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Investing in TFSA or RRSP

General Trish Pigott 5 Aug

A common financial mistake that people make is not investing in their Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) early enough. They often don’t start contributing until later in life when they are more financially stable. The truth is, starting smaller and earlier, will be more beneficial. Your retirement fund could grow to seven figures, even if you only contribute a fraction of the allowable yearly maximums.

If you make $60,000 a year, you can contribute over $10,000 to your RRSP account and another $6000 to your TFSA annually. There are huge tax-saving benefits that come with this as well.

It’s important to note that your yearly contribution limits can be carried over as you grow older and have more disposable income. However, you do need to be very disciplined with your spending. As you get older and start earning more, you will also likely spend more. Think kids, vacations, cars, etc. That extra disposable income you were envisioning may not materialize until you are in your mid 50’s. But if you scrape together what you can now, it will make a huge impact in the long run, even if it’s just saving 5% ($200/month at a $60,000 salary). Investing $200 a month from age 18 to 65 at 7% would give you $790,139. The same $200 at 7% from age 28 to 65 would yield just $384,810.

There are plenty of rules, regulations and strategies to consider and every angle of the TFSA vs RRSP debate has been extensively written about. While you do need to understand the basics of how they work, the simple goal for the vast majority of us should be to put something, anything, into one (or both) of these accounts on a regular basis and start investing — you can’t go wrong!