Goals are important. Financial goals are especially important.
Having a goal gives you something to focus on, it gives you direction. Goals provide motivation, they get you moving.
We’ve had big financial goals in the past. Years ago my wife and I set a goal to pay off our mortgage early. That was our first BIG financial goal. Once we achieved that goal we were hooked.
We find financial goals to be very motivating. They give us a reason to stick to our budget. They give us a reason to control our spending and look for new ways to save. They help us avoid purchases that don’t align with our goals (especially impulse purchases).
We currently have one HUGE financial goal. Our goal is to have $1 MILLION in our TFSAs by the time we turn 55.
Even though it’s a long way off, many young people think about retirement planning.
Twenty-five percent of young people list retirement as one of their top two financial concerns. Top two! They’re more concerned with retirement than debt, expenses, unexpected emergencies or losing their job.
When young people think about retirement their biggest concern is “running out of money.”
To be honest, I’m not surprised.
Saving for retirement is something we’ve been told to worry about again, and again, and again.
The good news is that starting early makes a HUGE difference. Starting early is basically retirement savings on “easy mode.”
The best way to ease your retirement concerns is to make a plan and start saving today (even if it’s just a small amount).
In this post we’ll go over a ‘quick and dirty’ way to create a retirement plan. This “retirement plan” is perfect for a young person. It isn’t a replacement for a full financial plan, but it’s a good way to put yourself on the right path and start saving.
Setting a goal can have amazing results.
Even just thinking about your goals will give you a higher chance of achieving them. Writing down your goals will improve your chances again. Revisit your goals regularly and your chances get even better!
The chance of hitting your goals will improve by 80% when you write them down and create a plan.
I love goals, especially financial goals.
One of our previous financial goals was to pay off our mortgage early. We did this in exactly five years! At the end of the post I’ll share with you our original plan and how it actually went down (because things never go according to plan).
Both TFSA and RRSP are great, but they’re also different. These tax-advantaged accounts each have their own pro’s and con’s.
If you only have a set amount to invest each month, it’s important to pick the “right” account.
The “right” account can change over time as your income and personal circumstances change.
Each account, TFSA vs RRSP, deals with taxes differently. Choosing the right account will help you save $100,000+ in tax over your lifetime. Who would say no to $100,000?!?
By choosing the right tax-advantaged account, you can actually save less each month and still achieve all your financial goals.
Tax-Free Savings Accounts (TFSAs) are relatively new. They were introduced in just 2009. Even though they’ve only been around for a short time they’re already the most used out of the major tax-sheltered accounts. There are over 5.5 million households in Canada that have an active TFSA account.
(Authors Note: I love it when people use their tax-sheltered accounts. Good tax planning is a key component of any financial plan and can add $100,000’s to your net worth)
The average usage rate for the TFSA is pretty impressive at 40.4%. This is relatively consistent across both age and income. The highest usage rate is in Ontario where over 45% of the households are using a TFSA. The median contribution to a TFSA in 2016 was $5,765.
All-in-all these are impressive numbers for a new tax-sheltered account.
Given the high usage rate the TFSA must be pretty great, right?!?!
In this post we’ll cover exactly how a TFSAs works, the benefits of a TFSA, as well as some of the drawbacks of a TFSA.
RRSPs are one of the three major tax shelters available to Canadians. They were created in 1957 and since then RRSPs have been a key way to delay and avoid taxes. There are many benefits to an RRSP but also a few drawbacks.
In general Canadians aren’t taking full advantage of this tax shelter. As of 2015 there was over $1 trillion of unused contribution room. That’s an average of $41,560 per tax payer!
Each year the unused contribution room continues to grow. Over the last 5 years unused contribution room has grown by $1,900 per person per year.
This begs the question….
Why aren’t we using the RRSP to its full advantage?
Out of all tax payers only 22.9% used an RRSP last year. While this might seem low it’s important to note that RRSPs aren’t for everyone. There are drawbacks to using an RRSP and it’s because of these drawbacks that some people choose a different tax shelter instead, like a TFSA.
Still, there is a huge potential for tax savings out there. Even at the lowest federal tax rate the potential tax rebate is about $150 million or roughly $6,000 per person. Who wouldn’t like to get a $6,000 tax refund?!?
In this post we’ll cover how RRSPs work. We’ll also cover both the benefits and drawbacks of an RRSP.