Facing what seems to be a never-ending flow of day-to-day living expenses, it can appear difficult to set aside money for investing. But you know you should – ‘paying yourself first’ by contributing regularly to your RRSP eligible investments and other investments is the best way to achieve your retirement and long term financial goals.
To help you do the right financial thing, here are three do’s and dont's for uncovering hidden money you already have that you can use to regularly fund your investments.
Do consolidate debt Gather up your small loans and credit card debt and combine them in a larger debt consolidation loan at hopefully a better interest rate and a lower overall monthly payment. Another option: Transfer your credit card balances to a personal line of credit at an interest rate that is lower than the 18 to 28 per cent annual rates of most credit cards.
Use the ‘found’ money now available from your lower monthly loan/debt payments to fund your investments.
Do make your life less taxing “Great,” you think. “I just got a big tax refund cheque.” Well, really not so great. By having too much tax withheld from your pay each month, you are actually lending the government your money, interest-free. Instead, apply to reduce the amount withheld from your cheque (file a T1213 form with the Canada Revenue Agency) and invest that extra money each pay period.
Don’t make that a double-double You buy a coffee on your way to work each day – probably paying two, three, or even four dollars or more for that large latte. Seems like a small amount – but cut your coffee habit and invest those small dollar amounts in your RRSP and here’s what happens: Thanks to the magic of compounding, the price of your daily coffee will add up to an additional $11,000 in your plan in 10 years (based on an annual return of six percent). Over 30 years, you would accumulate $67,000 – and that would provide an annual pre-tax annual retirement income of approximately $5,000 over 25 years. And that’s just for investing the price of a regular coffee. Cut your (more expensive) latte habit and you would have an additional $22,000 in your RRSP after 10 years and over $132,000 after 30 years – for a pre-tax annual retirement income of $10,000 for 25 years! Besides, your nerves won’t be as jangled.
It can be tough to discipline yourself to invest those hidden dollars – make it easier with a Pre-Authorized Contribution Plan (PAC) where direct withdrawals are made from your bank account to an investment account. And remember: Your professional advisor can help you use these and other strategies to get the most out of your money and reach your financial goals faster.
The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.