Happy Back-to-School New Year!
Happy New Year!
No, I have not lost my calendar.
September is a time of many ends and new beginnings. The kids are back in school, the weather gets cooler, and Christmas decor pops up in big box stores. It’s also the time of year where I start to think about my personal finances and plan for the expensive months ahead.
Although there are still four months until the end of the year, it’s a great time to start tackling expenses like Christmas gifts, taxes, and RRSP contributions by thinking proactively rather than frantically playing catch up on your credit cards come January.
Just think, this could be the year that you escape Christmas debt-free, max out your RRSP contribution, get your taxes done on time and maybe even save up enough to sneak in a spring vacation… Wouldn’t that be a treat?
The Dreadful Christmas Shopping Credit Card Bill
You have four months (okay, three and a bit) to prepare for Christmas shopping. If you save ahead of time, you can avoid that January credit card panic. Or better yet, start the shopping now, avoid the rush, the overinflated prices, get the gifts before they are picked over and have it all paid off before the holiday season even arrives.
The savviest savers I know take Holiday budgeting to the next level by putting a little cash each month of the year into a Christmas fund. Come the Holidays they are prepared with cash on hand rather than paying it off credit card debt until the next holiday season, or worse paying it off with funds reserved for RRSPs.
Your Tax-Free Savings Account
When the clock strikes midnight on New Year’s Eve, each Canadian resident not only gains a new year, but an additional $5,500 of contribution to their Tax-Free Savings account.
A Tax-Free Savings Account is without a doubt the best tool to save for everything, such as saving for that vacation, except for your regular retirement income. This is because it’s tax sheltered and you will never have to pay tax on the growth of your saving, no matter what kind of investment income you generate.
If you are planning on maxing out your deposits in 2017, start calculating how much income you’ll have to put away each month to hit your $5,500 goal and create a plan to help you reach your target.
I recommend setting up an automatic withdrawal each paycheque that amounts to $5,500 each year. If you’re paid bi-weekly, that means $211.53 each paycheque. Set it and forget it.
Preparing for Taxes and RRSP Season
Your RRSP contribution limit is based on the income from your previous year, so you might have to wait for 2016 to end before you know what you can add to your retirement fund. That March 1st deadline will creep up in the meantime, so it’s good practice to figure out where that deposit will come from.
Even if you are expecting a tax refund for the year, without planning for it year-round and contributing on a regular basis, you’re unlikely to come close to meeting your contribution goals. With four extra months of planning, you may be able to get a bigger bang for your buck with a very small additional RRSP contribution.
Registered Education Savings Plan
With kids going back to school it is a great reminder to support their education through opening an RESP for post-secondary education.
There is no yearly contribution limit for an RESP, which means if you fell behind on payments in 2016 you can catch up on them in 2017 (however, there is a lifetime limit of $50,000).
To further incentivize you to invest in your children’s post-secondary education, the Canadian government will pay up $0.20 on every dollar saved on the first $2,500 put away each year. If you did not contribute your maximum in any year, that grant room will roll forward until your child turns 17 years old.
A monthly deposit of $208.33 will ensure that you get the maximum government grant. Double that will ensure that you catch up on any potential grants you may have missed.
Make sure that your RESP is opened with an institution that can support your provincial grant, if it is available in your province. A CI Direct Investing adviser will be happy to chat RESP’s.
Being financially savvy is all about planning ahead and now is best time to plan for the year ahead, so set your sights on your financial goals and avoid playing the catch-up game come the new year.
Not sure where to start? We’re happy to help. Sign up today and book a call with one of our advisors to help you head in the right direction.