8 important things to know when starting your RRSP investments

1. Your maximum contribution amount

Money going in to an RSP account is tax deductible in the year it is deposited so this can be a great strategy to save money on your income tax bill.  To prevent too many dollars taken out of the tax base, the government puts limits on how much we can contribute each year.  This year you can deposit anywhere from 0 to 18% of your annual earnings to a maximum of $26,010. Keep in mind money withdrawn is also taxable in the year it is received, so be sure to only deposit what you plan to leave in to retirement to take maximum advantage of this program.

2. Yearly limits carry forward year over year

The yearly maximum deposit of 18% of earnings has existed for many years.  This allowable amount accumulates each year and can grow to a considerable sum over the years.  To find out your limit today, check on the Service Canada website or look at your most recent Notice of Assessment (mailed to you from Revenue Canada when they confirm income tax amounts each year).  There is a bonus, the Service Canada website will also tell you about your CPP contributions made and project pension earnings at retirement.

3. RRSP contribution = tax refund

An RRSP is used as a tax shelter from income tax.  Every deposit made can be deducted from your earned income and reduce the tax payable.  If your employer already deducted as they paid you, you can receive a refund at tax time.  The more you make, the higher you pay and the more you can save.

4. The early you start the easier it is

While RRSP’s benefit those in the higher income tax brackets, it’s better to take advantage of them earlier rather than later to take advantage of compound interest. To illustrate this point see below:

Notice that the contribution amounts are the same, but John has managed to accumulate an additional $62,675 in compound interest over the 40 year period. The amount that each person puts into their RRSP each year will vary, but this demonstrates the value of starting your investment early. Even if you are investing in small amounts, they will grow over the entire period of your RRSP. To further this example, if you invested only $1,000 and never made any further contributions, at a 5% rate of return that amount would grow to $7,358 over the 40 year period.

These examples are only illustrations of the investing power of compound interest, the actual results may vary.

5. Set-up automatic transfers to save for you

Remembering to put money aside or into your RRSP every month is not all that time consuming by itself, however it can be made much easier by simply automating the process. Set an automatic transfer with your financial institution to transfer the amount you wish to set aside each month or paycheck and transfer it into a separate account that you can use to make your annual contribution at year end. Depending on the type of RRSP account you hold, you may even be able to have the money automatically deposited into your RRSP account, saving you a step at the end of the year and further taking advantage of compound interest.

6. RRSP’s aren’t limited to savings accounts

Not all RRSP’s are created equal, in terms of risk and return that is. There are several different types of investments that can be held in an RRSP, the most popular being mutual funds among Canadians. Some of the other types of investments that can be held in an RRSP are:

  • Guaranteed Investment Certificates (GICs and sometimes also called Term Deposits)
  • Bonds
  • Exchange Traded Funds (ETFs)
  • Stocks
  • Segregated Funds
  • Mortgage Loans within certain conditions and more

It is important to keep in mind that you can mix and match these investments in your RRSP Portfolio you aren’t limited to picking just one. Which investment type is right for you? That’s a discussion best saved for your Financial Advisor as each type of investment will carry a different associated risk or benefit.

7. Your investments grow tax free

Probably one of the largest benefits of holding an RRSP is that your investments grow inside the portfolio completely tax free. This means you don’t pay taxes for capital gains, dividends or interest on the money earned off of the investment unlike non-registered investments.  You will however still pay your current tax rate on the money when you take it out as discussed in section 3.

8. Can I take my money out of my RRSP’s without penalty?

There is two ways to withdraw money without penalty.  One is with the Home Buyer’s Plan, allowing you to withdraw up to $25,000 from your RRSPs without paying tax. The stipulation here is it is just a loan from your RRSP and, you still need to pay it back in full within 15 years or you will incur penalties. Another option is to withdraw towards your education, called the Lifelong Learning plan where you can withdraw up to $10,000 each year – this also has to be paid back or there are penalties. Note that withdrawals must be made more than 90 days after deposits.  Be tax smart and check with your financial advisor for your best options.

 

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Debt Management Advice: 7 Tips on how to manage debt of any size

Almost everyone at some point in their life will have to learn to manage their debt load. Whether it’s credit cards, mortgages, student loans, or other loan sources, debt is likely going to be a reality for most of us at some point. This can be simple to manage in small amounts, but what can be done when it involves multiple large sources of debt? Good news, virtually almost all debt is manageable with the right approach.

1.)  Make a list of what and who you owe

The first step to managing your personal debt is to identify who you owe, and how much you are in debt to them. It is especially important to identify what your monthly payments are so you can budget accordingly for them. This will help you see the bigger picture of how much you need to put aside each month just to make your minimum payments. Make sure to update this list every three to six months so you can stay on top of your debt load and to ensure that your debt reduction is moving in the right direction.

2.)  Make your minimum monthly payments on time

If you can’t afford to pay off your debt, at least make an effort to pay the minimum payment. It won’t make you much progress for eliminating your debt load, but it will stop it from damaging your credit and having your loans go into default. Paying your minimum monthly payments on time is important as well, if you put it off for a month in order to pay for something else it may become more difficult for you to catch up next month. Continuously having debt in a 30 day late payment cycle can also be detrimental to your credit over the long term.

3.)  Create a bill-payment calendar

Track when your bill payments are set to come out of your account by using a bill-payment calendar. By doing this it will allow you to budget your paycheques more effectively by deciding which pay period you will pay which bills. Identifying your disposable income that you have remaining for each pay period is very beneficial to managing your debt load as it will also help you to budget your other expenses such as food and entertainment. This ultimately should help reduce or stop overspending and going further into debt.

4.)  Consider consolidating high interest loans

Consolidating high interest loans can be a good fit for you if you are someone that holds several high interest loans, typically some credit cards and department store credit cards fall into this category. Last year department store cards had an average interest rate of 24.99% with some of these cards reaching as high as 30.49% according to an annual survey done by creditcards.com. By consolidating these cards into a personal loan, it will help drastically reduce the amount of money that is racked up by interest alone. It will also make payment schedules considerably easier by being able to pay the debt all in one place with one single payment vs paying several creditors with multiple payments on different schedules.

5.)  Pay off high interest debt first

If consolidating isn’t an option, the same results can be achieved also by paying off your highest interest rate debt first. Again, these will likely be department store credit cards or other high interest cards. By paying these off first you will save more in the long run on interest payments freeing up more excess income to help pay down other debts as needed afterwards. Paying these off will also help improve your credit score by eventually closing down multiple open credit sources which will make obtaining a low interest loan in the future much easier.

6.)  Consider working an additional part-time job

If cutting down on expenses isn’t freeing up enough extra income to help pay down portions of debt, consider taking on an additional part-time job. Even marginal amounts of added income can be huge when it comes to paying off debt. By working an additional 4-8 hours a week you may be able to easily net $100 to $200 extra a month which will make a large difference in paying off lump sums of debt. Freelance work is another option that’s available depending on your field of work and can vary from cleaning houses, dog walking, professional services, and much more the opportunities here are almost endless and you’ll be able to set your own schedule for what works for you.

7.)  If all else fails, seek professional help

If all of the above fails, or it’s difficult to keep up with payments that are over and above your income every month you may need to reach out for help. There are many types of professionals that specialize in this field and people everywhere end up facing this same problem. If you’re facing this type of problem, we may be able to help by reviewing potential options with you, contact us and book an appointment with one of our Account Managers to see what’s available to you.

 

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How to pick a credit card that will work for you

Do you have difficulty determining which credit card is going to suit you best? Well you’re not alone. In fact a recent survey has indicated that 61% of searching customers find the number of available choices overwhelming, and 57% indicate that they can’t determine what the best fit is for them.  With more Credit Card options out there than Instagram has filters, how can you be so sure you’ve picked the right one for yourself? We’re about to help you through this.

 

Rewards & Perk Cards
First question, do you pay off your balance at the end of every month? If so, then these types of cards can be of great benefit to you. Typically, rewards and perk cards have a set annual fee and come with higher interest rates than their no-fee, low interest counterparts. In exchange for this however, they provide you with a variety of cardholder benefits such as improved warranty protection, additional reward points earned at specific locations, auto rental insurance, travel insurance, and much more. Some of the elite rewards cards even offer concierge service to assist their cardholders with administrative tasks such as travel & party planning, dinner reservations, hotel bookings, and more. The most important point to consider when seeking a rewards card is if you intend to keep a balance on your card. If so, you will end up paying higher interest rates than you would on other options. Your best bet here is to pay your balance each month if possible and benefit from the perks, while avoiding the higher costs potentially associated with them.

Cashback Cards
Cashback cards are gaining huge momentum in the credit card industry. Ranging from immediate 0.5% to 2.0% cashback on ALL your purchases made with the card, it’s easy to see why these types of cards are becoming hugely popular. If you’re the type of person who doesn’t care much for the extra perks and rewards of your card, or won’t make much use out of them then consider what the cashback cards have to offer. Typically, these cards also offer higher interest rates, so it’s not recommended for those who tend to carry a large balance since the cashback percentage will be quickly eaten up by the extra interest you will pay vs a low rate card. These types of cards can also be rewards and perk cards as well, but keep in mind you’ll likely pay an annual fee to take advantage of these benefits.

Low Interest & Balance Transfer Cards
Almost all providers have a line of low interest or Flex-rate cards that will give you a lower rate depending on your credit score. These types of cards typically come with little to no additional perks or benefits outside of reward points and standard provider services. These are the best cards however for those that tend to run a higher balance on their cards. In fact, by switching to a low interest card cardholders can save over 50% on their interest payments each month. For someone who holds a $5,000 to $10,000 balance, that’s potentially $40 to $80+ each month that could be saved that’s going directly to unnecessary interest payments. Some providers will also offer promotional incentives as well for balance transfers that will grant their cardholders a limited time offer of exceptionally low interest rates for a set period of time.

Travel Cards
Another type of benefit card that is popular among cardholders is the Travel Reward Card. These types of cards typically allow the user to accumulate points through their purchases and redeem at a later date towards flights, hotels, cruises, etc. These types of cards usually involve an annual fee on the higher side, and can vary in terms of interest rates. Some travel cards do come with extra benefits above and beyond traditional benefit perk cards such as emergency health insurance, or trip cancellation and interruption insurance, lost baggage insurance, and so on. This type of card is going to suit a cardholder that uses it while travelling to really make use of the benefits offered by the provider.

 

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Top 6 ways to get your debt under control quickly after the holidays

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During the holiday season it’s all too easy to get caught up in the moment and go outside of our budget with expensive gifts and extra activities. In fact a recent financial poll has discovered that one third of Canadians rack up an additional $1,200 in credit card debt over the holidays. If you’ve recently gone over budget on credit card debt and Holiday Cheer don’t despair, we have a way out. Here are a few tips for you to use to get your debt back under control:

1) Separate your income and expenses
The first step to getting your debt back under control is to completely assess your financial situation. Budget your income and expenses, also called a money list. You can do this by using Microsoft Excel, Word, or even just a sheet of paper.

The first step is to list out and add up all of your sources of monthly income. Once you’ve completed this, try to list and add up all of your monthly expenses, and I mean EVERYTHING. Include all of your expenses from your bi-weekly or monthly mortgage to your morning cup of coffee out at Starbucks or Tim Hortons. Do your best to be accurate in the amounts you’re spending. It doesn’t have to be exact, but if you’re unsure then estimate on the high side.

Once you’ve totaled both, subtract your monthly expenses from your monthly income, what do you have left? If you’re monthly expenses are higher than your monthly income, look to see what you can eliminate from your expense category that isn’t essential until this number becomes positive again. If this isn’t possible, then you may require professional assistance to help you manage your debt, and we’re here to help. Book an appointment with us by clicking here:

2) Add up ALL of your debt
The next step is to total up all of your personal debt and list your minimum payments. You’ll see why we’re doing this later in the article. List your debt from highest to lowest balances and don’t be surprised if this totals a large number. If it does don’t fret, we’re just 5 steps away from getting it fully under control. Once you’ve listed the amounts add in the interest rates that you’re paying for each loan or credit card. This way you’ll know exactly where you stand and can identify which debt is the most beneficial to tackle first.

3) Create a budget & minimize your expenses
In order to use as much income as we can to help you pay down your debt, first we need to look at how we can comfortably free up some additional income by reducing expenses. Step one is to create a monthly budget that includes only essential expenses such as mortgage payments, rent, groceries, etc. If your budget allows add in a small amount for a personal or entertainment budget, but make an attempt to stick to this amount!

In order to make this budget work effectively avoid making non-necessity purchases such as coffee out every morning and make it at home instead. The $2.99 or more you’re spending every morning can be saved by making a $0.25 cup of coffee at home before you leave. This means you’ll save a whopping $60 a month alone that could be used to pay off lump sums of debt. Next, try to look where you can downgrade or cancel unnecessary subscription packages. Have multiple content streaming packages? Try picking just one or downgrading and even eliminating your cable package. This can save you up to $100 or more every month alone.

Another tip for staying on budget is when you’re shopping for groceries try to shop only once per week and take out cash equal to what you budgeted to spend. This limits the potential for over spending and can force you to bargain shop as much as possible. The main point here is to reduce or eliminate any expenses that are non-essential and use that money to work for you paying off your debt.

4) Transfer your credit card debt to a low rate or promotional rate card
If you’re paying a high interest rate on your current card/s, consider consolidating some of this onto a card that is offering a low rate for balance transfers. Some card companies offer low promotional rates for as long as 6 months or more. Use this extra money that you’ll be saving on interest to make extra payments towards this debt to reduce it as quickly as possible. In another upcoming article we’ll also discuss how to choose a credit card that will work for you in terms of perks and benefits.

5) Use unexpected income to pay off lump sums of debt
This is great way to make a huge dent into your personal debt. Unexpected income can be in form of a tax return or other financial windfall. Since this money wasn’t budgeted for initially, what better way to utilize it then to pay off lump sums of a single debt balance. This payment will be interest free as long as it’s above and beyond your regular monthly payment and will pay off your balance much quicker reducing the amount of time and interest you’ll pay over the term of the loan. Although it can be hard to part with, you’ll be much better off and benefit substantially in the long run if you choose to put it down in full on one of your debt items.

6) Implement the snowball method to pay off debt
This method has psychologically proven to be the most effective in terms of paying off debt and has the best long term results. So how does it work? Remember how we listed all of our debts from highest to lowest amounts in step 2? The snowball method starts by selecting your smallest owing debt amount and then paying over and above your minimum payment, such as the leftover income from your budget in step 3. This will apply this additional payment amount directly onto the balance of the debt, and will allow you to quickly pay off your smallest debt freeing up that debt’s minimum payment expense.

Once this debt is paid off keep paying the minimum payment amount, only take this amount and apply it to your second lowest debt amount. This way you’re now paying over and above your minimum payment on your second lowest debt amount. See where we’re going with this? This will allow you to “snowball” your payments over time and quickly pay off of all your debt without having to make major adjustments to your lifestyle.

 

Before you know it you’ll be paying large amounts every month on your largest debt item freeing you up completely from further interest payments. Pro tip: Once you’ve paid off your debt, keep paying yourself in the form of these minimum payments by putting these into a high interest savings account or investment.

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Business After Business – Armstrong

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Business After Business
Date: Wednesday, January 17
Host: Vantage One Credit Union, Armstrong
Location: #1 3300 Smith Dr
Time: 5:30 pm – 7 pm
Cost: free
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No charge for AS Chamber of Commerce members! Staff welcome. Refreshments and door prizes – don’t forget your business cards!

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