Be Realistic As To How Much You Can Save

by Pam on August 10, 2011

Many people decide that they are going to start saving, but rather than figuring out how much to save, they simply set up automatic contributions to their Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) for random amounts, often overestimating how much they can afford to save.  This can create some negative consequences.

NSF Fees

What sometimes ends up happening is that they are charged nonsufficient funds fees  (NSF fees) on their chequing accounts because they have contributed too much to their investments, not leaving enough money in their transaction accounts to pay all their bills.

Using Investments As Transaction Accounts

Another problem it can lead to is that they end up using their RRSPs and TFSAs as transactional accounts rather than using them for their intended purpose.  This can be costly, especially if you consider the tax consequences of RRSP withdrawals.  Although there are no tax consequences for withdrawing from TFSAs, there is no use in using them if you plan on constantly taking money out of them as the tax benefits are then lost.

Consider How Much You Can Afford To Save

After taking into account your income and your expenses, set up realistic automatic contributions towards your various savings and investment accounts.  That way you will be sure to be tucking some money away for your various goals without over extending your bank accounts and paying hefty fees that could have been prevented.

You Can Always Add More To Your Investments At Any Time

Remember, you can always pop in extra money towards your investments above and beyond your automatic contributions, and if after a couple of months you realize that you can afford to save more, then feel free to increase your automatic contributions accordingly.

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