So the question arose the other day about money … in Canada that is. The following is a personal opinion of the writer. Before acting on anything I write consult the appropriate professionals.
The question was regarding TFSA’s or RRSP’s. Which is better?
That depends on how much money you earn. If you are doing relatively well income wise, you will not be permitted to have an RRSP.
Anybody is permitted to have a TFSA regardless of income. So for those of us who are enrolled in an employer/employee funded pension plan it usually has to be a TFSA.
RRSP’s, I think, were designed for those of us that do not have access to pension plans through an employer.
So if you are financially responsible and plan your day to day, week to week, and monthly and annual budgets so that you live well within your means-and you save consistently a substantial amount of your pay … regardless of how meager your income is … more than likely only a TFSA will be available to you.
My personal definition of financial independence is this. The ability to live of the income from hands-off conservative investments. I am living proof that it is never to late to start. However, I’m still not there yet and it has nothing to do with how much money I earned and everything to do with how the money I earned was utilised.
So based on a little research I will make this statement:
Starting out here are the three principles.
Principal number one: Acquire no debt … not one cent.
Principal number two: Save $10,000.00 as soon as possible.
Principal number three: Save a high percentage of your net income after you pay your bills on payday.
There is one more principal that is crucial. Write it all down. Every penny in, every penny out. Write it all down!
Set a goal to save 70% of your net income. It won’t happen in your first year of working.
A TFSA is good because it is funded with net income. The unique thing is that all the profits inside a TFSA are tax exempt.
The annual limit to contribute to a TFSA is currently $5,500.00 However if you have never had one you are permitted to deposit $31,000.00 in the first year and then $5,500.00/year until the annual limit is increased.
If you start out with car loans, mortgages credit card debt, it will take you years to change your thinking and a lifetime to pay it all off.
For now I’ll stop here. To be continued.