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This is the stuff you millionaires in the making need to know to kick start or propel you on your financial fitness journey. Tracey Bissett, Founder of Bissett Financial Fitness and award winning Financial Literacy Champion, gives you the straight goods each week to set yourself up for financial success. As a former executive at TD Bank, one of Canada's Big 5 Banks, Tracey has worked with and in support of thousands of individuals and entrepreneurs to secure the financing they needed.  This hands on experience combined with her formal financial education, Masters of Business Administration and Chartered Financial Analyst designation, position Tracey uniquely to coach all things money. Tracey goes behind-the-scenes of all the money matters with need-to-know tips, money-making demystified, and special power-player interviews. Join us weekly for Financial Fitness Training that will turn even a Cash Couch Potato into a Marathon Money Maker.

Feb 13, 2018

I started my RRSP (Registered Retirement Savings Plan) at the age of 18 with a contribution of $25 per month - $300 a year! My parents were insistent that my budget, even while I was a student, include this long-term savings component so that my savings would benefit from compound interest. You may remember we talked about compound interest in prior episodes and it means the addition of interest to the principal of a deposit – interest on interest. This compounding impact, reinvesting interest, works well when you have a long-time horizon for your investments. Better to save small amounts and reap the benefits of compound interest versus delaying the start of savings because you do not have a lot to invest.  

If you’re thinking of saving up for a car, home, education or trying to figure out your retirement savings to stay or become financially fit in the future, you may have come across two plans the Canadian government has in place: TFSA (Tax-Free Savings Account) and RRSP. It is essential to know the difference between the two to determine how you can save for the long-term and benefit from these plans.

Today, I’m going to give you an overview of the TFSA and RRSP. I compare and contrast the two regarding the appropriate age range of contributors, the pros and cons of each plan, and what happens when you withdraw your money. I also share how each plan impacts your taxes and how you can save your money wisely to have a financially fit future.

 

“When saving for retirement it is generally good to use a combination of the TFSA and RRSP plans.” - Tracey Bissett

 

This Week on Young Money:

  • Explanation of the TFSA and RRSP plans
  • Benefits of each and questions to ask yourself when deciding where to put your money
  • How the government computes your contribution room for TFSAs and RRSPs
  • Tax implications for each program
  • Important dates to remember when making contributions
  • When to consult a specialist (ie: financial or tax planner) to discuss your personal situation
  • Where to find the specific details of each plan – double check before making contributions

 

 

Reminders from David Chilton of The Wealthy Barber:

  1. If you get a refund from your RRSP, don’t spend it. Pay down debt. Reinvest. Do something with it.
  2. If you go the TFSA route, don’t spend it for anything other than what you’re saving it up for. Do not use your TFSA like a debit card.
  3. Whichever route you choose, save more.

 

Resources Mentioned:

 

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