Using Questrade to Automatically Save

I'm a big fan of automated saving using the Reverse Budget method. Save the required amount first and spend the rest of your paycheque guilt-free. The typical Canadian under the age of 30 should be saving at least $562 a month if they want a decent retirement at 65 years old. If you're older than 30, you need to save more every month.

A couple weeks back I shared a Moose Math formula for estimating your minimum monthly savings.

One of the most powerful advantages of automated saving and investing is that it takes the guesswork and emotions out of the equation. When you first start investing, dollar cost averaging into a broad ETF like XAW.TO or a Growth/Balanced Portfolio is the way to go. It gets you used to the investment process and movements in the stock markets.

When markets are up you buy ETF units, when markets are down you buy still more ETF units, when markets are flat you keep buying ETF units. You basically just buy ETF units according to your investment plan, stay somewhat balanced, and ignore the noise.

I demonstrate this concept each month in my Growth Portfolio Updates. You can follow this example if you like, or follow different example out there. The much more popular Canadian Couch Potato blog shares good strategies for low-cost index ETF investing.

These strategies are neither guaranteed nor bulletproof, but over a long investing period you are very likely to do quite well following a systematic, passive investment strategy. Odds are good that you will beat your friends who buy and hold individual stocks, those who use financial advisors, smart folks who invest in smart-beta products, and definitely those chumps at work who emotionally move in and out of hot stocks without a system.

Setting Up Pre-authorized Deposits

Questrade, like many other self-directed brokerages, lets you set up regular contributions that automatically debit your chequing account on a regular basis. The options are basically bi-weekly, monthly, or one-time withdrawals and can be set up for each account you have with Questrade. We're here to talk about bi-weekly or monthly withdrawals only—just follow the pattern in which you get paid.

Always set up your withdrawals to be taken out the day after you get your paycheque just in case of payroll glitches. If you get paid every second Wednesday like I do, make sure the withdrawal comes out every second Thursday. If you get paid on the last day of the month like my wife, make sure the withdrawal comes out on the first day of the next month. You get the idea.

Most of you will be opening at least a TFSA and probably a RRSP or Cash/Margin Account. Generally it's best to fill TFSAs first. Your annual limit is currently $5,500 per person over the age of 18. So simply set up an automatic payment of $458 monthly or $211 bi-weekly to your TFSA. Don't forget that unused room has accumulated over the years, so if TFSAs are new to you, you might be able to save a lot more.

Then—provided you have a joint chequing account (you should if you're married or common-law)—set up another automatic payment of $458/$211 to your partner's TFSA. If you are young and fill both TFSAs following a systematic plan, you will be very well-off in retirement!

Start Right Now

If you start young, watch your spending, and avoid lifestyle creep as your income grows. With growing income, it becomes really easy to save a decent amount of money each month.

My wife and I still spend roughly the same amount of money as we did when she was in university full-time. Our lifestyle got better when the tuition bills disappeared and our savings rate exploded when she went to work.

We never let ourselves get fooled by a two income lifestyle; if kids or parent care or lifestyle change ever kicks us back to one income, we're prepared. In the meantime we're pounding away money for tomorrow!

If you are a bit further down the road and developed some bad habits, it might be tough but all you gotta do is change. Downsize your house and rent instead of own, trade in your nice vehicle with payments for a small, fuel-efficient hatchback, go down to one vehicle and bike if you are somewhat close to work, cut out vacations and restaurants until you are truly in control of your money.

If you're getting buried by consumer debts and monthly payments, do a spending challenge for a few months and pay off that debt like it's life or death... because debt kills your relationships, your health, your future, and your personal freedom.

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