The new year’s resolutions have come and gone, but one of the most oft-made – to spend less and save more – is a perennial list-topper. In fact, A recent BMO survey showed that 36 per cent of Canadians put personal finances and a pledge to do better with their money as a top goal, new year or not.
Nearly half of Canadians have embraced the Tax-Free Savings Account (TFSA), a vehicle that allows savings with no tax on the interest earned, ever. The long-established Retirement Savings Plan (RSP), utilized by about one-third of Canadians, is another popular savings choice, but with more restrictions. Guaranteed Investment Certificates (GICs) and investing in stocks, bonds, and mutual funds – these are all valid options offered by financial institutions to help consumers do more with their money.
Joelle Ritter, Northern Alberta Regional AVP, Retail Banking at Canadian Western Bank, said understanding one’s big financial picture and personal goals will determine whether to focus on saving in an RRSP or TFSA, though both can be utilized at the same time.
“TFSAs are great for those 18 or over looking to set money aside tax-free throughout their lifetime. It is a great way to save for both short and long-term goals,” said Ritter. “With an RRSP, contributions are tax deductible, and withdrawals are added to your income and taxed at regular rates. While RRSPs must be converted to a retirement income vehicle at age 71, there is no such requirement for TFSAs.”
The highly flexible TFSA now allows a yearly contribution of $5,500, up from $5,000 per year in 2009-2013.
But what if you aren’t even at this stage – living paycheque to paycheque or carrying a lot of debt?
“The first step I would suggest is to meet with a financial advisor to design a plan with your circumstances in mind, helping you develop a long-term financial strategy for your individual needs,” said Sonia Egey-Samu, investment advisor with Servus Wealth Strategies in St. Albert. “The financial needs of a young married couple are not the same as those of a retired couple. That is why continuous, long-term planning is essential.”
Egey-Samu said having an emergency fund (usually three months pay) is critical, as is paying yourself by putting even a bit of cash into savings each month.
“We talk about ‘pay yourself first’ at Servus. It’s a discipline, and the money can grow quickly,” she said. “We want our customers to ask, ‘where is my money working hardest for me’?”
While there’s no quick fix for getting rid of debt, most agree that it’s best to tackle high-interest consumer debt (credit cards, car loans etc.) before focusing on savings and investments. The tried and true advice of not spending more than you make and creating a budget to see exactly where your money goes is a first step toward taking control of your finances.
“People sometimes spend more time planning their vacation than looking at their finances,” Ritter said. “Advisors can help, and there are good websites with valuable information to help people take ownership of their finances too.”
Check these recommended websites for more: fcac-acfc.gc.ca, getsmarteraboutmoney.ca, servus.ca/my-life/money-matters.
