In one of our previous articles, we discussed the basics of money management and provided some ideas on how to create a balanced lifestyle.
This post will focus on how to allocate that money better.
The biggest advantage of being young is having time on your side. The idea is simple ; if you wish to have $1,000,000 tomorrow, you simply need to double $1, twenty times.
If it takes 20 years to compound your first dollar into $1000000, then it’s best to start today, rather than another 20 years from now.
One of the best tools to save for retirement is your RRSPs. This is a simple tax-deferred tool that gives you interest for your contributions so you can kick-start your retirement planning. If you’re currently in your twenties, your RRSP is one of the best tools you can use to help kick-start the Home Buyer’s Plan. The CRA allows you to borrow from your RRSP to purchase your first home. Therefore if you put your first $25,000 into an RRSP you will yield a rough total tax-refund of $8,250 This is an instant return of 33% If we were to consider RRSP as a down-payment plan though, it would really be more of a Mid-Term Savings tool more so than Long-Term Savings.
One of the key characteristics of an RRSP is that the money grows on a tax-free basis but withdrawals are taxed as income, except within the First Time Home Buyer Program. If you are to be a first time homeowner then you are able to withdraw up to $25,000 per person for this purchase, with no implications on your taxes. You just need to deposit it back within the next 15 years.
Other considerable tools are RESP for families with kids, TFSAs for flexible savings, and Non-Registered or Leveraged Investments.
A TFSA is a ton more flexible than all of the other options and it really should be used as a Short-Term strategy but from a taxation perspective TFSAs are ideal for retirement planning as well. You can use a TFSA as a short-term savings plan up until you’re ready to really plan out your Retirement.
Here’s why TFSAs are so great -
They grow on a tax-free basis, any money you earn in this account/program will not be subjected to any taxation…ever!
Withdrawals are tax-free as well. This is the best feature of this plan that makes it so attractive for retirees. This income would not affect your other government retirement sources.
Contribution room increases each year and you can put back anything you took out in the previous years.
So far we’ve covered the tools for you to consider, like RRSPs and TFSAs. A common question we hear from our clients is: “What are the best ways to mitigate the risk on my investments?” It’s a great question, because no one plans to LOSE money when you’re trying to MAKE money.
We recommend these three strategies
Long Term Horizons: short-term investing is always a bit of a gamble but the stability and risks can average out over time. A short term loss in a portfolio does not mean that it will always stay low!
Diversification: there are two levels of diversifications; you can diversify within an account such as holding different funds inside a TFSA OR diversify your overall portfolio by mixing RRSPS,s TFSAs Bonds, Stocks, etc.
Lastly, practice Dollar-Cost-Averaging. You are already doing this if you make a plan to put away money each and every month.
With the practice of proper budgeting, monthly investing and having attainable goals with a purpose, you will be able to stay on track for your financial future. I would encourage you to do more of your own research, reach out to a trusted financial advisor and subscribe to our videos so that you can build up your financial confidence to prepare for your future.
Click the links for more information. Thank you from Novella Wealth and together let’s rewrite your financial stories!
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