by Pam on December 5, 2010
Most Canadians are aware of the existence of Registered Retirement Savings Plans (RRSPs) but they really do not know much about how they actually work or how they can use them to benefit them fully. Until just a few years ago, I thought that once you turned age 65, you were allowed to take the money out of them. How little did I know! Unfortunately most Canadians are still in the dark about RRSPs and when it is wise to use them.
RRSPs can be especially useful for regular employees who pay a lot of tax on their employment income. By contributing to an RRSP, they are allowed to defer their income tax. They benefit from lower taxes payable now, and then will expect to pay it later when they withdraw it (presumably when they retire and are at a lower tax bracket).
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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.
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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by Guest on June 25, 2010
There is nothing quite like tough economic times to bring frugality into brilliant focus. Survival issues drive every decision. Priorities suddenly assume an importance beyond what was ever thought possible. Health issues give way to paying the rent or putting food on the table. The price of gasoline reduces driving a car to when it is only absolutely necessary. Clothes and furniture are now luxury items that must be put off. And then you are reminded of saving for retirement. Surely, that can be put off, too?
Unfortunately, time is not on your side when you put off saving for your future well being. The price for living an older life with dignity keeps increasing, right along with everything else, and probably more so due to the hyperinflation in the medical industry. Social Security may only supply 40% of your desired retirement income. You will need additional savings, and the best time to start is always now, even if economic times are tough.
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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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by Guest on June 15, 2010
It is truly amazing how many people entrust their entire life savings to stockbrokers who know absolutely nothing or very little about investing. In their defense, many stockbrokers may be honest individuals who truly want to help their clients. However, the problem is that they were never trained to be investors but instead were trained to be salespeople, and they are constantly being pushed by their employers to sell. After being recruited by a brokerage company, they are subjected to intensive sales training where they are taught how to cold-call, prospect for clients, and counter various clients’ objections. The actual education on how to select and analyze particular investments is limited.
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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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