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When saving for a big, distant goal, today’s uncertainty around inflation, interest rates and a potential recession can make it feel unattainable. Nothing rains on travel plans quite like inflation. And while home prices are cooling, we’re still facing an affordability crisis, according to RBC Economics. Knowing the picture could change at any moment – it’s a lot to think about, we know.
But whether you’re just getting started or in the process of building up your nest egg, there are ways you can avoid the near-term distractions and pessimistic thoughts that can get in the way of your finish line. We reached out to Sandra Abdool, an RBC Regional Financial Planning Consultant based in Burlington, Ontario, who shared five tips that can help you keep your eye on the prize.
1. Know what matters to you
You’ve likely heard a friend swear that ditching their beloved lattes was their key to savings success, but it doesn’t mean it’s right for everyone.
One method for cultivating discipline – while saying “yes” to the odd splurge – is having a spending plan. Like a big-picture budget, a spending plan helps you get a handle on how much money you take in and how much you’re paying out.
“You’re better able to determine which purchases bring you greater value versus which don’t,” says Abdool. “The point isn’t to shut down all your ‘wants,’ like clothes or travel, but rather to ensure you are balancing those with fixed costs, like rent and utilities.” To stay motivated, try being as intentional about your saving as you are about spending.
You can be generous with the categories that bring you the most pleasure and try to leave yourself some wiggle room every month. When you’ve figured out a comfortable savings target, consider a pre-authorized contribution (PAC) plan: every month, a pre-set amount you choose is deducted from your savings account and placed in an investment account, where you can watch it grow.
2. Tap into the power of hope
Your journey may have bumps along the way, but how you adapt (and overcome!) can have a lot to do with your emotional triggers around money. Taking the time to identify these potential triggers can help you recognize if they are affecting your decisions.
For example, you aren’t alone if you have a hard time staying cool amid a temporary dip in the market, which can make it more difficult to plan your next move effectively. Consider asking your advisor about investing basics, like the cyclical nature of high interest rates and inflation. There is some reassurance that comes with knowing that, historically, what goes down tends to come back up.
But while emotions like frustration, impatience or panic can derail your plans, Abdool likes to remind clients that hope can be a powerful investing tool. “Print a picture of what you’re planning for and place it in a strategic spot, like your bathroom mirror or fridge door, to keep you motivated every time you see it,” says Abdool.
It’s also important to be realistic, she adds, to help ensure motivation doesn’t wane. “Writing down your savings goal and regularly tracking your progress can help you avoid emotional triggers,” Abdool adds.
3. Get creative
When something comes up that doesn’t fit into your spending plan, you might be tempted to dip into the money you’re saving for your longer-term goal. That’s especially true if you haven’t yet started an emergency or personal spending fund, something Abdool recommends putting in place.
To help, consider expanding your income to accommodate additional spending or building your emergency fund. You could try any number of things – selling clothes you don’t wear through consignment, holding a yard sale, picking up a side hustle like dog walking or consulting, asking for a raise at work, renting out a room in your home, or finding a way to monetize a hobby like photography or woodworking.
4. Stay calm and consider your time horizon
A wise investor famously quipped that “The stock market is a device to transfer money from the ‘impatient’ to the ‘patient.’” This observation glosses over some of the nuance, but the takeaway is that long-term thinking is a key element of progress.
“Saving and investing for the long term gives you more time to smooth out the effects of market volatility and other obstacles,” notes Abdool. Market volatility is one thing, but this also applies to job loss, death or serious illness in the family or an unexpected expense. “A longer timeline makes it possible for you to put any minor setbacks into perspective.” Unexpected events can be positive, too. Maybe you’ll get a promotion or find the perfect new job.
One way to help alleviate the inevitable ups and downs is dollar-cost averaging, an investment strategy that involves putting aside a fixed amount of money – whether this is $25 or $250 or more – on a regular basis, such as bi-weekly or monthly. The idea is to keep your contribution consistent rather than trying to guess when a fluctuating market will rise or fall.
5. Keep shorter-term benefits in mind
It can be motivational to think about the more immediate wins associated with all your long-term planning. “Even if you’re in it for the long haul, it’s a good idea to build in short- as well as medium-term goals, so you’re rewarded along the way,” says Abdool.
And don’t forget, the same knowledge that is helping you get your finances in order today is a long-term investment itself. “Along the way, you’ll learn techniques for creating and managing a spending plan – a budget – and these techniques can help you with many financial and life decisions in the future,” says Abdool.
“It’s a great feeling to know that even small steps you take now can get you that much closer to your goals.”
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Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.
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