Sometimes spending money wisely can be a challenge – especially tax refunds, which can seem like free money. If you’re lucky enough to get a tax refund this year, take a moment to consider how you could put that money to work for you instead of squandering it on a big screen TV, new wardrobe or beach holiday.
Here are some smart ways to spend your refund:
- Add to your emergency fund. Set aside enough cash to cover six months of expenses — just in case the unexpected happens
- Pay down credit cards and other high interest debt. You’ll save money on interest charges and increase your monthly cash flow
- Jump start next year’s RRSP. Contributing early allows you to take advantage of all those extra months of tax-free growth. At retirement time this can mean thousands more in your pocket.
- Invest in a Tax-Free Savings Account. Growth or earnings in a TFSA are 100% tax-free, and you’re allowed to contribute up to $5,000 per year
- Pay down your mortgage. Lump sum payments on your outstanding principal will save significant dollars in interest charges over the long term. It also means you’ll own your home mortgage-free that much sooner
- Save for a child’s education. Invest in a Registered Education Savings Plan on behalf of a child or grandchild and you’ll qualify for a government-sponsored Canada Education Savings Grant of between 20-24% of the contribution (to a maximum of $600).
- Take care of outstanding RRSP loans. Some loans have three or four month grace periods during which time you’re not required to make any payments towards the interest or principal. Remember that the interest owed still continues to accumulate until the loan is completely paid off.
Remember, how you spend your money today will have a significant impact on your future. For advice on how to get your tax refund working for you, talk to a Credential Asset Management Inc. Mutual Funds Investment Specialist
The information contained in this newsletter is provided as a general source of information and should not be considered personal tax advice, investment advice or solicitation to buy or sell any mutual funds. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.
If you want to buy a home, you’ll need a down payment toward the purchase price. This money is not financed as part of the mortgage.
The amount you’ll need depends on the price of the home you want to buy and whether or not you want to pay for mortgage insurance. Your down payment must be at least 5% of the purchase price, so if the house you want costs $300,000 you’ll need a minimum of $15,000. To avoid paying mortgage insurance, you’ll need to put 20% down.
Saving that amount means you need to be deliberate about your savings plan. Here are some tips to help you along:
Open a separate account to save the money
Don’t keep your savings in the same account you use to pay your bills. The temptation to spend a little “just this once” will be too strong. Open a separate account that will help you grow your savings. Depending on the amount of risk you are comfortable with you may want savings options that will protect your money but still pay interest, such as GICs and investment savings accounts.
Make it difficult to access your savings on a whim
If you’re an impulse shopper or likely to be tempted to use the money for something else, make it difficult to access. If you have to wait to get to the money, maybe the urge to spend it will pass.
- Lock the money into a term deposit/Guaranteed Investment Certificate (GIC). Even cashable GICs have restrictions on how quickly you can access the money.
- A Tax-Free Savings Account (TFSA) may also be a great way to set money aside.
- Choose an account with fees for more than one withdrawal transaction a month.
- Don’t give yourself access to the money through an ATM or in-store debit machines. If you have to go into a branch to withdraw the money you’ll have time to consider the purchase.
Control your budget and spending
You can’t save money if you spend all the money you earn. Develop a budget, track expenses and introduce some savings strategies into your daily finances.
Save for other costs
Don’t forget there are other costs associated with buying a home so you’ll need to save enough for those as well.
Begin making mortgage payments to yourself
There’s no time like the present to begin working mortgage payments into your budget. You’ll have to pay them at some point so it’s a great way to be sure you can afford them.
- Use a mortgage calculator to get a rough idea of how much your mortgage payments will be each month.
- Add to that the cost of property taxes and utilities.
- If you are currently paying rent, subtract up to the amount of your rent payment (most people can’t afford both rent and mortgage payments at the same time).
- Calculate the total you would be paying each month.
- Put that amount into savings.
Look at the Home Buyers’ Plan
If you are a first time home buyer, the Home Buyers’ Plan allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to use as a down payment to buy or build a home. Depending on your circumstances, borrowing against your retirement savings may or may not be the best decision. Unlike a TFSA, RRSP contribution room is not reset. On the other hand, a bigger down payment means less interest is paid on a mortgage.
Talk to a financial advisor about your situation.
Understand that there are multiple options available to achieve your goal of buying a home. Talk to a financial advisor to determine what best fits with your personal circumstances.
When it comes to retirement, women generally face some unique challenges that require careful thought and astute planning now, to ensure financial security in the future.
Here are some female-first considerations for retirement planning:
Women live longer
At the root of these challenges is the simple fact that women need more retirement wealth because they live longer than men. Statistics Canada says the life expectancy at birth for a Canadian woman is 83 years, compared with 78.3 years for a man. Women who reach age 65 can expect to live, on average, another 21.3 years; men can expect to live another 18.1 years.1
This means a woman’s retirement savings must cover a longer time span. A longer life also increases the chances that long-term care will be needed.
Earning less means needing more
Even today, women typically earn less than men while working. This puts them at a disadvantage when investing for retirement. What’s more, over a lifetime, a woman’s income stream may be interrupted if she leaves the workforce temporarily or permanently to raise children.
In addition, according to Statistics Canada, women are more likely to quit jobs or reduce working hours to care for an elderly relative or friend.1 They’ll also spend more time than men in the caregiving role. All of it means less potential to accumulate retirement savings and perhaps less pension income.
The potential difference in lifetime earnings means women must save larger proportions of their income to achieve a lifestyle comfort level similar to that of men. Even if a woman has accumulated the same amount as a man, because of her expected longer lifespan, she should draw less each year to ensure the money lasts.
The perils of widowhood
Women are more likely to outlive their spouse than men. Statistics Canada says senior widows outnumber senior widowers by four to one; 45% of women aged 65 or older are widows,2 a situation that can dramatically affect retirement finances. For example, the death of a spouse may eliminate half or more of a couple’s income, but probably won’t cut expenses in half.
Studies have shown that, typically, women are more conservative investors. So not taking risks could become a risk in itself. Building adequate retirement savings and managing that wealth for a long retirement may be hindered by an overly conservative approach that does not include an element of portfolio growth potential.
If you are reading this and you are a married or single woman, or if you are a man with a female partner, mother, sister or close female friend or relative, we can help. We will take a female-first approach to help ensure a secure and comfortable retirement.
1 Statistics Canada Publication 89-503x, “Women in Canada: A Gender-based Statistical Report,” March 2016.
2 Statistics Canada Publication 11-621-M, “Widowhood: Consequences on Income for Senior Women,” June 2004.
A simple way for you to save and invest with regular contributions
Pre-authorized contribution (PAC) plans can help you save money, budget better or invest regularly in an easy and convenient way.
They work by making regularly scheduled transfers from your account into a savings account and you choose a weekly, bi-weekly semi-monthly, monthly, quarterly, or even annual schedule and the amount you want to contribute and then, voila! You can watch your savings grow all thanks to your PAC plan.
What you do with your savings is up to you. Save for a family vacation, purchase a new car, pay for education or simply save money in a cash account. If you’ve got a goal in mind, use our investment goal calculator to figure out the details.
PACs are also great tools for growing your:
By setting up a PAC plan and an investment strategy, you’re paying yourself first by automatically saving a portion of what you earn each month. You’re also giving yourself increased security and improving your financial stability. And you’ll benefit from interest gains on a more consistent basis than a traditional one-time contribution to an RRSP.
Are you ready to start saving today?
Whether your needs are simple or complex, our dedicated, knowledgeable team can provide advice and services that are right for you.
Choose from the following options to find out how you can start taking advantage of a PAC plan and start saving for your future.
- Phone: contact our Member Contact Centre to get started
- 187SERVUSCU (1.877.378.8728)
- In person: make an appointment at your local branch to get started
- Online: connect with us through our online application
Get the most from your savings—tax-free
Putting your money in a tax-free savings account (TFSA) at Servus means you can invest without paying tax on the investment income you earn. It’s 100% tax-free.
Choose our Tax-Free Growth Account, which allows you to take out money at any time without penalty. You may also opt to invest your account in other ways, such as mutual funds,* stocks, bonds or GICs.
Plus, deposits to your GIC or growth account TFSA are 100% guaranteed by the Credit Union Deposit Guarantee Corporation.
TFSA contribution limits
Start saving today
To learn more about our investing services, make an appointment at your local branch.
Families need to be sure to pay themselves first. (Codie McLachlan/Postmedia)
Finding it tough to save? Consider paying yourself first. Families often struggle to save as they juggle several financial priorities.
There’s the mortgage. They have the car payments to worry about. Of course they have to put food on the table. And there’s a long list of costs associated with raising children.
Who has money left for retirement, emergencies and saving for their children’s education?
Servus Credit Union financial adviser Kelsey Bennett says it’s a common challenge, one she’s had plenty of experience helping families overcome. People often do have the money to save, she says, it’s just a matter of finding it in their budget. That involves trimming costs and maybe taking a page from a famous personal finance book, The Weatlhy Barber.
In the book, author David Chilton recommends that people “pay themselves first.” The idea is to make saving a priority and money for the future should be automatically deposited a registered retirement savings plan (RRSP), registered education savings plan (RESP) or tax-free savings account (TFSA) every paycheque.
That way you don’t have to hum and haw about whether to save this month or next. The decision has already been made. By setting up a pre-authorized automatic contribution plan, or PAC, money is drawn monthly from your chequing or savings account and deposited into more long-term term investments. The amount is up to you. It can be small at first and over time as your income increases, you can bump up the contribution and expand to saving for many goals:
- a new car
- a big vacation and
- helping the kids pay for university
A good first step is to meet with your financial adviser. Bennett says she often helps Servus members go over their expenses, build a budget and find the money to create a savings plan that addresses all their financial goals.