Why are you afraid of RRSP’s? | Finance Series

Why are you afraid of RRSP’s?

Registered Retirement Saving Plans, or RRSP, are a tax-sheltered, personal savings plan designed to help you save for your retirement, enabling you to retire with wealth but without the tax headaches. If you have a supplementary retirement savings plan you could possibly retire earlier than the regular 60 – 65, so why is it that many Canadians are afraid to invest in themselves?

Out of 16 million tax paying Canadians only 56% (age 25 – 44) invest in an RRSP.

RRSPThis tax shelter protects a portion of your current income, offsetting income tax while your income is probably at it’s highest. By the time you withdraw your funds your annual income will be less and you will benefit from a lower tax bracket.

When it’s time to purchase your first home you are able to withdraw your RRSP, tax-free, and use it toward the downpayment. Under the Home Buyers Plan you have 15 years to repay the balance at an equal repayment amount per year before you are taxed on the amount withdrawn.

For example: If you withdraw $10,000 for your first home, the repayment rate would be $666 per year.

With no interest it’s a win-win option.

The same goes for the Life Long Learning Plan, want to get that degree you have on your bucket list? Tired of the career path you are following? Go back to school and use your RRSP to fund your education.

The 2016 contribution limit is 18% of your earned income to a maximum of $25,370. What is your earned income? See Chart # 3 to see the calculation.

Starting to invest in yourself can easily be explained with a quick visit to your bank, truth be told you are probably there at least once per week anyway, what’s the harm in a chat.  There is no minimum payment, whatever suits your budget and it can be deducted from your bank account monthly.  As little as $25 per month can start you off.

It’s never to early to invest in your future but leave it too long, and it could very well be too late.



Budgeting in University

Leaving home by the time your 18 could be one of the happiest moments of your life, or the worst.  On top of that you are plummeted into a world of finances, employment (for survival, not just shoe shopping) and debt.

Relying on student loans, credit cards and lines of credit can be a daunting task.  If you are smart, in between lectures and bar hopping, you can spend 1 hour a week taking care of your finances, tracking your spending and your credit will pay you back in ten folds down the line.

Here are a few simple steps to help the budgeting process:

1.  Open multiple bank accounts

When you receive your student loan, it is more than usual your tuition is taken off the top, if not, ask that it is, purchase your text books, then calculate your monthly budget.

Example: (Amounts are fictitious)

Rent $350.00

Groceries/Gas $200.00

Cell Phone/Bills $150.00

Spending  $50.00

Savings  $50.00

Total 800.00

2. Take your monthly fixed items (Rent, Cell phone/Bills) and deposit in to one of your accounts (Account # 1).  You may have to supplement this account, if you are supplementing this account from a line of credit, do so monthly to avoid high interest. Write all your monthly cheques and set up online payments for your cell phone and credit card/line of credit minimum payments from that account and check it monthly to make sure all items are deducting correctly.  This way you know your bills are covered for the semester/year.

3. Your next account will be a savings account (Account # 2) where you will deposit all the money that is left over, hopefully there will be. Set up a monthly standing order or transfer to your checking account (Account # 3) for your spending/Groceries/Gas and that is the money you will live on, once it’s gone try not to dip in for more or you may be living the last 2 months of school on something less than skinny noodles.

4. Use your credit wisely.  If you work during school your pay cheque should be deposited into your savings account to be transferred for your monthly living expenses or supplement your fixed bills account.  Use credit for emergencies only, we are not talking, my boyfriend dumped me and I need to go shopping or I’ve worn this blouse twice already, we are talking, my car broke down, I need an emergency text-book or my computer needs repairing.

5. ALWAYS make your minimum payments on all your financial obligations, banks will offer you credit card after credit card, don’t get in to deep.  Keeping the monthly balance low and making your monthly payments will help build your credit for the future.

Don’t think you won’t need credit later down the line, you will. Car purchases, Mortgages…its all coming and it’s time to lay the foundations for that good credit now.

You won’t be in school forever but learning to budget early will pay off.  Working during the summer can repay some of your debt and also save for the next year, you can always use a little crazy cash and buy a few new clothes before you hit the bars again in the fall.

Teaching Kids Financial Responsibility | Niagara Region Money Coaches

“From the Mouths of Babes…”

I have a teacher friend who did me the favour of asking some questions to her Grade 3-4 students… The responses provide some wisdom for us all:

Q1: “When do you know you’re rich?”

From one: “When you have fancy houses, fancy clothes, and a fancy car.”

From another “I consider $50 rich because it’s more than $10 or $20.”

Q2: “If you had $100,000, what would you do with it?”

From one: “An i-pod, a laptop, house decorations, and my two favourite books ‘Amelia Rules’ and ‘Rainbow Magic.”

From another: “Most of it I would donate to poor people who don’t have food.”

Q3: “What are the best things money can’t buy?”

From one: “Money can’t buy your family or your love.”

From another: “Friends and family because they don’t have price tags on them.”

I had the opportunity to teach a “financial literacy” class to grades 7-8 that provided me additional insights. You’ll never guess how they answered the question “Can someone have TOO MUCH money?” The class quickly agreed that yes, with too much money you wouldn’t know who your friends are, you wouldn’t know who to trust, and being able to buy whatever you want isn’t very healthy. What?? Is this really the entitlement generation of greedy ungrateful kids, or has the media misled us; having us believe this next generation blindly wants for everything and has their noses on screens all the time?

Kids are far more insightful than they’re typically given credit for. Let me give them their dues. Being somewhat media-bound means they’re also media-savvy. They are also smart shoppers and know a deal when they see it, partly because they have more money than the generations before them had. And don’t get me started on how their brain neurons are connecting like no generation before them, thanks to the technological complexity they are exposed to early on.

Teaching kids financial responsibilityThat’s why I’m a big fan of starting kids out on an allowance as early in life as possible. As Barbara Coloroso says, “The best time to start giving your children money is when they will no longer eat it.” When you give your child their weekly allowance, encourage them to split it up into 3 jars or envelopes which together you can design and label: ‘Give’, ‘Save’ and ‘Spend’ (and have them think about money IN THIS ORDER).

I believe it is important for children to ‘experience’ each of these categories, and to start by allocating allowance money to each of these categories each and every week.

Make giving a personal experience. Have your child decide what charity or cause they want to give to. It could be as simple as giving a coffee to a homeless person, donating food to the Food bank, or donating money to a charity, church, or foundation they feel strongly about. Let them decide how much to give. The amount doesn’t matter as long as your child is learning what their gift of money can do for others, and they will benefit from an experience that will nurture a generous character (of time, talents and resources) over time.

Make saving for the future automatic. It is a good idea for children to save, just as adults do – and the sooner the better. Saving part of one’s income is a wonderful habit to form in the formative years. The power of compound interest truly is the 8th Wonder of the World and the earlier children are able to automatically save some of their money towards the indefinite future the better off they will be as adults when it is harder to start this money-savvy habit.

Allow your children to spend the rest! There are many important lessons to be learned when it comes to spending, and typically a child must experience them to learn from them. Understanding trade-offs between price, value and quality are best taught in the grocery store. Talk to your children about the decisions you are making with your money when you shop. Then let them take personal accountability for their shopping decisions, and remember mistakes are OK. In fact, when they make a mistake, don’t jump in and solve it for them – better they learn from a mistake early on with $10 (and realize Mom or Dad won’t always save them), than expect a bail-out when they make a $10,000 mistake later in life.

Our Guest Contributor Trevor Van Nest, B.Comm. (Hons.), CFP® Owner/Founder of Niagara Region Money Coaches with offices in Newmarket and St. Catharines, Trevor offers Financial Coaching and Financial Planning Services.