Save Money with a Pre-Authorized Contribution

July 9, 2020

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Have you ever tried to save leftover money? You sit down, look at your net pay, figure out your fixed and variable expenses and tell yourself, “I will save what’s leftover!”

How is that working for you? Do you save what is left? Do you have anything left?

Setting up a PAC: An easy way to save

No matter how hard you try, there doesn’t seem to be enough left over to save. There must be a better way to save money!

There is! It’s called a PAC or Pre-Authorized Contribution. Along with paying your mortgage, your bills or buying your groceries, it's important to pay yourself first. With a Pre-Authorized Contribution, you are prioritizing and automating your savings.

With a Pre-Authorized Contribution plan, you can determine a pre-arranged amount that’s withdrawn from your chequing account on a regular basis. This can be weekly, biweekly, semi-monthly, or monthly. Your money is then directly deposited into your investment account.

My recommendation is to match the dollar amount you choose with your pay schedule. Match your cash inflows to your cash outflows. By prioritizing your savings, you can start to build tremendous wealth — and your savings will be automatic.

How PACs Work

Saving money with a PAC sounds so simple. It is simple and very powerful!

  • Pay yourself $25 bi-weekly for 25 years and you will have $16,260
    • With a 5% investment return, it will compound to $31,322
  • Pay yourself $50 bi-weekly for 25 years and you will have $32,500
    • with a 5% investment return, it will compound to $63,643
  • Pay yourself $100 bi-weekly for 25 years and you will have $62,287
    • With a 5% investment return, it will compound to $254,454

What about specific goals? Let’s say you want to travel to your favourite destination in 5 years.  The cost will be $5,000. How will you ever save that much money? Work backwards - $5,000 in 5 years means $1,000 a year which is $38.46 bi-weekly ($1,000/26). This is without interest compounding! It suddenly becomes more attainable. With a Pre-Authorized Contribution plan, your saving is automatic/no thinking/set it and forget it. You don’t accidentally spend it.
 
Want to buy a home and need a down payment? Set up a PAC!
Want to start saving for retirement? Set up a PAC!
Want to have emergency money? Set up a PAC!
Even if you don’t have a specific goal, pay yourself first! Just set up a PAC.
 
If you set up a Pre-Authorized Contribution, I guarantee you won’t be sorry! How? Meet with your Libro Coach (by phone, video or in-person) or set up an automatic transfer directly in online banking.

By Corrinne Mallender

Corrinne Mallender is a Regional Financial Planner at Libro Credit Union serving the Windsor-Essex community.