When we think about people who succeeded in making a fortune, we do not assume that they earned a great deal of money by patiently putting pennies aside for years. Ebenezer Scrooge in Dickens’ novella might have accumulated some money by underpaying his clerk. Still, it is hard to believe that our present-day movers and shakers get rich by being skimpy. We usually think that wealthy people know how to make big money in big chunks. These days, people receive big profits through asset purchases, taking advantage of price changes to sell more stocks or through careful tax planning. Or they invest with little equity and massive borrowing, or they specialize in real estate.
Saving small amounts, therefore, inspires little enthusiasm in people. Many of us think that extra 500 dollars saved by the end of the year would not make a difference in our budget, so putting pennies aside every day is not worth the effort. Take the penny challenge, for example. It is truly simple: by saving your pennies every day, you can collect at least $667.95 by Christmas, provided you put the penny challenge on your new year resolution list. But for many of us this amount is so insignificant that we usually forget about our new year resolution in the middle of February. Were the penny challenge to bring us more substantial sums of money, we reason, we would have stuck to it for longer. As it is, the challenge is, quite literally, not worth a dime.
The problem is that such thinking is wrong. Having extra several hundred in our pockets or bank accounts is still not an insignificant achievement, especially if we can save this money effortlessly. Now saving is made easy by technology, and not capitalizing on technological assistance with enrichment is imprudent. There are indeed many apps developed in Canada and other countries that make small investments on our behalf even without our conscious intervention in the saving process. We need only to download such application and leave it unattended. Even if we forget that once we have downloaded it, the application will still work, amassing money for us in our bank account.
The money saving app on demand now in Canada is robo-advisor. There is a large variety of them, but if you want to receive good results, you need to choose only among the best robo-advisors in Canada. Any of these platforms will help you put some money aside for a rainy day. But before you choose any of these robo-advisers, few words about this app’s operational processes are in order.
The robo-advisor is a sophisticated software that, as its name suggests, advises people how to manage their money with the help of innovative technology. It uses the most advanced algorithms to manage people’s funds and rebalance their portfolio, when needed. The most attractive feature of robo-advisors is the easiness with which they let people invest. All you need to do when investing with robo-advisors is to fill out your personal information, set up your investment goals, and clarify your risk-tolerance. When you submit this information, your robo-advisor will create your portfolio. And not only will it create your portfolio but it will also manage it for you, increasing your investments at a steady pace.
The robo-advisor will also use tax harvesting to minimize your liability to the Internal Revenue Services (IRS). That is to say, the software will sell those securities that have lost. In doing so, it will offset taxes both on your gains and income. Having sold the unprofitable security, the robo-advisor will replace it with a similar security and thus will maintain the best asset allocation and expected returns.
Yet robo-advisors are not the only cutting-edge software that can help you become richer. Canadians also like apps that save their lose change every time they pay for their purchases by their credit or debit cards. Some consider change-saving software even better than robo-advisors, because they do not require any initial investment. An initial investment with robo-advisors is $500, which some people find difficult to pay. Change-saving apps have no initial investments and cannot hurt your finances. They put aside such a tiny amount for you that you never feel its absence in your budget.
The most popular change-saving platforms now in Canada are Acorns, Betterment, Digit, and Wealthfront. All of them combine the robo-advisor model with an automated savings tool. These apps are called “round-ups” because they automatically round up your payments on linked debit or credit cards. The cents that were added to the amount you paid become transferred to your computer-managed portfolio.
Let us say you are buying a bottle of BERNARD Maple Leaf Syrup in Costco. A pack of two bottles of this syrup is sold for 39.99 Canadian dollars. When you pay for your purchase with a linked credit or debit card, the software will round this amount up to $40.00 CAD, investing 0.01 cent into your portfolio. The amount of 0.01 cent seems infinitesimal indeed. But think how many items you purchase in Costco every week. If you transform several cents to your account with every scanned item, these cents may add up to a substantial amount by the time you say “good-bye” to a cashier and leave Costco.
Needless to say, neither robo-advisors nor change-saving platforms will make you rich overnight. They are not jackpot. But if used consistently, over time, they can add some money to your bank account. And however small the added amount is, you will be happy to discover your account so effortlessly replenished.
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