Christmas and the holiday season of giving are upon us. Have you considered the gift that you give yourself?
The most important and lofty gift of all is to be free of a life constrained by financial pressure. When you have enough income from passive sources that are not dependent upon trading your time for dollars, then what you do with your time becomes your choice. Whether you’re naughty or nice, achieving that takes planning.
Planning is Everything
Goals are always easier and more effective the earlier that you start. The more time you allow yourself, the less impact that saving toward your goal takes away from your current lifestyle to invest in tomorrow’s lifestyle.
Most people will put detailed effort into planning everything from their holiday vacation schedule to their Christmas gift list, but fewer than one third of Canadians plan their financial future. Get started now to make sure you can live the dreams you have.
Also, the more time you have to allow your investments to compound earnings, the better your investments can perform and provide you the lifestyle that you want to enjoy. The sooner you get started, the sooner your plan will pay off!
Several Ways to Gift Yourself
There are different ways you can achieve the gift of financial freedom. Discipline and adherence to a plan will allow you to get there sooner. The 2 most common tools will be your RRSP and TFSA.
Registered Retirement Savings Plans
The Registered Retirement Savings Plan (RRSP) is a government recognized individual account that offers added benefits to individuals who are saving for retirement. The idea behind this and similar programs is that those who better prepare for retirement will need less government assistance once they stop working. The RRSP allows you to defer your taxes on the invested amount until you withdraw those funds. Typically you’ll be in a lower tax bracket when you draw down those funds than you were when contributing to them, making this a efficient retirement planning.
Your contributions to an RRSP reduce your taxable income while you are working and the investments in the account also grow tax deferred. There is an annual contribution cap of 18% of your earned income or $23,820 in 2013; whichever is lesser. The deadline for contributions for 2013 tax year is March 3 2014.
The best thing you can do for yourself is to set up monthly contributions so you don’t feel like you are scrambling for the last Cabbage Kid on Christmas Eve. Don’t be caught trying to make a contribution at the last minute and find yourself missing out.
RRSP funds can be invested many ways, from mutual funds to GICs. How you invest will depend on your goals and risk sensitivity. We will give you more information on your options and help make a plan that suits your needs and lifestyle.
Tax Free Savings Accounts
Another vehicle you should consider in your retirement planning is the Tax Free Savings Account (TFSA). You can now contribute up to $5,500 annually into a TFSA, and you should plan to set aside as much as possible towards that limit. Your TFSA is funded with money on which you have already paid taxes.
You should also keep in track of what of the room you have not used from previous years. Some may have that amount indicated on their notice of assessment or you can call CRA to find out. You will receive another $5,500 of TFSA room January 1st 2014. If you have not used any of your room since the TFSA was created you will have $31,000 worth of room.
Why have your savings sit in a regular account and be taxed on it?! Let’s talk about being as efficient as possible with your money.
Decorate Your Financial Tree Today
Creating a budget is one of the most important things you can do to help you’re your financial planning. Using a budget you can monitor your income and expenses more closely to find the places that money leaks out of your control.
As Certified Financial Planners, we will help you custom-tailor a budget and retirement planning solution no matter how complex your life is.
If you don’t plan properly you may actually need the lump of coal to heat your house. Let’s make sure you are on the right track to financial freedom with smart planning.
You deserve to give yourself the gift of financial freedom. Call us today to get started.
