*The following information is based on personal experience - please consult a financial planner to determine if RRSP's and TFSA's are right for you.*
I have 2 closets full of clothes, a closet full of shoes, my own bachelor apartment in the heart of the city, nice décor, a car, social outtings – so ‘savings’ have to give right? Wrong.
I learned about RRSP’s (Registered Retirement Savings Plan) from my parents. How I understood it was: when you have extra money, you can put it in this magical account. It will grow & grow and be there for when you retire, plus it’ll help increase my tax refund each year.
The definition of RRSP: A Registered Retirement Savings Plan is an account that provides tax benefits for saving for retirement in Canada.
I knew I would spend any extra money I had vs. contribute it to my RRSP's so I made a commitment (funny how financial commitment is less scary than emotional…).
I committed to contributing $25.00/every 2 weeks. The money came directly out of my chequing account (out of sight, out of mind).
When I started earning a bit more, I decided I had the capability (see SSP Part 1 – Budget) to bump up my contributions. I am now contributing $50/each week to my RRSP’s.
Little did I know (blonde moment) you couldn’t touch that money unless it was for school, buying a house, or retiring, so after learning that, I added on a TFSA (Tax Free Savings Account) for short term goals.
Short Term Goals: TFSA's
Whether it's a dream vacation in 2 years, or a new car in 5 years, the TFSA fit me perfectly for my short term goals.
The definition of TFSA: A Tax Free Savings Account is an account that provides tax benefits for saving in Canada.
Again, I went with the ‘out of sight, out of mind’ strategy, and I now put $25/week directly into my TFSA.
That means, between my RRSP's and TFSA's, I am contributing $75/week. I’ll admit, that’s a lot, but you can get started with as little as $25/month. Any little bit helps, and as soon as you earn more, you can budget for more contributions.
How do I do it?
I use Freedom 55 Financial to manage my contributions each month. Specifically Ryan Wing. Being 'twentysomething' means there is a lot of change happening in your life and despite how 'little' or how 'much' I am able to contribute, or how often I need to make changes, Ryan has been able to offer me support. In only 2 years I have been able to put $10,000 into my RRSP's and bump up my savings, and it was as easy as:
1. Automatic withdrawals - taking money I didn't have a chance to spend.
2. Being patient - little by little, you'll reach your goals, both short and long term.
And in closing, you can totally budget, spend, AND save, following the Shopaholic Savings Plan.
I rest my case.