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Registered Savings 101: Roundtable Q&A
We understand you want RRSP and TFSA straight talk.
This article was originally published December 2018 and has been updated.
While finding yourself with an extra $1,000 isn’t quite enough to entertain thoughts of early retirement or quitting your job to pursue your ultimate dream of breeding mini-cows on a farm in Belize (or something like that), $1,000 is enough to make a difference in your finances—as long as you use it wisely.
Since it’s the season for fiscal year-end bonuses, tax returns, and whatever else might be coming your way, we sat down with Brandon Croken, Financial Service Specialist at East Coast Credit Union to talk about the best way to ensure an extra influx of cash is put to its best use.
Pay off high-interest debt.
The first thing Brandon recommends? Put any extra money toward paying off any high-interest debt you might have.
“If a member has any high-interest debt like a credit card, line of credit—anything with an interest rate in the 10–19 per cent range—it’s probably best to pay that down first,” he recommends. “If you invest that same amount, you’re just not going to get the same returns.”
No debt? Good for you! But what about your emergency/rainy day fund?
Save it.
“If you don’t have anything set aside in case your car breaks down, you need to replace an appliance, or in case of an unexpected emergency, having some accessible cash would be the next thing I would suggest,” says Brandon.
By having some cash set aside for emergency expenses, you can potentially avoid some of that higher-interest debt if you find yourself in a jam.
It’s recommended to have three months living expenses saved in case of emergency, but even having a little bit tucked aside can go a long way.
A tax free savings account (TFSA) could be a great place to park this money.
“A TFSA can be used for a range of investment options. It can just be a regular savings account that you can access when you need, but you won’t be taxed on the interest you earn on that account, which can be beneficial,” says Brandon.
Invest it.
If your high-interest debt is under control—and you have a healthy emergency fund—then the question becomes: What are your long-term financial goals?
It may not be top of mind, especially when there are bills to pay, but setting aside some money for retirement now can go a long way down the road. Not sure what that looks like? Our Retirement Savings Calculator can help you understand why now’s the time to start saving for the future.
RRSPs aren’t just for retirement, either. If you’re looking to save for your first home, investing a little extra in an RRSP might make the most sense—you may even be able to use the funds in your RRSP toward a down payment through the First Time Homebuyer’s Plan.
Regardless of your goals, it’s always a good idea to get the advice of a trusted financial expert, take stock of your overall financial health, and to think about where you want to be in the future.