A Beginner’s Guide to RRSPs and TFSAs

Happy New Investment Year! With the beginning of March, the door closes on the ability to deposit money into last year’s retirement savings accounts. It’s time to contribute towards this year. Let’s de-mystify RRSPs and TFSAs so that we can grow our wealth and reduce our taxes!

Please note: I am not a financial advisor or a tax professional. Up until recently, I was a prime example of someone who had no concept of what retirement planning involved, or what I should or should not do. Feel no embarrassment or shame if you are like me. Let this be a foundation for learning, and for building on, and I recommend seeking a professional when your situation becomes more complicated. There are different guidelines for spouses, estate planning and other special considerations.

That being said, here’s what you need to know about your retirement contributions.

 

investing in RRSP & TFSA

 

RRSPs and TFSAs

The Government of Canada sets out the limits of your contributions to RRSP (registered retirement savings plans) and TFSA (tax free savings accounts). There is a maximum allowance for contributions per person, and it’s calculated using a few different criterions.

RRSPs

Maximum Contributions

In your first tax filing year, you can contribute the lesser of 18% of your earned gross income in the previous year, OR the annual RRSP Limit. For the 2018 year, the Canada Revenue Agency has set the maximum contribution limit to $26,230.00.

Example: Sarah works at the corner store on weekends and evenings while she attends school. Last year (2017), she made $16,500. This is before any deductions, or taxes. We know Sarah made less than the maximum contribution limit, which means that she would be able to contribute a maximum of 18% of her annual earnings. She can contribute $2,970.00 to her RRSP account this year.

INCOME ALERT: If your annual income exceeds $145,723 per year, then you can contribute a maximum of $26,230.00. (No math for you!)

How to increase your contribution above the maximum

If you did not contribute 18% of your earnings (up to the maximum contribution amount) each year that you earned an income, you can carry forward the remainder. Simply calculated, if your contribution allowance is not met, the difference of what was not used can be carried forward. Your tax return or Notice of Assessment should indicate the remaining contribution limit available.

Things you need to know 

  • Expenses cannot be included in your contribution calculations. Any amounts that you paid as administration fees, brokerage fees, interest paid on borrowed money to make the contribution, and capital losses cannot be considered as part of your contribution amount.
  • Be careful when calculating your contributions! Contributing more than the allowable amount can result in being taxed. You can request special considerations if the situation warrants it.

TFSAs

TFSAs began in 2009 with the intent to provide Canadian residents a vehicle to save money without being taxed on the interest (like investment income and capital gains). You do not need to earn an income in order to contribute to a TFSA. Contributions are not tax deductible, however the income is not taxable (in most cases). Withdrawal from a TFSA does not count as income, nor will you be taxed if you withdraw funds prior to retirement.

Contribution Limits

Again, CRA sets out the annual limits for contributions, but the limits are not dependent on an income. For the year 2018, you can contribute a maximum of $5.500.00, and like the RRSP contribution amounts, you can carry forward unused credit each year.

Cautionary Points

  • Again, watch your limits, as over-contributing can lead to being taxed.
  • Check to make sure your investment is “qualified”. Tax may apply otherwise.
  • TFSAs are only available to Canadian residents.
  • While you can use foreign funds, it’s advised to check out the rules in closer detail if you wish to go that route.

For more information directly from the CRA, you can start here.

I trust that the information above simplified some of the mystery about contributing to your future self. There are other programs that help you save towards a new home, or your child’s education, but we need to start by taking care of ourselves, and then moving on. 

Keep an eye out for ways to save for your RRSP and TFSA limits. In the meantime, take a look at your income amount last year, and figure out your maximum contribution for the year. There are creative and innovative ways to save money, invest in future you and/or pay down that debt!

Be sure to join my mailing list so you are notified of each new post, and to follow me on Twitter and Instagram as XennialBlogger.  I look forward to seeing you online! 

RRSPs and TFSAs Demystified
RRSPs and TFSAs Demystified

Minimum Wage: the unsaid truth

The Argument About Minimum Wage

 How many people do you think make minimum wage? Can you count it in a percentage? Do you think that it’s a majority? If it’s a majority, then there’s a problem that our society is not seeking out skill training, and if we, as a country, are not attracting jobs that are higher than entry level, unskilled positions, then we, as a country, are seriously failing.
The value of the dollar varies in the hands of the beholder. This beholder has two college degrees, and is making a lower/mid 5 figure salary. XB and Mr. XB are not blessed with children, so we work hard at our jobs. As a result, we stress out when things go wrong, and give up off-time and weekends to ensure that the work is done and done right.
Side note #1: Ontario recently increased the minimum wage to $14/hour in January, 2018 and scheduled the next increase to $15/hour in January, 2019. 
Side note #2: Someone recently said: Take care of yourself, because killing yourself over a job ends in one fact: your position will be advertised before your obituary. 

How much is that a year?

A $15 min wage is a $30k/year salary. In Ontario, that means if you are fulltime, you would gross about $30k before taxes, and get two weeks paid vacation a year. This is for a minimum wage job.
College educated people are working in this area for barely above minimum wage, and benefits are a rare commodity.
It appears that we are seeing a push to increase minimum wage jobs (because who will pay much more?), and a push that is decreasing the amount of money that educated people are making, in comparison. Anything above the dreaded “minimum wage” title is supposed to be gravy.

Why go to college?

Isn’t this the question of the decade! Why go to college? What is the point of spending $25k or more on transportation, supplies, text books, food, tuition, time… why do this if all that is offered is slightly above minimum wage, if that?
Until people start realizing that $15/hour is not a fair representation of minimum wage OR …

WAIT!

Is it that those who employ either the minimum wage earner or the college-educated support staff/labourers are so heinously greedy? Or is it time that they started sharing the wealth and start paying their staff a decent wage?

Example Time

Let’s look at people who are making $40,000.00 a year.  This is a “decent” wage to most. But is it? Off the top, you lose 22% on taxes, CPP and EI. That means take-home pay is $31,200.00.
In Niagara, the average two-bedroom apartment in a decent building is $1,200.00/month. A mortgage on a $300,000 house would be $1,500.00. Then you have utilities… say $300/month. Insurance. Taxes. Maintenance. Repairs.

So, is a college education enough to own a home?

$31,200/12 months = $2,600.00. If you have a home that is “modest”, chances are you spent more than $300k. Using this example, I would say it’s fair to assume costs of home ownership, without repairs or any extras, cable tv or internet packages or telephone, would eat up close to $2,000/month. That leaves $600 for food, entertainment, transportation, health care, retirement savings, repairs, replacement of household goods, insurances, etc. Are we not allowed modest home ownership as a single income family?

I can hear the naysayers out there: get a second income, a roommate, etc. Find cheaper housing. Cut the extras.
Why are we allowing people to tell us to live in sub-par housing, have sub-par services, and deal with making less? Where do you live for less today?

Factor in children.
  • Child care.
  • Debt.
  • Annual vacation.
  • Education.
  • Student loans.
  • Transportation.
  • Elderly parents or grandparents.

I no longer think that the problem is minimum wage. If the government is saying that a basic job should pay $30k annually on a full-time basis, then that tells me a skilled, educated person who is support staff or labourer for an employer should make nearly twice as much as the example above.

So… then what?

So instead of saying the minimum wage needs increasing, we should be looking at those who are in the middle. A minimum wage increase of $2.40 (the most recent jump to $14/hr) is a cut for those who make more. We will pay more, as the companies charge more to pay for the increase in wages. We will lose options, because the cost of doing business has increased significantly. Our dollar in our pocket will not go as far. And yet, the wealthier people, the employers, the ones living in houses twice the modest price, and driving cars as much as a third of the modest price of a house, … they say, well, everyone is on salary here, or makes more than minimum wage, so it doesn’t affect them.

It doesn’t affect them.

It doesn’t affect the employers that futures are bleak, employees of the middle can no longer afford housing, and there is not a decent income anymore, because the employer needs to afford their lifestyle. (Think about a particular $19.9 million yacht up for sale recently.) It doesn’t affect employers because support staff is replaceable, trainable, and shapeable.
And for those like me, who have an opinion, well, we are not desirable. We are replaceable. We affect the bottom line.
Let’s affect it together  Talk about this problem. Let’s find a solution together.
This is why I blog.

Series: Habits of the Wealthy and how I implement them into my Life (3)

 
Change isn’t easy, and learning new habits isn’t something that is done overnight. Much like any other habit, it requires passion, persistence and determination. One of the habits of the wealthy is about goals.
Goals are dreams or wishes that we want, but they are realized and written down. Goals are defined as the object of a person’s ambition or effort; an aim or desired result, according to dictionary.com. Wealthy people tend to write down their goals, and focus on the process, even if it is extreme or seemingly unattainable. In fact, Grant Cardone, author of The 10x Rule, says that goals need to be big, ten times the size as one that you think you could attain.
 

Nitty gritties:

Write out your goals

80% of wealthy people focus on achieving a single goal, compared to only 12% of poor people. (Thomas Corley)

Have more than one – you are allowed

This is not to say you should only have one goal. You can have many – in fact, write down as many as you can think of, because the purpose of doing this is to reach your goal, so you will need another and another to aim for as time goes on. What this does mean is that wealthy people keep their goal in their mind at all times, and use situations throughout the day as inspiration on how to attain that goal.  Keeping your mind open to possibilities might mean goal #2 is actually part of #4, and a subsection of #1… see? That list might be handy after all.

Be specific

Part of writing down your goals is ensuring you are using specifics. “I want to be wealthy” is not the same as “I want to invest $100,000 over the next two years, and I want to fund this project by opening a side hustle where I offer pies and pastries to churches.” Just an example, but you get the idea.
The wealthy are deliberate, dedicated goal-setters. Corley states that 62% of rich folks focus on their goals every day, as opposed to 6% of poor people – and 67% of the wealthy put those goals in writing.
(Side note: you have a to-do list, right? Go write down a reminder to write your goals out. Now.)
5 Daily Habits of Highly Successful People report that 70% of the wealthy pursue at least one major goal (see? You can have more than one). Only 3% of the non-wealthy do this.   

How I implement this into my life:

I shared a number of them with you earlier in the year.
I have decided what my focus will be for 2018: Money working for me. 
This means I need to attack consumer debt. Credit cards, loans and car loans are all getting the scrutiny this year.
Another area of focus will be for the future me: investing into my future.

Hey XB, what’s your plan?

I have a book I am publishing through Amazon: Build Your Business, Grow Your Team, and Make More Money in 30 Days and there will be a few more after that one.
Another goal is I want to read more, both for pleasure and for self-improvement.
I have actionable goals for my blog and I want to grow this community. I am hoping to provide quality content that will help readers and bloggers alike.
Understand that this habit is more about you making the decision to live intentionally, and less about how to fit it into your life. Once you have chosen a goal or two to focus on, we can break it down into steps to help you achieve it.
Share your goals with me, and let’s talk about them!  Don’t stop at just writing them down; let’s make it the year it happens for you.