Over and over again, we keep hearing that Canadians just aren’t saving enough. According to reports, we owe too much, spend too much, and don’t have a saving strategy in place to build a nest egg for retirement and emergencies.
So now that the expensive holiday season is over, what better time than the new year to put saving back on your radar? Presents and gift-giving are behind us, and now is the time to focus on goals of a new car or home, maybe even a vacation to escape the cold, an emergency fund, or retirement savings.
Here are tips to take your savings strategy beyond a mere resolution and turn it into an actual game plan in 2020, making your goals a reality.
Pick a Number
Pick a number, but not just any number. Choose an amount of money based on your goals and decide how much you’d like to save this year. As a ballpark, we should all be saving about 10% of our incomes. So, if you bring in $5,000 a month, put at least $500 in savings. When you get a bonus, inheritance, or any extra money, sock away 10% of that too! The same goes for those who don’t have a regular income…
As January chugs along, you’re likely being inundated with Registered Retirement Savings Plan (RRSP) ads. The deadline for making RRSP contributions to offset your 2019 taxes is March 2, 2020. But is an RRSP your best option if you want to invest in your future? The answer depends on several variables, including your age, income, marital and family situation, tolerance for risk, and your lifestyle. Here, we cover the basics of common investment options and why you may want to choose one over the other.
Registered Retirement Savings Plans (RRSP)
There are a number of reasons why people may use this option to invest in their future, but the most significant is the tax savings that RRSPs offer.
For every dollar you contribute to your RRSP (up to your personal RRSP deduction limit), you’re effectively able to shave a dollar off your income for the year. If you’re a salaried employee with taxes automatically deducted, the net result will be a refund after you file your income taxes…
We owe $525,000 on our mortgage and our home is valued at $1.2 million. We currently pay a mortgage of $1,845 biweekly at an interest rate of 2.99% (30-year amortization). We hope to pay off the home within 10 years, with extra payments of $20,000 per year. We plan to live in this home and potentially sell it if we cannot live there anymore due to health issues.
Right now, we have $560,000 in Registered Retirement Savings Plans (RRSPs), $20,000 in a Locked-In Retirement Account (LIRA), $22,000 in Tax-Free Savings Accounts (TFSAs), and $10,000 in non-registered shares. We contribute $50,000 per year to our investments. We also each have a defined benefit pension plan, but will lose quite a bit if we retire at 55, which we are aiming to do. At 55, we will receive $20,000 per year each. The pension is not indexed to inflation and there is no bridge benefit. We have both worked full time in Canada since we were 22 years old and are eligible for Canada Pension Plan (CPP) and Old Age Security (OAS) benefits…
Assuming you have a refund coming, it’s not a great financial plan to let Canada Revenue Agency (CRA) hold onto your money, interest-free. But if you owe money to the CRA along with your delinquent paperwork, things get bad, fast: You could face hundreds, even thousands of dollars in penalties and interest.
What are the potential penalties if you don’t file a tax return?
To understand the depth and breadth of the financial trouble you could get into by ignoring your tax filing obligations, consider the following penalties. (Note this does not represent an exhaustive list.)
Failure to file a tax return. If you owe money to the CRA, you will endure a late filing penalty of 5% of your unpaid taxes, plus 1% a month for 12 months from the filing due date. That’s just for the first strike…