This post is a sponsored post by Sun Life Financial written By Brenda Spiering. See my disclosure policy here.
Saving for retirement is likely one of your top financial priorities. But did you know that how you save can be nearly as important as how much you save? Choosing the right retirement savings account can have a huge impact both on how much money you save and how much tax you pay. So, how do you choose the best type of account?
How to choose the right retirement savings account
When to choose an RRSP
When it comes to saving for retirement, RRSPs (Registered Retirement Savings Plans) are pretty hard to beat. Contributions are tax-deductible, investments grow on a tax-free basis within the plan, and RRSP funds aren’t subject to tax till they’re withdrawn from the plan.
If you expect your current income is going to be greater than your income in retirement, an RRSP is a great option. It will provide you with a tax deduction that can help reduce your current income taxes. Plus, if you’re in a lower tax bracket when you draw the money out, it can help reduce the overall amount of income tax you pay.
When to choose a TFSA
TFSAs (Tax-Free Savings Accounts) are a great retirement savings account option if you’ve maxed out your RRSP. While you won’t get to claim your contributions as a tax deduction, the investment growth is tax-sheltered and there’s no tax payable on withdrawals.
The fact that withdrawals from a TFSA are not subject to income tax also provides an advantage if you expect your income in retirement to be greater than your current income, since TFSA withdrawals do not reduce income-tested benefits like old age security benefits. Also, unlike RRSPs that you can no longer contribute to after Dec. 31 of the year in which you turn age 71 (or, in the case of a spousal RRSP, the year in which your spouse turns age 71), you can continue to contribute to a TFSA as long as you wish.
How much can you contribute?
Both RRSPs and TFSAs have contribution limits. In the case of RRSPs, you can contribute up to 18% of your previous year’s earned income up to the maximum limit set each year by the Canada Revenue Agency (CRA) ($26,230 for 2018), plus any unused contribution room carried forward from prior years.
Since 2016, the annual maximum contribution limit for TFSAs has been $5,500, however, you can also contribute for any past years in which you didn’t contribute, back to 2009 when TFSAs were first introduced. If you’ve never contributed before, you’re currently eligible to contribute a maximum of $57,500.
A great way to determine how much you need to save for retirement is to use a Retirement Savings Calculator. It can help you set an annual savings goal based on your current age, expected retirement age and desired income in retirement. Plus, it can show you the impact of contributing to different types of retirement savings accounts.
To learn more about smart ways to save for retirement, sign up for the Sun Life Saving for Retirement email series.
Kids are not immune to money talks and they can understand finances and the value of money at a much younger age than many parents realize. Some experts even think that a child’s views on money is set by the time they are 10 years old, some as young as five or six. How you talk about money in front of them, and how you set the example for budgeting and saving is very important to how your child will form their own opinions about money.
This means if you want to start teaching your kids to budget and save, it’s never too early. There are some steps you can take when they are still very small, and then the money lessons can grow with them as they get older. We’re going to look at a few ways to help kids understand budgeting and saving.
Here are some ways you can teach kids to budget and save
Use a Piggy Bank
For younger children, use a money jar or piggy bank. Let them see the money they are saving and have a visual of it as it’s growing. Since many people do nearly all their finances digitally now, it may be difficult for a child growing up in this generation to really understand money that they never see.
Set an Example
You know those little eyes are always watching so show them how you budget and save. If you’re not already doing it, create a plan and get started. If you’re already doing it, but they just don’t see it, let them be involved in the process. Talk to them about the household budget. Explain what you’re doing when you go shopping together for groceries. Make talking about money, budgets and saving with your children an ongoing conversation in your household. This is how they learn.
Show Comparison Costs
For older kids, you can start showing comparison costs. “That video game costs as much as a new pair of sneakers”, for example. Or you can give them a commission, rather than a typical allowance. Pay them based on chores they do around the house and increase it based on the number and complexity of the chores they do. This will also teach the value of a dollar, the importance of working for and saving for what they want.
Teach them about Credit Cards
Explain how credit cards work. In addition to explaining that credit cards aren’t just “free money”, you also need to explain how easy it is to get in debt and why credit cards are dangerous. Explain what responsible use is long before they are old enough to have their own. Also, show by example.
Now that you have these ideas on how to teach kids to budget and save, you’re ready to start applying them. If some or all of them don’t work for your family or your kids, that’s okay. Just use the ones that do work, or make modifications to these suggestions so that they do work for you! If you’re looking for even more tips and advice, check out Money Smart Kids by Gail Vaz-Oxlade or Smart Money, Smart Kids by Dave Ramsey. Both books are highly rated!
What are some ideas that you have successfully used with your kids? Let us know in the comments below!
We journal our thoughts and feelings, we journal what we eat, but how many of us journal what we spend? A spending journal is a great way to track where our money is going and get a clear financial picture of our circumstances. It can help us spend smarter, spend less, and make more informed buying decisions. And the best part is, keeping a spending journal only takes minutes a day! Take a look at these helpful tips on How to Create and Keep a Spending Journal, so you can take better control of your financial situation starting today.
How to Create and Keep a Spending Journal
1. Find a journal.
You can’t create a spending journal without a journal, right? Any simple notebook or journal will do! Head to your local Dollar store if you wish and grab a durable notebook. These notebooks from Amazon will also do the trick. Label it as you wish, and you now officially have a spending journal!
2. Decide on the layout.
There are several ways to layout the journal. You can create a page for each day, or create sections using notebook dividers. Use a layout that works for you. If you want to avoid flipping around, it may just be easier to use a new page each day.
3. Track these expenses.
You have your journal, you have your layout, now it is time to decide WHAT should be going in your journal. You want to be sure you include these items each and every day in your journal:
– Outgoing money/expenses
– Incoming money/income
– Essential spending should be written in GREEN
– Non essentials should be written in RED
Basically if you spend a single dime, it gets recorded in the journal. If you earn a single dime, it gets recorded in the journal. It may be ideal to make two columns on each page, one for outgoing and one for incoming. Then, use colored pens (red and green) to decipher spending and record the information in each.
4. Analyze your journal entries each week.
Once you have accumulated a week’s worth of entries, it is time to analyze them. Do your red entries outweigh the green? That could be an issue. You want to see where you might be wasting money. Fast food, coffee shop stops, entertainment, and dry cleaning may be some of the items popping up in red. The gas bill, groceries, and electric bill may be some of the items showing up in green. The idea is to cut the red column down so you can pay off more of the essential expenses.
5. After a month, add a purple column.
After you have the chance to analyze your spending for the month, add one more column. The purple column is where you will put money you SAVED. If you add any money to savings or use a coupon to save on an item, write the savings in the purple column. It will be fun to see that amount grow!
6. Keep the journal handy.
It is best to keep your journal in a purse or handbag where you can write your expenses down as they happen. If you put it off until the end of the day you might forget and info may not get recorded. Keep the journal handy and you are more likely to use it and keep information up to date.
As you can see, a journal like this can really help you gain financial freedom. Consider creating a Spending Journal to see if it can help you!
Have you heard of a spending journal before? Will you give it a try?
How to create a budget binder
Setting up a Budget Binder in your home is a terrific strategy for staying on top of your finances. It should not only be a record of what is spent, but it should include your estimations for what will likely be spent in the coming year(s). This binder or manual should be a go-to for all of your questions regarding what you can afford and how long it will take to reach your financial goals.
Here’s how to create a Budget Binder:
1. Find a binder that works for you. I really like this binder, but any binder will work. I would choose one that has at least a 1″ spine width.
2. You will also want to have some tabbed dividers so that you can separate your budget binder into sections. With the Simply Frugal Budget Binder kit, I provide 12 inspiring quotes that you can print off to create dividers for each month of the year. These Redi-Tag Removable Index Tabs are perfect to add to each quote/divider. The tabs are writable and repositionable so you can move them around or use the same one if you need to refresh the page.
3. I like to divide my Budget Binder up by months. (One section for each month of the year, January – December) In each section/month, I include a Weekly Expense tracker, a Monthly Budget Summary, a Monthly Bill Payment Tracker, a Monthly Income Tracker and a Monthly Expense Tracker. In the back, I have a Savings Goal worksheet and a Debt tracker.
However, you may want to divide yours up by every fund you have (Auto, Childcare, Clothing, Grocery, Utilities, Travel, banking, loans, etc.) Do what you think will suit your needs best.
4. Also in the back, create a section for account information and include names of financial institutions, addresses, contact information, passwords and any other details that would be worth having at a glance.
5. You can also add pouches to hold receipts, a page to record prices on your favorite items, or anything else that might be useful in keeping your family in the black!
Do you keep a Budget Binder? What pages do you keep handy in your family or business budget binder?
The following is a Financial success testimonial from Alison! Enjoy!
This year I had a goal of depositing two full paychecks directly into my savings account on top of my regular monthly 10% savings. I was discussing my budgeting and savings plans with a credit counselor and she told me she had never known someone to be successful at what I was planning…challenge accepted! This past month I was able to successfully do this and wanted to share with other frugal minded individuals how I did it so you can too.
My employer pays me bi-weekly, which means I receive two paychecks every month except for two wonderful months of the year when I receive three paychecks. At first this provided an interesting budgeting challenge because there are a few ways to calculate a monthly salary:
1. Take the overall yearly salary and divide it by 12 months.
For example, if I made $39,000 per year and divided that by 12 months, I would get a monthly salary of $3,250. This number is valuable for certain financial situations, but unrealistic for my monthly budgeting.
2. Add up the paychecks received in a month.
In this scenario, if I made $39,000/year, 10 months of the year I would be paid $3,000 and the other two months of the year I would be paid $4,500.
When creating a budget, what was I supposed to do with these three different amounts: $3250, $3000, and $4500? I started by making a decision: I do not want to live paycheck to paycheck. I wanted to create a system that always had me ahead of the game. I also decided to live off the amount of money I am paid for those 10 months of the year involving two paychecks and was determined to put those additional two paychecks, in their entirety, directly into my savings account. Saving 10% of my regular monthly salary is great, but I wanted a better security net.
Here’s what I did:
- Took my lowest monthly income number to create a realistic budget.
- Used helpful tools such as “Budgeting Basics – How to Get Started” found on Simply Frugal and tracked my expenses to determine what was sustainable.
- Created an overall budget that allotted every dollar of my two paychecks per month.
- Determined what money I would need as cash on hand during a month and what I could leave in a separate bank account. For example, grocery money is cash I need to take out of the bank. Gift purchases or dental appointments, while budgeted for, are not necessarily money spent every month. I’ll call these my “planning ahead expenses.”
- Once the budget was nailed down, I totaled all my “planning ahead expenses” and my savings, then divided those numbers in half. This is what I transfer out of my main chequing account every paycheck into sub-accounts. For example, $20 per month is budgeted for gifts, of which $10 is transferred every paycheck to a “Gifts Account.”
- Leave the rest of the money needed for cash on hand or for bills directly debited out of my chequing account to build up my monthly float. My monthly float is every dollar that I will spend during the next month.
Through the month as I deposit each paycheck, I transfer out all of my “planning ahead expenses” and let the rest remain to build up for the next month. Because each paycheck that I deposit into my account is not needed for any immediate expenses, I am released from my dependence on it. When I deposit a paycheck, I have no thought of spending it because I know I do not need it for the current month. This freedom is essential because when one of those three paycheck months comes along, I treat the first two checks just like any other normal month by transferring out my “plan aheads” and building up my float. Those two checks set me up for the next month and that third one can go straight into my savings account without a second thought.
Using this system of building up a float is how I stay away from living paycheck to paycheck. I did sacrifice a bit of savings to set myself up in this way, but the benefits are worth it:
- Eliminated the stress of relying on my next immediate paycheck.
- An extra month’s cushion of money if I lost my job, in addition to my emergency fund.
- At the end of every month, I have exactly the amount of money I need in my account to pay my bills and variable expenses for the coming month.
Sticking to this takes planning and discipline, but it is worth it when I see the big jump in savings a couple times a year! It is also worth it to know that being frugal and wise with my money allows me to do something that someone in the financial world thought wasn’t possible.
Do you have a financial success story you’d love to share to help inspire others? Send your stories to me here.
Money is meant to be spent, but it’s also meant to be saved. It can be hard to balance saving money and spending it. Use the following tips to get a firm grip on how to use your hard-earned money wisely, while still being able to get enjoyment out of life.
How to Balance Saving Money & Spending It
Pay yourself first
You will never save up money, if you don’t pay yourself first. If you put all your money towards paying bills and such it will be hard to build up any savings. Create a special account just for you. Be sure that each week a small portion of your check gets deposited into that savings account.
Give yourself an allowance
As an adult, it’s hard to work so hard and only pay bills. Sometimes you want a little spending money. If you’re all caught up on your bills, it’s okay to give yourself an allowance. You don’t need to spend your whole paycheck, but $20-$30 per paycheck is a fair amount to give yourself. Treating yourself to a new gadget, outfit, or even a restaurant, that you rarely make it to, will be a great refresher that you sometimes need. Life isn’t meant to be all work and no play.
Don’t blow your money
Spend your money wisely, don’t just blow it. This is a good way to balance saving money and spending it. Don’t blow your money. In other words, if you have found yourself swooning over an item, go ahead and treat yourself, on occasion. Before splurging, though, ask yourself, “Is this practical?” If the answer is no, then it is best to wait until you find something that you really want, but also have a use for. Buyer’s remorse is no fun. So, when you walk by a New Kids on the Block poster that has you reminiscing over your childhood, be sure to consider your purchase wisely, before jumping the gun right away.
Stick to the budget
A budget allows you to give yourself spending money and to pay your bills. By sticking to the budget, you’re going to do a good job of balancing and saving money. Start out by reassessing your budget, if you already have one. Make sure that your bills are covered, as well as other necessities, like fuel, groceries, and clothing.
Whatever is left of your paycheck can be divided between gifting and saving. Once your budget is finalized, it is important to adhere to it. If your allotted grocery money for the week has been consumed and you then find out that Cadbury Mini Eggs have just hit the shelves, don’t even think about digging into your wallet. Wait until next week, when your grocery budget has reset. Practicing this self-control can be hard, but very rewarding.
Save your money, watch it grow
The more money you save, the more motivating it is to keep saving. Don’t be afraid to save up for something you want. Instead of running out and buying it on credit, you can save up for it. The result is much sweeter, when you save money for something you want, instead of making a spontaneous purchase.
I’d love to know, how do you personally balance saving money and spending it?