An article recently posted on globeinvestor.com suggests that not enough Canadian parents are taking advantage of the Registered Education Savings Plan (RESP) to save for their children’s education. According to the article, it’s primarily the highly educated folks with higher incomes that are taking advantage of them, and the people with lower incomes who could really benefit a lot from them either don’t know enough about them or think they just don’t have the means to open one.
The great thing about RESPs is that you don’t need to have a lot of money to open one. So if one of your savings goals is to help your child pay for post secondary education, an RESP is the best way to do it because your child will receive free money from the government in the form of grants and bonds. In some cases, even if you don’t put any money into the RESP, your child may still receive some money from the government.
Opening one is easy. Once you have applied for your child’s Social Insurance Number, sit down with an account manager at your financial institution of choice and ask to open an RESP. When you open one you will automatically be applying for any government grant and bond money that is applicable to your child. You can even open a family plan if you have more than one child. The benefit of the family plan is that if one or more of your children decide not to further their education, the child or children who do can use the money invested in the RESP.
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It is important to make sure that your money is working hard and not just sitting idle in a low interest deposit account. With the exception of keeping a few months worth of living expenses tucked away in a savings account as an emergency fund, I would advise that you make the rest of your money work much harder.
For example, right now we have an open variable rate mortgage at an interest rate of 2.5%. Rather than keeping all of our money in a savings account that pays less than 1%, we decided to put $5000 extra towards our mortgage principal to decrease the amount of interest we pay. Although 2.5% is a fairly low interest rate, our mortgage is our only debt right now; otherwise we would have paid off higher interest debt.
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Many Canadians have recently received unwelcome letters from the Canada Revenue Agency (CRA) regarding excess contributions to their Tax Free Savings Accounts (TFSAs). Penalties in the form of fees owing to the government were assessed for excess contributions made during 2009.
Most people affected were likely confused by the restrictions placed on the TFSA by the government. The important thing for Canadians to understand is that once you have used your contribution space for the year, even if you withdraw from your TFSA, you cannot put that money back until the following year.
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While at a concert recently, I met a young woman who told me that she and her husband took a course a few years ago that taught them how to trade individual stocks.
She said, when she first heard about the training she almost didn’t take it, because the course was quite expensive, almost $9000. However, they decided to take it despite the cost, and she said they were able to recoup the cost of the course within one year of trading stocks.
She recommended that married couples should take the course together, so that both partners are on the same page. It is much more difficult if only one spouse understands what is going on.
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Guaranteed Investment Certificates (GICs), are a common savings vehicle used by Canadians. There are different types. Some are locked in for a specific period of time, while others are cashable at anytime.
GICs provide the following advantages:
-Your principal is guaranteed.
-For most GIC types, you are guaranteed a fixed rate of interest for a specific period of time.
-They help people to save who would otherwise spend their money. If their money is locked away, they have no way of accessing it, making it impossible to spend it on a whim.
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Inflation, the ever -increasing cost of everything over time, makes a significant impact on your savings. In a normal, healthy economy, the inflation rate usually hovers around 3%. Essentially, everything goes up in value except your money. This is an important concept to understand as inflation impacts your purchasing power.
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For those of you who consider yourself to be visual learners, you will enjoy watching some of the personal finance and investing videos on http://kanjoh.com/. It is a website that aims to provide “financial clarity above the noise”.
The goal of the website is to help people understand the economy, how to effectively save money, and to understand the various types and aspects of investing. I am impressed with the videos I have watched on the site so far, as they are straightforward, easy to follow, helpful, and interesting.
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An article recently posted on globeinvestor.com suggests that not enough Canadian parents are taking advantage of the Registered Education Savings Plan (RESP) to save for their children’s education. According to the article, it’s primarily the highly educated folks with higher incomes that are taking advantage of them, and the people with lower incomes who could really benefit a lot from them either don’t know enough about them or think they just don’t have the means to open one.
