
Your comfort with risk depends on your emotional willingness to accept risk and your financial ability to absorb loss. This is known as your risk tolerance or risk appetite.
There are many different types of risk including:
- the risk that your investments will lose money if domestic or global markets decline
- the risk that an investment cannot be traded quickly enough to prevent a loss
- the risk that the value of your investments won’t increase enough to keep up with the rate of inflation
- the risk associated with investing in certain types of businesses, like a business that is part of an unregulated industry
More risk may be acceptable if your goal is longer-term because you have more time to recover any financial losses.
Decide if you want to invest on your own
Investing on your own may be an option if you:
- are confident about your investing knowledge
- have the time to follow developments in the financial market
Many people work with a financial advisor or planner to help them plan and achieve their financial goals.
Related links
FAQs
One rule of thumb is to save 10% to 15% of your paycheck each pay period. Another savings strategy is the “50/20/30” Rule: set aside 50% of your paycheck for your needs, 20% for your savings & debt, and 30% for your wants. Keep in mind these savings strategies could be too challenging for a student budget.
How do you set your investment goals? ›
With this in mind, here's how to create a realistic plan for achieving your investment objectives within a certain time frame.
- Goals: Consider your reasons for investing. ...
- Risk: Consider how much you're willing to risk. ...
- Timescale: Decide how long you want to invest for. ...
- Strategy: Make an investment plan.
How to Create a Savings Plan
- Step 1: Start with a financial inventory. ...
- Step 2: Establish your savings goals. ...
- Step 3: Decide how much to allocate to each goal. ...
- Step 4: Decide where to keep your savings. ...
- Step 5: Maximize your savings plan.
Time horizon, risk tolerance, and liquidity needs
There are three key areas you'll need to consider in setting investment goals. You'll need to think about each one not only in terms of an individual goal, but in terms of your overall finances.
How do I set savings goals? ›
Steps to set effective savings goals
- Have a clear purpose for saving money. Know why you're saving money. ...
- Attach a dollar amount to your goal. Figure out the total amount of money you'll need to save to reach your goal. ...
- Set a deadline for your goal. Establish a date for when you want to achieve your goal.
The 10,5,3 rule will assist you in determining your investment's average rate of return. Though mutual funds offer no guarantees, according to this law, long-term equity investments should yield 10% returns, whereas debt instruments should yield 5%. And the average rate of return on savings bank accounts is around 3%.
What is the 70 30 rule in investing? ›
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
What is the 50 20 30 rule? ›
Key Takeaways. The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
What is the 70 20 10 rule for saving and investing? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. It's an approach to budgeting that encourages setting aside 70% of your take-home pay for living expenses and discretionary purchases, 20% for savings and investments, and 10% for debt repayment or donations.
What is the 4 rule for savings? ›
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
Remember the 3 A's for retirement saving: amount, account, and asset mix.
What is a good investment goal? ›
Retirement. Retirement should always be the first investing goal on your list. But if you've got that covered, you probably have a bunch of other goals you want to reach.
How much salary is saved by age? ›
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
What is the 80 20 30 savings rule? ›
YOUR BUDGET
In the 50/30/20 budget, you spend 50% of your income on needs, 30% on wants, and 20% on savings. The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.
What is the 30 30 30 rule for savings? ›
The 30:30:30:10 income planning rule offers a structured approach where individuals allocate 30% of their income to living expenses, another 30% to retirement savings, 30% to investments and 10% for unexpected needs.
What is the 10 savings rule? ›
“Save 10 percent of your income.”
Putting away some money on a regular basis—even if it's a small amount—can help you manage unexpected expenses and emergencies and reach your financial goals.
What should your investment goals be? ›
The goal itself could be anything: buying a new car in two years; purchasing your first home in five years; or retiring in 40 years. What's most important is to have the goal be the focus of your approach. Once you've identified a goal, you can craft an investment program calibrated to help attain it.
How to do goal based investment? ›
First, you need to know your various financial goals which you wish to achieve over various time periods. Then you need to figure out the time you have in hand to reach those goals. Once you are clear about these two – goal and the time frame – work out the present cost of each of these goals.
What are the three types of investment goals? ›
Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well.
What is the 4 rule in investing? ›
One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.
