RRSP baby steps: The $12.50 solution
Over half of Canadians aged 18 to 34 still don’t have an RRSP. Here's an easy way to get going.
RRSPs: Start early and you only need a little.
You hear it from financial experts all the time – start saving for your future while you’re young. But when you’re young, you don’t have a lot of disposable income to play with. And there’s always an excuse – I’ll contribute when I get my next raise, after I pay off my student loans, or when I get a better job!
While many of us hold an RRSP account, according to RBC,over half of Canadians aged 18 to 34 still don’t. And as the life expectancy for Canadians grow, we might have to save a lot more in order to have enough money for retirement.
If you’re someone who hasn’t opened up an RRSP yet, here are four basic things you need to know about opening up your own account.
1. Set a retirement goal
It’s not that fun thinking ahead 30 or 40 years from now, but to make your RRSPs work, you will need to star thinking about what kind of retirement lifestyle you want to live. Do you want to spend your time traveling? Will you be happy living in a condo or cottage – or will you want a large house? Chances are, your priorities and your desired retirement lifestyle will change as you get older, but having a rough idea in place now will give you a starting point for future planning decisions.
2. Take baby steps
You don’t have to start by saving hundreds of dollars from every pay cheque. Find a number that works for you – even if it’s only $25 bi-weekly – and have it automatically deducted from your bank account as soon as you get paid. An amount that small will do nothing to disrupt your lifestyle. And once you see that money start to accumulate in your account, you might be inspired to start saving a little more from every pay cheque.
The key is to keep investing regularly into your account. Establishing a pattern of savings now while you’re young, will ensure that saving money becomes a force of habit when you’re older. Whether you decide on bi-weekly contributions, or a lump-sum payment once a year – figure out which strategy works best for your lifestyle, and stick to it.
3. You can manage everything online
The emergence of online banking makes it simple to open and contribute to an RRSP account. If you feel comfortable doing it yourself, you can go to your bank’s website, fill out some personal information, and follow the instructions to open up an account yourself. But don’t worry – if the thought of opening up an RRSP by yourself is too intimidating for you, just make an appointment at your bank’s local branch. Someone there will be able to help you open up an account, and show you how to access your investments online.
4. RRSP vs. TFSA
There are so many pros and cons about whether 20-somethings should use RRSPs or TFSAs. Many young people choose the TFSA because of its flexibility. You can withdraw the money you’ve contributed at any time, penalty-free. Whereas with an RRSP, you can only withdraw money penalty-free by using the First Time Home Buyer’s Plan (HBP) or the Life Long Learning Plan (LLP).
When you contribute to your RRSP, you might get money back when you do your taxes. What happens is, when you do your taxes, the government reduces your income by the amount that you’ve contributed. For example, if you made $15,000 in 2011 and put $3,000 into your RRSP account, according to the government, you’ve only made $12,000. They will then give you back the taxes you paid on that $3,000 in income.
Do you currently contribute to an RRSP?
Krystal Yee lives in Vancouver and blogs at Give Me Back My Five Bucks. You can reach her on Twitter (@krystalatwork), or by e-mail at krystalatwork@gmail.com
While many of us hold an RRSP account, according to RBC,over half of Canadians aged 18 to 34 still don’t. And as the life expectancy for Canadians grow, we might have to save a lot more in order to have enough money for retirement.
If you’re someone who hasn’t opened up an RRSP yet, here are four basic things you need to know about opening up your own account.
1. Set a retirement goal
It’s not that fun thinking ahead 30 or 40 years from now, but to make your RRSPs work, you will need to star thinking about what kind of retirement lifestyle you want to live. Do you want to spend your time traveling? Will you be happy living in a condo or cottage – or will you want a large house? Chances are, your priorities and your desired retirement lifestyle will change as you get older, but having a rough idea in place now will give you a starting point for future planning decisions.
2. Take baby steps
You don’t have to start by saving hundreds of dollars from every pay cheque. Find a number that works for you – even if it’s only $25 bi-weekly – and have it automatically deducted from your bank account as soon as you get paid. An amount that small will do nothing to disrupt your lifestyle. And once you see that money start to accumulate in your account, you might be inspired to start saving a little more from every pay cheque.
The key is to keep investing regularly into your account. Establishing a pattern of savings now while you’re young, will ensure that saving money becomes a force of habit when you’re older. Whether you decide on bi-weekly contributions, or a lump-sum payment once a year – figure out which strategy works best for your lifestyle, and stick to it.
3. You can manage everything online
The emergence of online banking makes it simple to open and contribute to an RRSP account. If you feel comfortable doing it yourself, you can go to your bank’s website, fill out some personal information, and follow the instructions to open up an account yourself. But don’t worry – if the thought of opening up an RRSP by yourself is too intimidating for you, just make an appointment at your bank’s local branch. Someone there will be able to help you open up an account, and show you how to access your investments online.
4. RRSP vs. TFSA
There are so many pros and cons about whether 20-somethings should use RRSPs or TFSAs. Many young people choose the TFSA because of its flexibility. You can withdraw the money you’ve contributed at any time, penalty-free. Whereas with an RRSP, you can only withdraw money penalty-free by using the First Time Home Buyer’s Plan (HBP) or the Life Long Learning Plan (LLP).
When you contribute to your RRSP, you might get money back when you do your taxes. What happens is, when you do your taxes, the government reduces your income by the amount that you’ve contributed. For example, if you made $15,000 in 2011 and put $3,000 into your RRSP account, according to the government, you’ve only made $12,000. They will then give you back the taxes you paid on that $3,000 in income.
Do you currently contribute to an RRSP?
Krystal Yee lives in Vancouver and blogs at Give Me Back My Five Bucks. You can reach her on Twitter (@krystalatwork), or by e-mail at krystalatwork@gmail.com
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