This week Wealthsimple announced another feature to help savers and investors take their game to another level. Introducing Overflow. This feature will allow you to link your external chequing account and move monies above a certain threshold every month to your Wealthsimple Savings or Investment account of choice. That is, when your everyday spending account overflows you move that money to an interest bearing savings or investment account and put those funds to better use – get them to work a little harder.
You set the threshold. Let’s say $3,000 as an example. If on the 18th of the month, you have $3,300 in your chequing account $300 will be moved to your Wealthsimple account. So that you are not caught off guard, you will get a heads up reminder email from Wealthsimple 2 days before the 18th.
This might be a wonderful top up for your regular savings plan repertoire. As you may remember from my fabulous Wealthsimple review they also have the Roundup feature that grabs your spare change. From that article …
You can sign up for the app and link your spending account such as your debit or credit card or other mobile payment service. When you make a purchase, let’s use $17.42 as an example, Roundup with bring your total purchase up to $18.00 and will put 58 cents into your investment account and get that invested for you on a weekly basis. You also have the option to direct those Roundup monies to your savings account.
You could say they are cornering the market on savings. They make investing simple, and they make saving on a regular schedule and a random schedule simple. But it will all add up to greater wealth creation over time. It’s investing on autopilot. It’s saving on autopilot.
How To Use Overflow
For those who work as freelancers or who have erratic income (there can be many reasons how and why that happens) this might become your automatic investment plan. This will allow to move that money on a regular schedule and it will compensate for the months when you have extra monies. In a month when you’re short you won’t have to make a move. It’s like your personal cash flow accountant letting you know how much is appropriate to save or invest each month. The only risk here is that your discretionary spending might not leave any ‘extra’ or overflow for the investments. You’ll have to keep an eye on your spending. If you find that you’re not in that overflow situation you might have a read of this post Oh Look, I Just Found $888,000 in Your Coffee. It’s more than surprising how you can find a few bucks here and there. You don’t have to stop living, but you just might keep a lid on those lattes and more.
If you have regular and predictable income, you might simply add this to your regular automatic investment plan that moves monies to your investments every pay cheque. Throw in that Roundup and now you’ve got that saving and investing trifecta. Of course the automatic (and yes forced) savings plan is effective as the monies are typically not in your chequing account long enough to tempt you to turn those monies into a weekend in Vegas. You get used to not spending those monies. And you can get used to that wonderful feeling of investing those monies and watching that wealth building.
As the Wealthsimple Overflow page reminds us, we typically will have 3 main baskets for our monies.
- We need that chequing account for our everyday spending
- An emergency fund in savings. 3-6 months of total spending needs
- Low fee investment account to build that wealth for retirement and other longer term goals
When I was an advisor at Tangerine I would often suggest or coach clients to separate their short-term monies and longer term monies. While having monies in that emergency fund in essential we don’t want to have our longer term monies sitting in savings accounts and GICs. Factor in inflation and those monies are usually going backwards. Yup, backwards. You want and perhaps need your longer term monies to beat inflation. Just as with high investment fees, inflation is a wealth destroyer.
It can be life changing to ensure that your longer term monies are in the right place; invested with the potential to beat inflation by a few percentage points. So don’t just look at your chequing account, look at all of your savings accounts and GICs. Are these longer term monies going in the wrong direction? Get them invested.
I saw so many Canadians with the majority of their assets in ‘safe’ cash and GICs. That’s the Canadian way, eh. But those monies are not necessarily safe. Sure they’re guaranteed, but they’re also guaranteed to not beat inflation, or not beat inflation by ‘enough’. Now many investors lost their appetite for risk after poor experiences in 2008-2009 and 2000-2002. Keep in mind that you can invest in a lower risk portfolio typically called a Conservative Balanced Portfolio or a Low to Medium Risk Portfolio. You do not have to take on the full risk of the stock markets. You can hold a Balanced Portfolio that adds a generous bond component to lower the risk profile.
All told, I really like the idea of Overflow. And more importantly I like the message that investors should separate their long-term goals and short-term goals.
Invest ’em when you got ’em. Thanks again, Wealthsimple.
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Dale @ firstname.lastname@example.org