4 essential money lessons from our experts

1. Set clear financial goals

Everyone has financial goals. They can be short-term, like saving up for a vacation; medium-term, like setting aside a down payment for a house; or long-term, like saving for retirement. “Writing down your goals and working towards something specific will help guide your financial decisions and motivate you to stay on track,” says Carissa Lucreziano, Vice President, Financial and Investment Advice at CIBC.

Use the SMART acronym to set goals that are:

• Specific
• Measurable
• Attainable
• Relevant
• Time-bound

For example, instead of writing down “I want to travel,” try, “I want to go on a one-week trip to Italy, I’m willing to spend $4,000 and I want to go this August.” Once you know what you’re really working towards, you can start building a budget to help you save money for your goals.

2. Pay off your high-interest and non-deductible debt first

Paying off debt is at the top of many people’s lists — but if you have several loans, you may be wondering which ones to pay off first.

“Focus on paying down your highest interest-rate, non-tax-deductible debt first,” says Jamie Golombek, Managing Director, Tax and Estate Planning for CIBC.

Paying off your highest-interest debt first, like personal credit cards, is the best way to lower your monthly interest payments. This can free up more of your money to pay down the principal amount faster.

Now let’s look at the difference between tax-deductible and non-tax-deductible debt. If you’re using the debt to generate income, like a loan for your business, you might be able to claim the interest you pay on that loan as a tax deduction. In other words, the interest amount can be deducted from your overall income to reduce how much tax you have to pay. On the flip side, if you borrow money for a personal expense, like a family vacation, the interest you pay can’t be claimed as a tax deduction. So, it may be better to pay off these non-tax-deductible debts first since they don’t have the same tax effect.

3. Start investing today: The magic of compounding

The sooner you start investing, the sooner you can let the “magic” of compounding do its work to grow your savings — that’s where things get exciting. Compounding is what happens when you reinvest your earnings to get a return on the earnings as well as the original investment, resulting in interest on interest earned. It can give your savings a big boost, and the longer you’re invested, the more potential you have for growth.

Let’s say you have an investment with a 5% rate of return. If you start investing $500 a month when you’re 25 and the investment and earnings continue to grow at that rate, by the time you’re 65 that investment will grow to more than $763,000. If you wait until you’re 35 to start investing, the amount would be around $417,000.

“The best way to benefit from compound growth is to increase your length of time in the market. In other words, start investing as early as possible. You can even start with just $25 a month,” says Lucreziano. 

4. Partner with an advisor

Having the know-how and skills to make informed financial decisions empowers you to use money to design the life you want. That’s where an advisor can make a big difference. They’re a valuable learning resource who can guide you to make good financial decisions and hold you accountable to your plan.

Ready to get started? Contact us anytime to talk about your goals so we can help you build a plan to achieve them.