At Wealthsimple, we’re on a mission to democratize wealth. We believe everyone should be empowered to achieve financial freedom.
In this guide, we’ve put together several resources to help you get started building long-term wealth. The goal of these resources is to offer you simple, human advice with no complicated financial jargon. (If you have feedback on how we could do better, please tell us!)
The step-by-step approach to getting started with personal finance
1. Create a budget
The first step to taking control of your finances is always to figure out how much you can spend and save. There is no better way to get started than by creating a budget. This will tell you how much of your income you spend and how much you can save moving forward.
2. Pay off high interest debt
In almost any scenario, one of the first things you should do with your savings is pay off any high interest debt – especially credit card debt.
Many sources of high interest debt charge an interest rate above the long-term return rate of investing in the stock market. You should consider paying off this debt first, because you'll be paying more in interest than you'd make on pretty much any investment.
3. Build an emergency fund
With any high interest debt out of the way, the next step is to focus on building an emergency fund. Think of this as your safety net: a fund that you can dip into in the event that you lose your job or incur an unexpected large expense. These funds should be kept in a risk-free account and should be readily accessible in the event of an emergency.
4. Create goals
If you’re ready to start investing (or have already started), you’ll want to spend some time thinking about your goals; i.e. what you’re investing towards.
Common financial-based goals include things like: saving for a down payment on a home, planning a vacation, saving for retirement or saving for a child’s education. Knowing what you’re saving towards can help you decide which account to use for each of your goals and how much risk to take with your investments.
5. Open tax-advantaged accounts
Once you’ve defined your personal goals, you’ll need to decide which tax-advantaged accounts to use. For most Canadians, the choice is between contributing to an RRSP and / or a TFSA. Choosing wisely can save you thousands of dollars in tax over time and make your goals more achievable.
We’ve created a simple guide to help you choose between a TFSA of RRSP.
6. Make your investments according to risk and timelines
The amount of time it takes to save for a goal has a direct impact on whether you should have a low, medium or high risk profile.
We created a guide on how to think about risk and investment timelines to help. When you get started with Wealthsimple Invest, we’ll take you through a questionnaire and make a recommendation on your risk profile. You can update this at any time if your goals change.