Taking a vacation from debt is far less exciting than going away to a place you’ve never been – or is it? Are you in debt from credit cards, loans, lines of credit, mortgages? Are you in a place you’ve never been before, trying to navigate from one form of debt to another?
If the answer is yes, stop the bus and get off. The feeling of being in control can be just as energizing as a vacation. If you don’t control debt, it will control you. Debt is a huge industry that needs to be fed consistently, and it waits for you around every corner. Debt steals your independence and your future – and the worse part of it is many of us have walked willingly into this situation, more than we care to admit. We have been conditioned to think that we can’t have the lives we want without “it” and that we need whatever “it” is right now.
But our life, if we’re lucky, is a longer journey than right now – and hopefully, if planned for, our retirement will be the ultimate vacation. So why would you work so hard now to supposedly live well now, only to have nothing to show for it and retire poor?
Herein lies the balance we must have throughout our financial lives. Building a strong financial foundation is the answer. Part of that foundation is debt management. We’ve seen enough reports in the news that Canadian debt loads are worrisome. Ask yourself this question: if you didn’t get your next pay cheque, would you be able to purchase things like a bus pass or gas for your car so you could get to work? Or further to that, could you make your rent or mortgage payment?
If the answer is no, and it’s because there is no savings (and on top of that there are debt payments), then surely a course correction needs to occur. The following steps will help you get started in taking the control back. List all the debt payments you have.Tally up the total amount and the monthly repayment amount. Determine the total cost of borrowing.Include the purchase price and interest charges paid up to now, and add the future cost if left unpaid. Warning: be prepared as this total is never good news! Start your plan to take a debt vacation. Pick one payment to focus on, usually the smallest debt is the fastest to clear, and then the payments that were servicing it can be added to the next lowest debt payment. Do not add to your debt. Live below your means – if you don’t have the money to spend, don’t spend it. Keep your credit cards at home; however, if you have to use them to buy something, the bill must be paid in full when received. If that isn’t possible, simply don’t make the purchase.
Any money left over should then go toward a savings plan. Getting out of debt may be the toughest job you’ll ever experience. It won’t be easy to change the bad spending habit, but your future life depends on it. There is no easy fix or strategy even though the debt industry may claim to have them. Take back your independence, focus, and succeed – because you are truly not free until you are debt-free. Janice Desautels has been working with families and individuals for the last seven years helping educate in the field of financial literacy. She is a Certified Financial Educator with over 15 years’ experience in teaching and training adults. For questions or advice, please contact email@example.com.
As we move from the sleepy hollow of winter and feel the hint of warm breezes, many will be embarking on a new life as the education year is winding down. Many years of learning will be under your belt, and if you’ve planned wisely, a career that fires your passion is about to begin.
Your future holds promises of dreams and goals that will bring excitement and adventure as you strike the course of your career. However, the path you set now may not be the same path you want to continue on as you grow and mature.
Very few of us can predict when that path is about to change. This is exciting in some respects but can also be very devastating. If there is no foundation built along the way to provide a safety net, those once-in-a-lifetime opportunities may slip from our grasp. Plan your life around your savings
The premise of that foundation is savings. A good plan of action when you embark on your career is planning your life around your savings rather than planning your savings around your life.
Once this becomes a routine, you won’t be enticed to spend beyond your means. A solid foundation takes time to build so use the time you have now to grow your wealth. Wealth doesn’t come from your earning potential, it comes from your savings potential – it’s all about how much you keep not how much you make. Avoid this scenario of disaster: You’re young and you think that you have lots of time to save later. Now you want to move to take advantage of a new job, or travel, buy a car, a condo, and all that comes with owning a home. You have no savings so you incur the debt to fund these experiences, some at high interest and long amortizations.
Your new life now blossoms and you have a family, a bigger house, and children to raise. A larger mortgage, more credit card debt – but that’s OK because you still say you’ll have time to save later.
Take a page from the book of those who have gone before you. Nothing will be different; you’re now in the last season of your working career, and wanting to slow down and have more free time, but unfortunately you will only have saved a meagre amount. Now what? You have very little choices and not much control over your future. Doesn’t sound very appealing, does it? Rewind and do over. You’ve made saving a priority first by keeping the end in mind: retirement. You’ve made a commitment that each month before any discretionary spending happens, a specified amount will go into a savings vehicle that over time will grow. These savings may have a number of purposes over the years, but will always include a base amount set aside for retirement.
In addition, since you are not living beyond your means, you have no credit card or consumer debt. Those large purchases such as a house will have a mortgage that is manageable because there was sufficient savings for a down payment.
Imagine the amount of interest paid over a lifetime of debt which would now be growing in your savings. That can amount to thousands of dollars.
Now, in your last season of working, you have a pool of money that gives you choices. You may choose to continue working, move to a warmer climate, or spend more time with family and friends. At the end of the day, the choice is yours.
You will have control over the quality of your life which is truly the meaning of wealth. Janice Desautels has been working with families and individuals for the last seven years helping educate in the field of financial literacy. She is a Certified Financial Educator with over 15 years’ experience in teaching and training adults. For questions or advice, please contact firstname.lastname@example.org.
From now until the end of February, we will be overstimulated with messages about contributing to an RRSP. So when it comes down to it – what should we be doing?
It is a common misconception that an RRSP is an investment. Firstly, the term RRSP is an acronym for Registered Retirement Savings Plan. This is a federally sponsored program that the Canadian government implemented to encourage us to save more for our retirement.
Secondly, it is a choice to register an investment under the terms guided by the plan. Simply put, think of an RRSP as the vehicle and the investments as passengers. The vehicles can be anything you choose whether it be an RRSP, TFSA, Open Investment, etc. and the passengers can be your choice of a long list of investments that can participate. Why is it a deal?
The deal is in the tax treatment. The income to be invested has been taxed according to the tax bracket it falls into. When you contribute to an investment that has been registered as an RRSP, the rules governing the plan stipulate that contributions can be tax-free. Hence the reason why you would get a tax refund after declaring the contribution on your tax return.
Some may misinterpret this as “free” money but it actually is a tax payment returned back to you. The downside to this method is that it is returned to you without interest but the upside is you are saving for your retirement (as long as you save the refund).
In essence your money goes in tax-free. It then grows within the investment tax deferred, meaning you have no tax charges while the investment stays within the realm of the registered plan.
The tax implication from using this method comes during the withdrawal phase of the funds from your investment to use as retirement income. Where in our financial lifetime does an RRSP strategy fit?
Contributing to an RRSP strategy as the first step to saving for your retirement may not be the best to maximize your saving potential. For example, if you are starting out in your career, you may be at the first level tax bracket.
If you are confident that you will remain in this tax bracket throughout your career and then have saved enough to remain at this tax bracket in retirement, then what gain have you achieved? The gain will be very little purely calculating the comparison in tax.
However, as you move through your working life, it can be conceivable that you move up into higher tax brackets, save more, and can retire with a higher income pushing you into a higher tax bracket.
If you received the tax relief at a lower percentage than the tax bracket in retirement, then you really didn’t maximize the strategy as you would be paying a higher percentage of tax in the future.
The use of other strategies when your earning opportunities are growing could be of better use for maximizing your saving potential. I’m sure you would agree that our pot of money is not infinite and to get the best bang for our buck comes with some planning. The TFSA
We now have another means to bridge the gap to when the RRSP strategy would be the most optimal, and that is another federally sponsored plan referred to as the TFSA – or Tax Free Savings Account. Contributions into an investment registered by this type of plan are after tax dollars.
We do not receive any tax refund on our contribution, but as the funds grow in the investment, like in the RRSP vehicle, it does grow tax deferred. What makes this strategy advantageous is when we choose to use these savings as an income stream, it will be tax-free. We can contribute $5,500 a year, and if you’ve not contributed to date, the ceiling is $31,000.
Both vehicles are worthy savings strategies. Talk to a qualified financial professional to help guide you to make the best decision to maximize your savings potential now and in the future. Janice Desautels has been working with families and individuals for the last seven years helping educate in the field of financial literacy. She is a Certified Financial Educator with over 15 years experience in teaching and training adults.