Grow Your Net Worth Automatically!

In this post, I look at how to build wealth automatically.  It’s widely accepted that we are our own worst enemies when it comes to saving and investing, because human behavior is not naturally inclined toward delaying our short-term wants/needs to achieve long-term goals.

Automatic Savings Builds Wealth Automatically

One way to get around this natural tendency is to set up an automatic savings and investment plan.  These plans are a great way for people to start saving and investing their money and have played a major role in increasing my net worth over time.  In fact, I still use them and probably always will as they make saving and investing easy.

An automatic savings and investment plan is a very simple and effective strategy for saving because you don’t need to worry about budgeting and trying to save whatever is left over at the end of the month.

Had I tried to save after all of my monthly expenses were paid, I’d hardly have anything to show for it.  By setting up one of these plans, my savings amount is already factored into my monthly budget and spending habits.

3 Reasons to Automate Your Savings

Automatic savings and investment plans are great for 3 main reasons.

1 Develop the Habit of Saving

First, they get you into the habit of saving and investing regularly.  It is forced savings.  It is you paying yourself first because it is factored into your monthly budget.

2 Automating Savings is Passive Wealth Building

The second reason is that, once it is set up, it is completely passive; requiring no more work on your part.  You only need to set it up once, then let time and compounding do their work.

I particularly like the idea of setting something up once and forgetting about it.  Well, I shouldn’t say that I completely forget about it because I make a habit out of revisiting my automatic savings and investment plans once a year to see if I can afford to increase my savings.

3 Take Advantage of the Power of Small Amounts

The final reason that I find automatic savings and investment plans appealing has to do with the power of small amounts.

Saving and investing small amounts regularly can add up to huge sums.  Typically, the minimum amount for these plans is $25.  That is the minimum for purchasing TD e-series funds and a variety of exchange-traded funds (ETFs) through iShares and Vanguard.

$25 is not a huge amount of money to come up with on a monthly basis so virtually everyone can take advantage of automatic savings and investment plans.

For years, I’ve purchased low-cost TD e-series mutual funds, automatically, every week in my RRSP.  It’s easy to set up and, as I mentioned above, the investment minimum is only $25.

To set it up, I went to Easyweb under the “My Links” section on the left-hand side of the screen.  I then went to “Purchase Mutual Funds.”  A new screen appears and under the “Personal Investments” section I selected “Pre-Authorized Purchase Plans.”

From there, just select the fund you want to contribute to and set the frequency of your purchase (ie. weekly, bi-weekly, monthly or annually).  You can even set it up if the money is coming from another financial institution.

In addition to automating my RRSP contributions, I recently set up automatic debits to purchase stocks in my dividend reinvestment plan (DRIP) accounts.

As soon as I found out that some of the DRIP stocks that I hold in my Computershare account offered automatic debit purchases, I signed up right away.  So far, in terms of the companies that I own, the Bank of Nova Scotia (BNS), Emera (EMA), Fortis (FTS), TransCanada (TRP) and Suncor (SU) offer that service.  I’m hoping that the Bank of Montreal (BMO) will jump on the bandwagon soon.

The automatic debit plan is hugely beneficial to anyone who owns DRIPs because it saves you the time and hassle of mailing off your cheques and trying to make the cut-off dates for your stock purchases.  So, in the end, I like it because it saves me time, money and effort.

If you are someone who is just starting to save and invest, then I would highly recommend beginning with small amounts in some type of automatic savings and investment plan.

When I first started saving and investing my money I chose TD e-series funds as I felt that they offered the best overall value.  It wasn’t hard at all to set up my investment portfolio.

I went with the Global Couch Potato Portfolio that is a 60/40 split between equities (ie. stocks, exchange-traded funds and mutual funds) and fixed-income (ie. bonds).

My 40% bond allocation was held in one fund – the TD e-series Canadian Bond Index Fund.  My equity exposure was spread out evenly over 3 other funds: TD e-series US Index Fund (20%), TD e-series International Index Fund (20%), and the TD e-series Canadian Index Fund (20%).

In fact, my RRSP portfolio has retained these exact allocations for my equity exposure.  I have though since changed the fixed income side and diversified my holdings away from just the 1 bond fund.

Automatic savings and investment plans are a powerful tool to help us build wealth automatically.  They are easy to set up and are flexible in terms of investment amounts and frequency of contributions.

Take the time to set it up and just sit back and watch your net worth grow – automatically – over time.  It really is that simple.

If you’re interested in learning more about the role of automatic savings and investing in my own financial plan check out my other articles below:

How to Build Passive Income Streams

5 Steps to Growing Your Wealth

How To Become A Millionaire

Grow Your Assets, Grow Your Income

For more information on the power of automatic savings and investment plans, check out David Bach’s classic The Automatic Millionaire .

Photo Credit: Image courtesy of Stuart Miles /


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