In the whirlwind of expenses and financial obligations, it can be easy to forget to prioritize our financial goals. When it’s time to pay our bills every month, there is often little left over, if anything, for ourselves. What if there was a better approach to manage your money?

The Life Wheel looks at your Lifestyle, which is about being able to enjoy your life and meet your financial goals, knowing your cash flow is organized and prioritized. This all starts with a concept that will help you effectively budget and manage your money – pay yourself first. 

Paying yourself first involves setting aside a portion of your income for savings and investing before allocating funds to other expenses. Just like you have a grocery budget or a utilities budget, you will set aside funds every paycheck for savings and investing. By setting this money aside, savings and investing become a non-negotiable expense that is prioritized over discretionary spending. Here are some of the benefits of paying yourself first and how to get started:

Develop Financial Discipline
Paying yourself first will help you develop the critical habit of financial discipline, when managing your money. With a portion of your income moved to your investment accounts, you’ll see fewer funds in your day-to-day banking account. This means you’ll have less accessible money to spend, so are less likely to impulse shop. Paying yourself first will make you think twice before you purchase and evaluate the items most important to you.

Compound your Investments
Contributing frequently to your savings and investment accounts will allow your investments to compound and grow. Remember, time in the market is better than timing the market. Therefore, the more often you pay yourself first by putting money aside to these accounts, the more your wealth will accumulate.

Achieve your Short-Term and Long-Term Goals
Pay yourself first by contributing regularly to your various registered accounts. These accounts provide many tax benefits that will help you achieve both your short-term and long-term goals. Here is a brief overview of the most common registered accounts with their contribution details:

First Home Savings Account (FHSA)
If you, your children, or your grandchildren are thinking about buying a home, consider opening and contributing to the newest registered account – the First Home Savings Account (FHSA).

The FHSA allows you to grow your investments tax-free and make tax-deductible contributions. The annual contribution limit is $8,000, with a lifetime contribution limit of $40,000. You are able to contribute now and claim a tax deduction in a later year.

The FHSA can stay open for up to 15 years. If you don’t end up purchasing a home in this time frame, you can transfer your funds to your RRSP without it impacting your contribution room.

Tax-Free Savings Account (TFSA)
If you have an upcoming wedding, vacation, car purchase or are saving for an emergency, you may consider contributing to your Tax Free Savings Account (TFSA). The annual contribution limit of 2024 is $7,000, and any unused contributions can be carried forward indefinitely. There is a lifetime maximum contribution of $95,000.

Registered Retirement Savings Plan (RRSP)
If you are saving for long-term goals, such as retirement, you may consider contributing to your Registered Retirement Savings Plan (RRSP).

The deadline to make a RRSP contribution for the 2023 tax year is February 29, 2024.

The maximum RRSP contribution limit for the 2024 tax year is 18% of your 2023 earned income, up to $31,560 less any Pension Adjustment.

A significant advantage to the RRSP is that you are able to contribute now but claim the tax deduction in a future year. If you receive a tax refund from contributing to your RRSP, you may choose to use those funds to make a TFSA or FHSA contribution.

How to Get Started
The easiest way to start paying yourself first is by setting up automatic transfers from your bank account to your investment account each time you receive a paycheck. If you don’t see it, you won’t be able to spend it! This step also ensures you are consistently saving every pay-cycle.

Let us know if you are interested in setting up automatic transfers or would like to contribute to any of the registered accounts mentioned above. 

By paying yourself first, you will set yourself up for success through the habits developed and the wealth accumulated, which will help you live your ideal Lifestyle and achieve your financial goals.