Tag Archives: saving

The best Savings Accounts: based on what you’re saving for

Posted By |
Image from unsplash

By Zack Fenech

Special to the Financial Independence Hub

Saving can be one of the most time-consuming methods of acquiring personal wealth, but if you choose the right account for the right goal, you can make the most out of this lengthy process.

The best way to make your money work over time is by choosing the best savings account based on what you’re saving for.

Picking the best savings account in Canada can maximize your interest return and (in some cases) minimize the amount of taxes you’ll end up having to pay.

How to choose a Savings Account

Generally speaking, there are three main types of savings accounts available: a Registered Retirement Savings Plan (RRSP), a Tax-Free Savings Account (TFSA), and a High-Interest Savings Account (HISA). Considering this, it’s important to establish what exactly it is that you’re saving for, and how much time you’re willing to invest with your money.

While this might seem obvious, it’s a crucial step in the financial planning process. By finding the best savings accounts based on what you’re saving for, you’ll be able to achieve your financial goals much more quickly.

The other side of the coin shows that not choosing the right account can cause roadblocks down the line and sometimes cost you money in early withdrawal fees and taxes.

For example, if your aim is saving on a down payment for your first house, but you have all of your money wrapped up in, let’s say, GICs, you won’t be able to withdraw funds early without a penalty.

But that’s not to say that savings accounts are only propped up for massive investments like homes or your retirement.

Saving up for a car, your wedding, or even a trip can have significant benefits on your interest return, but only if you pick the best savings accounts for your financial goals.

Base choice of Savings Account on what you’re saving for

If you’re unsure what it is you need to save for, consider these two questions before making any firm decisions:

  1. What is my financial situation like right now?
  2. Will I need to access the money I’m investing soon?

Here are a few suggestions why a TFSA, RRSP, and HISA are best suited for your short-term and long-term goals, whatever they may be.

Tax-Free Savings Account (TFSA)

A Tax-Free Savings Account (TFSA) isn’t exactly a savings account. Think of TFSAs as tax shelters. You can put cash, mutual funds, stocks, bonds, or GICs in a TFSA and shelter them from taxes, as long as you remain under your yearly TFSA contribution limit [currently $6,000.]

The contribution limit on your TFSAs depends on how much you contribute each year and the yearly contribution limit allotted by the Canadian Revenue Agency (CRA).

If you exceed your yearly TFSA contribution limit by $2,000, you will not be able to deduct the exceeded amount. Contributions that exceed the $2,000 threshold are subject to a 1% fee for every month the amount remains in your RRSPs.

[Editor’s Note: see reader comment below and refer to this explanation at the Canada.ca website.]

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) might seem like a savings account exclusively for retirement planning. However, it’s also one of the best savings accounts for saving for your first home.

An RRSP is somewhat similar to a TFSA. Both shelter your contributions from tax: so long as you remain below your yearly contribution limit. Unlike a TFSA, however, an RRSP does not allow you to withdraw money tax-free. Continue Reading…

Almost half of North American Boomers may delay Retirement over Savings Concerns

Posted By |

Almost half of North American’s young baby boomers would consider postponing retirement because of Savings concerns, a survey out Wednesday finds. Even so, more than half  surveyed had to retire early, often because of circumstances beyond their control.

Franklin Templeton’s 2019 Retirement Income Strategies and Expectations (RISE) survey found that 21 per cent of Canadian young baby boomers (ages 55 to 64) in pre-retirement have not saved anything for retirement. And in the United States, 17 per cent of young boomers are in a similar predicament.

13 to 15% expect to work until they die

As a result, 46% of young Canadian boomers and 48% of young American boomers are considering postponing retirement, with roughly 15% of Canadians and 13% of Americans expecting to work until the end of their life. Furthermore, 22% of self-employed Canadians don’t ever plan to retire.

However, things don’t always go as planned: 54% of young Canadian boomers and 60% of their American counterparts retired earlier than expected, compared to 32% and 37% of Canadian and American older boomers aged 65 to 73.

More Canadian young boomers retired due to circumstances beyond their control than Canadian older boomers (34% versus 20%, respectively). There was a slightly wider gap amongst Americans: more American young boomers retired due to circumstances beyond their control than American older boomers (33% vs 17%, respectively).

Boomers in different life situations after post 2009 bull run

“In 2009, when equity markets started to recover, many young boomers were moving up the career ladder; whereas older boomers were approaching retirement at the top of their earning years,” said Duane Green, president and CEO, Franklin Templeton Canada. “A decade later, after a long bull market run, young and older boomers are in different life situations once again. We see many older boomers benefitting from the transfer of wealth from their parents, yet the young boomers have had a challenging experience balancing more expensive lives – due to caring for elderly parents and still having financially dependent children – all while saving for that increasingly elusive retirement.”

Nearly a quarter (24%) of Canadian young boomers in pre-retirement currently support a dependent family member, compared to 9% of retired older boomers. The top three sacrifices young boomers made for dependents were: saving less money, cutting back personal spending and withdrawing from personal savings. They were least likely to use employer vacation time or take unpaid time off work for caregiving.

“With life expectancy increasing and retirement savings becoming ever more challenging, due to the high costs of living, we are seeing increased concern over having enough money for retirement across all generations,” said Matthew Williams, SVP, Franklin Templeton Canada. “Although it’s never too late to start saving, the best time to start contributing to retirement savings vehicles is when a person starts out in their career and may not have big financial commitments like a mortgage or childcare costs: and to find a way to maintain healthy savings habits as they age.”

Those employed by companies offering group RSP or pensions that allows employees to make contributions directly from their paycheque — and perhaps receiving a company match to their contributions — should fully take advantage of this and potential ‘free’ money, as it will assist their retirement nest egg in compounding over time, Williams said.

Americans more concerned about medical expenses in Retirement

Of those Canadians who plan to retire within five years, 86% expressed concerns about paying expenses in retirement. 27% of these Canadians nearing retirement ranked lifestyle as their top concern, compared to 17% of Americans.

Continue Reading…

Smart ways to divvy up your tax refund

Posted By |

Situation: The income tax refund is a welcome sight for many taxpayers.

My View: Park it temporarily to reflect on its best use before allocating it.

Solution: Evaluate family needs and options that provide lasting benefits.

Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:

For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.

I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.

Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.

Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.

Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:

Reduce debt

  • Repaying credit card balances are top notch, risk-free allocations.
  • Trimming a line of credit, mortgage or student loan is very desirable.

Invest it

  • Contributing to the RRSP boosts the retirement nest egg.
  • Adding to the TFSA generates tax-free investment income.

Help others

  • Donating to a charity of your choice is a noble cause.
  • Helping out someone less fortunate than you is generous.
  • Making RESP deposits helps pay the rising costs of education.
  • Funding the RDSP for a special needs family member is unselfish.
  • Lending it at the prescribed rate to the lower tax bracket spouse.
  • Assisting an adult child to purchase a vehicle or residence.

Save it

  • Leaving it in your saving account is a worthy choice.
  • Supplementing your family business capital is worthwhile.
  • Adding to your investment plan is productive strategy.
  • Improving your career or education fulfills goals and dreams.
  • Rebuilding the family emergency account is beneficial.
  • Setting funds aside for the next income tax instalment.

Spend it

  • Replacing an aging vehicle and appliance helps.

Why customizing a personal investment portfolio matters

Posted By |

By David Miller, CFP, RFP

Special to the Financial Independence Hub

As we say goodbye to a tumultuous 2018 and hello to 2019, it is time for you to review your investment portfolio strategy to ensure it is set up for success in the New Year and for the long-term.

Below are some questions you should ask yourself as you review your investment portfolio:

  • Is your portfolio suitable for your personal situation?
  • What is your overall investment strategy and has it changed given the level of volatility you likely have experienced?
  • Did you receive individualized investment advice from a qualified professional?
    • Is that qualified professional a portfolio manager or a salesperson?
  • Do you or your advisor look at the whole picture when it comes to managing your money?
  • Are your investments held in a ‘cookie cutter’ investment portfolio?

To ensure your portfolio is suitable, reliable, and catered to your situation, a customized investment portfolio, built by a portfolio manager, may be what you need.

The trend towards a ‘Model Portfolio’

Computers and the use of algorithms have made it easier for banks, institutions and, more recently, Robo-advisors to automate the investment process for the masses. Model portfolios are now common place because of the economies of scale; it’s just cheaper and easier to do. For some people this approach might help save on fees, but for someone with more unique financial planning and investment needs, a cookie-cutter portfolio just doesn’t cut it. You need a portfolio that is customized to your situation.

Why Custom Portfolio Management?

Let’s look at high-income earner John. John has saved faithfully through his big bank over the years, and along with his defined contribution pension/stock plan through his work, he has maximized his RRSP and TFSA. He has no debt and there are very few places he can now allocate his savings without having to worry about the tax implications. He’s in the prime of his earning years and has 10+ years until he’d like to retire.

John is increasingly aware of the high fees his bank is having him pay. He’s seen the advertising on the importance of keeping his fees low *there seems to be a race to the bottom for investment fees1*. He’s looked at the Robo-options and even at managing his own investments, but he’s not sure and a little stuck. It’s not his expertise.

Here are five big reasons why John may want a tailor-made portfolio: Continue Reading…

Getting the best bang for your buck with everyday purchases

Posted By |

By Sia Hasan

Special to the Financial Independence Hub

You work hard for your money, so it makes sense that you would want to stretch your dollar as far as possible. If you are like many other hard working adults, you may splurge here and there on a cup of coffee or a matinee movie. However, most of your take-home pay may go toward everyday or typical purchases. These may include food, gas, clothes and more.

It may seem challenging to stretch your dollar in these essential areas, but rest assured that there are several strategies you can employ to get the most bang for your buck. Before you make another purchase on regular or everyday items, consider how these tips can benefit you.

Choose your payment method carefully

The primary payment methods for standard purchases are cash or credit cards. Cash may be in the form of hard currency, checks or a debit card. Many people believe that paying with cash or a cash alternative is a smart option because it helps you avoid taking on expensive debt. It is true that debt can cost you money.

However, if you use credit cards responsibly, a credit card may be a better payment option. Consider that you can make all your regular purchases with a credit card, and you can pay the full balance off each month. Therefore, no interest is accrued, and there is not a cost for using the credit card. You may enjoy the benefit of bolstering your credit score with responsible use of your credit card. Keep in mind that higher credit scores may qualify you for a lower rate on a mortgage, a car loan, insurance rates and more. Therefore, this payment method can yield tremendous savings over time.

Take advantage of Credit Card Rewards

When you make purchases with credit cards regularly, you may also enjoy the additional benefit of earning rewards points. You can begin by searching for a good credit card for average credit and comparing rewards programs or opting into the rewards program on an existing account. Pay attention to the fine print as you compare programs. Some credit card rewards programs, for example, limit the points that you can earn within a specified period of time. Other programs require you to use the points within a certain period of time. These rewards may essentially give you cash back on your purchases, or the points may be redeemed for other items with financial value.

Shop around

Even when you take these steps to stretch your dollar, there may be other ways to save as well. Shopping around is easier to do than ever because of the Internet. Continue Reading…