This post was sponsored by TD but, as always, opinions are my own.
When we sit down and look at our finances we have 3 main priorities:
Short-term financial health: Ensuring we have enough money coming in to pay off our credit cards,mortgage, power bills and fast food habits.
Long-term financial health: For our family this includes RRSP contributions which we make monthly as well as workplace pension contributions. These are choices now almost 100% being made for our eventual retirement. Even though it’s almost 35 years away, I have already picked the perfect place in Costa Rica to join a shuffleboard league and become an expert bridge player.
Medium-term financial health: This one can be tougher to tackle. RRSPs are great to put money into, but they don’t have much flexibility in what you can use the money for. If you need to withdraw from your RRSP it is fully taxable. For example, if you’re not using your RRSP funds for retirement, post-secondary schooling or a down payment on your first home.
If we just keep more money than we need in our regular savings account we are losing out on some great interest incentives that banks offer and at the end of the year that interest that we earned is now taxable. I’ve experienced that sad moment when working on your tax return online and you see the refund you expected has turned into a balance owing.
My favourite medium term resource is my Tax-Free Savings Account—or TFSA (accountants and bankers love acronyms!). Currently you can contribute $5,500 this year into this account and any interest you accumulate is ta-da….tax-free!
I was on board with this program from the beginning; however when I talk to my friends many have never opened one up. It’s not too late to join the club. It’s super easy to set up an account, we did ours online through the bank. Also, even though you might never have considered opening a TFSA your contribution limit has been increasing every year, just waiting for you to reconsider. If you turned 18 by 2009 and have never contributed to a TFSA you can contribute up to a total of $46,500. But don’t let that big number scare you; you can contribute even a couple hundred bucks to get your feet wet.
If you consider that TD offers an 8.88% 3-year Security GIC Plus, that could result in substantial tax-free savings. Yearly vacation fund anyone? Term deposits are only one aspect of a TFSA, you can also use mutual funds or a high interest savings account as part of your TFSA portfolio. TD can help steer you in the right direction depending on your medium term goals.
I don’t have as much money as I wish I could to contribute to our account. However one of the easiest times of year to do get into the habit of making the TFSA a priority is right now. Consider taking all or part of your tax return and investing it back in yourself with a TFSA. Sure you might not get the new washer and dryer you had your refund cheque earmarked for. But in a few years with that extra interest you’ll be able to get the upgraded model! Plus, what we like best is the flexibility of the TFSA. We can withdraw at any time, and we can recontribute that amount the next year if we choose. If that washing machine officially bites the dust, we’ll be able to withdraw from the TFSA completely pain free to buy a new one at anytime!
In the past we’ve used TFSAs to pay for part of our wedding. We’ve used it when we just needed to escape and paid for a vacation. It’s that little account that we keep as an emergency fund in case the transmission on the car goes or we need to make an emergency home repair. It has proven to be invaluable for us and it makes me wonder how people ever got along without these wonderful accounts in the past.
My piece of advice for young parents like us? Just do it. Open your TFSA – visit TD for more information.
Contribute to it when you can. Use it when you want! I promise you’ll love it too.
Dave is one of our dad contributors to Raising Edmonton, father to a young son, living in the suburbs.
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