$5,500.00. This is the amount that you can contribute to a TFSA or IRA this year. Let’s talk about how you can max it out, or if you don’t have a TFSA or IRA in your country, how you can max out your savings and investing power as well.
If you aren’t sure what a TFSA is, start here. If you do not have TFSAs in your country, scroll down just a little more.
(IRA information can be found here. Remember, I’m a Canadian gal, so IRAs are not my forte.)
TAX FREE SAVINGS ACCOUNTS
A Tax-Free Savings Account is an account that is designed to help you save money. The funds that are deposited into a TFSA account can be invested, and the earnings from the account are tax free. Since you do not get a tax deduction for contributions to a TFSA, the benefit is from the tax-free earnings, and the ability to withdraw from the TFSA at any time without penalty.
There are guidelines and rules as to how much you can contribute into a TFSA, and how much you can withdraw and re-contribute.
Here’s the example from the CRA:
“Since opening her TFSA in 2009, Jenny has contributed the maximum TFSA dollar limit in each year. By the end of 2016, she has accumulated a total of $46,500 in her TFSA account. In 2017 Jenny makes a $5,500 contribution, the TFSA dollar limit for 2017. Later that year, she withdraws $3,000 for a trip. Unfortunately, her plans change and she cannot go. Since Jenny already contributed the maximum to her TFSA earlier in the year, she has no TFSA contribution room left.
If Jenny wishes to re-contribute part or all of the $3,000 she withdrew, she will have to wait until the beginning of 2018 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2018.
If she re-contributes any of the withdrawn amount before 2018, she will have an excess amount in her TFSA and will be charged a tax equal to 1% of the highest excess TFSA amount for each month that the excess remains in her account.”
TFSAs are not only for retirement savings, but are also great vehicles for saving for a house purchase, a trip, a new car, or anything else you are working towards.
How to find $5,500 over the year:
Now that we are clear on how to use a TFSA, let’s focus on how to max it out. In 2018, the maximum contribution amount is $5,500. This the goal to contribute.
The Simple Way:
There are 52 weeks in a year. $5,500 divided by 52 = $105.77/week. You could set up an automatic transfer for $105.77 weekly.
Are you paid bi-weekly? Your automatic withdrawals should be set at $211.54 to save $5,500.00 a year.
How to fill that account without using your weekly income:
Let’s say you receive a bonus each year of $1,000.00 as part of your performance package. If you directly contribute that to your TFSA, your weekly savings would decrease to $86.54. That’s a lot more manageable, but you need to know yourself and make sure that bonus goes directly to your savings account: do not pass go, do not spend $200!
If you receive a raise at work (congratulations!), immediately calculate the difference between the previous pay amount and the new pay amount. Set up an automatic transfer to deduct that amount from your account and move it to the TFSA before you see it in your chequing account. Resist the urge to inflate your lifestyle – those few dollars will serve you better if saved for a future time.
Did you stay to finish a project, or to complete paperwork? Maybe you signed up for a few hours here and there. Move that money immediately to your TFSA. More money for savings, and no change to your weekly pay. Win Win!
Do you get reimbursed for gas for running errands at work? Bank it. Do you get tips? Bank it. Anything extra, bank it.
Tax refunds is the government’s way of returning the excess money it collected from you throughout the year. At the same time, it’s a great feeling if you have a few bucks (or many bucks!) coming your way. Since a tax refund is not part of your weekly budget, bank it. You will not miss it, and it will go a long way to filling up your TFSA.
Declutter for Profit
My method for decluttering includes four boxes. I have a KEEP box, a TOSS box/bag, a SELL box and a RELOCATE box.
Without going into a lot of detail:
Keep: things that I want to keep
Toss: things that are garbage, and things that have no value to someone else
Sell: things that are still in good condition and are unwanted. I start with a sell box, and anything not saleable is donated.
Relocate: things that belong in another room or part of another project that need to be dealt with at another time.
When your sell box is full, it’s time to decide the best way to sell these items. You could have a yard/garage sale, vendor sale, sell online with Craigslist, Kijiji or Ebay, or any other method of posting your wares. (There are tons of resources for how to price your used goods, but the easiest way I find the going rates is to look at what others are selling it for.)
Any profits that you receive, you know what to do. Bank it!
No Spending Challenge
Challenge the family or your partner or yourself to not spend money in a category for a period of time. That’s the equation. What you save, bank it.
For two weeks, your budget usually includes eating out 2-4 times. Instead of eating out, challenge yourself to make from the pantry. Take the money from eating out, and bank it!
For a month, challenge yourself to find no-cost entertainment. Take that amount saved, and bank it.
Hustle a little
Have you looked into any side gigs? Most common side gigs for cash:
- Listings for one-time assistance, like handyman items or snow shovelling/grass cutting
- Errands for seniors or housebound individuals
- Haul loads to the dump
- Caring for children, pets or houses
- Clean houses or offices
- Be a (paid) companion or assistant to someone with a disability or to a senior
These are just a few examples of what you could spend a couple of hours on, and make some extra dough.
Hustle a bit more
These ideas tend to be more permanent or may require more preparation time to set up:
- Start a landscaping/grass cutting business in the neighbourhood
- Sell products from home (see more about that here)
- Drive for Uber or Lyft
- Seek out a part time job
- Build an online business
- Resell goods online or in consignment stores
- Tutor or teach a skill
Cut the fat
By making changes to what takes the money OUT of your wallet, you can start directing more to your savings. Think of what is automatically withdrawn from your accounts as these are likely to be missed when considering where to tighten a budget. Here are some ideas where you could save (up to) enough to fill that TFSA:
- Switch to no-fee banking
- Move emergency funds or other savings to a high interest savings account
- Cancel credit cards with annual fees in favour of one without
- Music subscriptions: do you use this? Can you get it for free? Can you do without for a while? Is there a family plan instead of paying individual rates?
- Television: consider downgrading or cancelling cable and subscription programs in the summer. A lot of people are outside most of the time, and wouldn’t miss the programming.
- Cell phone: are you paying for any extras? Have you called and asked for a lower rate? As cell phone services are changing all the time, look around for a cheaper option. If you can’t find one, then negotiate to keep a rate the same in exchange for your contract. (If you are signing a two-year contract, you could ask to keep your rate plan from before and avoid the new customer increase.)
BIG ways to save:
- Do you need a three-bedroom house? Could you live in a two-bedroom apartment? Consider the cost of utilities, rent, taxes, etc. Can you downsize and live as well?
- Depending on the needs in your house, do you need multiple cars? Are you living somewhere that you could downsize and save? Could you use occasional services and save as opposed to paying for maintenance, gas, insurance and/or car payments?
- Do you have a collection that you are no longer interested in? Are there other collectors that would pay for your collection? (Hard questions: do you have anyone to pass it on to, and would they appreciate it? If not, then you might be kinder to your children by liquidating it now for what it’s worth, instead of forcing them to feel guilty and not knowing the true value.) Do you have a room full of Beanie Babies, vinyl’s, model cars, Barbie Dolls, etc?
- Do you have a second home, like a cottage or trailer, that you do not use as often as you once did? Can you rent it or sell it?
Do you have collections? Do you have anyone to pass it on to who would truly appreciate it? If not, then be kinder by liquidating it now for what it’s worth, instead of creating survivor's guilt about selling it for less than its… Click To Tweet
DID YOU KNOW?
If you save $5,500 in your TFSA account annually, and invest with a modest 6% return, here’s your savings over twenty years: (source)
In twenty years, your money has nearly doubled – and that’s with a modest 6% return. If you invested with a 10% return, you would have $318,376!
There are more than thirty ways to save and make money in this article. Between that and a weekly automated savings, and the motivation from you to do the work, there is a 100% chance of success.
AND… if you fill your TFSA to the brim, then move on up to door #2: Your RRSP! Follow me on Twitter, Instagram and Facebook for more how-to money advice. You can also sign up for email updates here (it’s free!).