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
Saving and investing are both important components of a healthy financial plan. Saving provides a safety net and a way to achieve short-term goals, while investing has the potential for higher long-term returns and can help achieve long-term financial goals. However, investing also comes with the risk of losing money.
Why is it important to set goals when saving and investing for the future? ›
Reasons to Set Financial Goals
Help provide financial direction to prioritize saving and investing for specific milestones. This can also compel you to curb short-term spending. Help strategize to save money in tax-advantaged accounts, which can grow over time with compound interest.
Why is it important to set investment goals? ›
Setting investment goals helps you define your financial objectives and what you want to achieve with your investments. It helps you determine the amount of money you need to invest and how long you'll need to invest to reach your objectives. Having clear goals will help you stay focused and on track.
What is a common goal of both saving and investing? ›
Saving and investing have many different features, but they do share one common goal: they're both strategies that help you accumulate money. “First and foremost, both involve putting money away for future reasons,” says Chris Hogan, financial expert and author of “Retire Inspired.”
How will you achieve your investment goals? ›
Step by step: Setting investment goals
- 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. ...
- Mix it up: Build a diversified portfolio.
8 simple ways to save money
- Record your expenses. The first step to start saving money is figuring out how much you spend. ...
- Include saving in your budget. ...
- Find ways to cut spending. ...
- Determine your financial priorities. ...
- Pick the right tools. ...
- Make saving automatic.
- Watch your savings grow.
Through saving money, your money is kept safe, and easy to access should you need it. By investing early over time, your money grows in value, benefiting from the magic of compounding. Remember that investing early, along with compound interest, can result in higher investment amounts versus a late investment start.
Why is saving an important part of reaching most financial goals? ›
The future is unpredictable, and financial emergencies can crop up anytime. Saving money allows you to create a safety net for your future expenses as well as unplanned financial needs. The more you save, the more peace of mind you have, as you are better prepared for anything life throws at you.
What is a good savings goal? ›
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.
What are the three types of investment goals? ›
Once you've answered those questions, you can begin to weigh the three primary investment goals--growth, income, and stability or protection of principal--to determine how to select specific investments that are appropriate for your financial plan.
A fundamental macroeconomic accounting identity is that saving equals investment. By definition, saving is income minus spending. Investment refers to physical investment, not financial investment. That saving equals investment follows from the national income equals national product identity.
How do financial goals help make achieving personal goals possible? ›
Setting financial goals is an effective way to build wealth, provide a sense of direction and purpose, and keep you on track to achieve financial success. Establishing financial goals can also motivate and inspire you, as it provides measurable steps for striving.
Why is saving important to you as an individual? ›
Saving is an important habit to get into for a number of reasons — it helps you cover future expenses, manage financial stress and plan for vacations, just to name a few. Understanding the different merits of saving might motivate you to save more. So, here are seven significant ways saving money can help you thrive.
Why is saving money a good goal? ›
The importance of saving money is simple: It allows you to enjoy greater security in your life. If you have cash set aside for emergencies, you have a fallback should something unexpected happen. And, if you have savings set aside for discretionary expenses, you may be able to take risks or try new things.
