Save more money than you even realize! The benefits of pre-authorized contributions (PACs)

When you have some extra cash in your wallet, it’s tempting to spend it on a double-shot mocha latte with extra whipped cream. But what if you put that extra $5 a day into an investment account instead?

Maybe you’ve been setting some money aside in a savings account, but not on a regular basis. Most of us would rather spend our extra cash on something ‘fun,’ like take-out Thai or a new pair of shoes. In the heat of the moment, spending is more fun than saving.

If this describes you, you’re not alone. Statistics Canada reported in 2018 that the average household savings rate dipped to its lowest in more than a decade (averaging 1.4 per cent over the year). That means Canadians are saving even less of our disposable income than we used to.

This is where PACs — or pre-authorized contributions — can make a difference. PACs help you take small, consistent actions so you can painlessly reach your savings goals, without feeling as though you’re depriving yourself of fun. Here’s how they work…

What are PACs and how can they help?

Our lives are busy. Even if we have the best of intentions, most of us won’t remember to manually transfer money from our regular banking account into an investment account every week or two. It simply isn’t part of our day-to-day behaviour. Or, we might be tempted to spend that extra money instead.

PACs are a ‘no pain’ way to save and meet your goals, whether you’re saving for a down payment, your kids’ education or your next vacation. You set it and forget it, with automatic deductions and deposits.

If you’re trying to save for your kid’s college fund, for example, it may seem impossible to come up with a few extra thousand dollars every year. But with a pre-authorized contribution plan, you could automatically transfer $25 a week (or $50 from your bi-weekly paycheque) into an RESP, and you’d end up with $1,300 by the end of one year — and that doesn’t include the compound interest you’re earning on top of that.

You probably won’t notice those small deductions coming out of your regular banking account, but the savings will quickly add up over time.

Another advantage of this approach is dollar-cost averaging. That means the more frequently you invest, the less risk you take on, because you continue to purchase investment products during both upswings and downturns (rather than trying to ‘time the market,’ which is based entirely on guesswork). When you contribute one big lump-sum payment, you end up buying more units when prices fall and fewer when prices rise.

How to make PACs work for you

PACs are flexible. You can contribute weekly, bi-weekly, monthly or quarterly, even semi-annually or annually (many people time their deductions to coincide with their paycheque). You also have a choice of contribution amounts and investment options, so you can build your savings however it works best for you.

You can contribute to any ACU Savings Account, TFSA, RRSP or RESP. When it comes to RRSPs, a pre-authorized contribution plan allows you to regularly contribute throughout the year, so you don’t have to scramble to come up with a large lump-sum payment before the RRSP contribution deadline.

Unlike taxes or bills, that money hasn’t disappeared. It’s there for your future, and it will grow over time with compound interest — which wouldn’t happen if that money went to craft coffee beverages.

But you also have control, so you can change the amount you contribute at any time. The general rule of thumb is to invest 10 to 15 per cent of your income. But if you’re going through hard times, you can lower your contribution amount. On the other hand, if you get a promotion or a raise, you can increase your contribution amount so your savings grow with you.

Pre-authorized contributions are easy to set up, and they’re an efficient, painless way to invest. You can even set up separate PACs for separate goals: one PAC could go toward your retirement savings, for example, and another could go toward that dream vacation in France.

Why PACs at ACU are a win-win

When you deposit money at ACU, your money stays in the local community. That helps to build affordable housing, helps families get their first mortgage, helps students finance their education and helps local entrepreneurs expand their business.

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To learn more about pre-authorized contributions (PACs), book an appointment. Or if you already have an RRSP, RESP or TFSA with us, talk to an ACU advisor at 204.958.8588 to set up a PAC over the phone today.

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