Savings money – Set up an account for long term saving. Most people can take a small amount of their earnings and set it aside without creating financial hardship. For example, you may not think twice about buying a coffee from Tim Horton’s for a $1.30 everyday after school. What if you had this amount placed in an account automatically so it gets saved instead of spend. What would it amount to if you continued this for your working life (20 – 55 yrs old = 35 years?
The government has created an account that can be taken out in any bank called a tax free savings account (TFSA). This means that any money deposited into the account will not be taxed including any interest earned on the principal (balance of the account). Additionally, deposits do not have to be simply money but can also include bonds, GIC’s, mutual funds or equities. The only draw back is you can only deposit a maximum of $5000 per year. However, the amount is cumulative so if you fail to contribute the maximum one year the remainder gets pushed over to the next year. This is a good place to start saving your money!
Registered retirement savings plans (RRSP) are also like this but function a little differently. Money contributed to these plans reduce your taxable earnings for the year you contribute to your plan (you get more money back from the tax the government takes from you paycheck than if you didn’t contribute). However, when you do withdraw from the account the government will tax the money. The benefit is that any money earned through interest grows tax-free until you withdraw it.
Lets look at the $1.30 per day savings plan?
Could you do it? Most say yes!
Basic math $1.30 X 30 = $39.00 each month
We are going to place in a TFSA that pays 5% annually and is compounded monthly. This will be done until you reach the age of 55. Watch what happens!