Lesson Investing foundations

Paying yourself first: How to put your investing on autopilot

Set Your Savings on Cruise Control: Mastering Automated Investments.

  • Why paying yourself first is the ‘Golden rule’ of personal finance.
  • How to save time & increase how much you save with easy, automatic deposits.
  • Avoid temptation by setting up an automated investment plan.
young couple drinking coffee smiling on couch

Finding it difficult to save for the future? You may be finding it tough to think about your future financial plans - let alone retirement, when now seems so much more important.

Let’s talk about the Golden Rule of personal finance: Paying yourself first. We’ll learn how this simple strategy can help get your goals back on track, and get you on the way to a comfortable financial future.

In a recent Leger survey conducted by Questrade, over half of Canadians polled fear that they will not have enough money for retirement. But most Canadians say they have no plans to change their retirement strategy and investing plan, even with this fear of not retiring with enough, why is that?

Are you waiting to invest once something changes with your financial situation?

There’s always going to be a reason not to invest, and the longer you put things off, the harder it is to start and create healthy financial habits to achieve your dreams. But getting started doesn’t have to be a gigantic task. Starting an automatic investment plan is much easier than you might think, and helps establish the foundation for your goals. “Paying yourself first” can help take the guesswork out of when and how much to save, especially during uncertain economic, and personal times.

Whether it’s an emergency fund, a down-payment on a home, or simply saving for a nice vacation, paying yourself first can help unlock these opportunities.

So what does ‘Pay yourself first’ actually mean?

Paying yourself first means putting money in your investment accounts first (often by automated contributions, such as a pre-authorized deposit just like paying a bill), as soon as you get paid, and before you spend money on anything else. This can feel like the opposite of what you should do - shouldn’t you wait until the end of the month to see how much money you can invest?

If you only think about your investments after everything else in your life is paid for, it’s easy to end up with nothing left to invest at the end of the month.

To make it easy, you can think about your monthly expenses as 2 general categories:

  • Mandatory expenses: Bills that cannot be missed (i.e. Rent/mortgage, electricity, internet, food and medicine)
  • Discretionary expenses: Costs that can vary, and are not mandatory such as entertainment, new clothing, take-out, or streaming accounts.

By paying yourself first, you’re putting your investments into the “mandatory” category, thereby removing the temptation to skip a contribution and spend the funds on discretionary expenses. By doing this, your investments become like any other bill that must be paid no matter what.

discretionary vs mandatory spending animated GIF

The order you pay your bills is very important for another reason. Cutting down on expenses (like take-out or TV streaming) to make room for a contribution is difficult to do. But if you pay yourself first, you can enjoy discretionary expenses like take-out or tv streaming without feeling guilty. It’s essentially “forced savings”. And if you automate making those savings, you save for your future without even thinking about it.

One thing that can hold people back is the fear that it’s ‘too late’ for them. The truth is it’s never too late, no one will ever say “saving was a mistake”.

No matter how old you are, the best time to start is right now.

How to start - Automatic savings and deposits

The easiest way to start paying yourself first is by setting up an automatic, recurring deposit on payday. This allows you to “set it and forget it” while allowing your money to grow over time.

It’s very easy to set up an automatic contribution. You can choose to use our Pre-Authorized deposits (PADs), or recurring online bill payments, this takes the guesswork out of things.

You can set up a pre-authorized deposit from the “Funding” menu in your Questrade account, and link your chequing or savings accounts to make regular contributions in both Canadian and U.S. dollars. You can also set up a recurring bill payment right from your bank’s online banking page, however bill payments are limited to Canadian dollars only.

For more information about our automatic deposit/contribution options, please check out our Funding your account article.

Automating your investments

So we’ve automated our savings and deposits, what's next? Automating your investments.

Setting up an automated investment plan allows you to put your money to work right away, rather than simply “parking” your cash and waiting for the right time to invest.

Automatic investing with Questwealth

One great way to automate your investments is through our Questwealth Portfolios™.

These portfolios are made up of a group of diversified Exchange Traded Funds (ETFs), and managed by a team of professionals who monitor the markets, and adjust the portfolio as needed.

Getting started couldn’t be easier. You simply answer some questions about your investment goals and risk tolerance level and you’ll be invested in a portfolio that works for you. In one simple action, you’ll have a carefully planned, diversified portfolio that’s monitored and rebalanced. Yet another “set it and forget it” solution that can make your life easier.

Prefer to manage your investments yourself? No problem..

With a self-directed Questrade account, there are still a few options available to you to ‘automate’ your investments, and make things easier for you.

One of these fantastic solutions is through our partner Passiv.

Passiv allows you to link your Questrade accounts, and immediately invest the new cash deposits in your investment accounts. This way you can put your money to work from day 1, and lose no time ‘wasted’ with parked cash.

Learn more about Passiv in this article here, or check out our on-demand webinar for more details.

Bringing it all together

Remember: It’s not necessarily about how much you start saving, but rather the act of starting itself.

We’re building good habits here that will evolve and improve over time. To use an old quote: “Rome wasn’t built in a day” - neither should your retirement plan.

Now that we’ve learned about why it’s so important to pay yourself first and put those funds to work right away with investing, it’s up to you to take the next step, and begin your journey towards financial freedom.

Remember to set up your automatic deposits to pay yourself first, and take advantage of both our managed and self-directed account options to allow your money to work for you from day one with automated investing.

Ready to start automating your investments? Get started with our Questwealth Portfolios, or explore the options available for your self-directed account through our partner Passiv.

Congratulations! You’ve just automated your savings and investments, and taken the first step towards a brighter financial future for you and your family.

Keep more of Your Money

Take control of your financial future and start investing today.

Open an account

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.

Related lessons

Read next

Explore

Have more questions?

Tell us what you need help with, and we’ll get you in touch with the right specialist.