scrubbedexpat091

I have decided to cease having a cell phone, I never use the stupid thing and my girlfriend has one, so I'll still have a phone, and I don't see a need to keep paying 50 dollars a month for something I never use. (For February so far, 1 text has been sent, and 2 calls received, and 0 made.)

I just don't use the stupid thing, and the money is essentially a waste.

So I've decided to take that $50 and save it each month, obviously not a huge amount, but something to start towards retirement and/or just savings.

I am just not sure what the best way to save is, just a general savings account so the money is more easily accessible since we are both lower income and well never know when something will come up (car repair, medical, misc emergency) or if it should be put into a more traditional retirement plan like RRSP or something.

Any advice?

Eventually I'll add more, once my government debt is paid off in September, I plan to put that 250 a month towards savings as well. ( I am paying off student debt, and social assistance payments. Yes, some social assistance does need to be repaid).

But I wont be able to start that until October or November since the debt wont be paid off until then.

Once that debt is paid off, I will be officially 100% debt free.

So now its time to start think about savings.

We manage okay on what we have now with the 250 going out to the government, so we figure since we are not used to having it now, we will be fine without it after and just put it into savings for a rainy day or retirement or whatever it may be used for.

I like to get advice before going to the bank, since they may try to talk to into what is best for them, not necessarily what is best for me. I don't want to go in completely clueless.

And I have to also research tax implications for the US as well since I am a USC, which I just started to research as well.

iaink

That sounds very wise. Cant help on US tax implications.

Id say Start with a tax free savings account. That way at least the interest income wont be reduced by income tax. These dont count as tax sheltered, so what you put into them is still taxable income, but at least the interest earned doesnt count as income.

You can put in a fair amount each year (about $10k IIRC) and if something comes up that puts pressure on your finances you can easily access it without penalty (in most cases)

The interest isnt all that much though, barely in line with inflation.

Once you have built up a safety fund you feel comfortable with you can syphon off the extra into a RRSP that will help to reduce your overall tax burden, (larger refund). RRSPs are usually stock based mutual funds (some may be based on commodities, but Im not aware of any), some are insured, some are not. Insured ones offer lower returns, but some portion of your initial investment (75-100% typically) is at least guaranteed which is maybe good for very conservative investors. AFAIK banks dont offer insured funds, insurance companies do. Some RRSPs are tax shelterd forms of GICs... guaranteed investment certificates , but usually at very low interest rates. At least you get the tax benefit and there is no risk of losing money. All GICs and mutual funds tend to have funds locked in for a set period, with penalties for accessing it, so this isnt the best bet for covering an emergency. Plus funds taken from an RRSP will count as taxable income and you will pay the tax on anything you take out.

Picking a mutual fund to invest in is a bit of a crap shoot IMO, there are a bewildering selection to choose from, covering a broad range of risk tolerances, volatility and investment timescales. Some are "actively" managed , some are "index funds" designed to track fund indexes like the S&P, TSE etc.

Once in the market for mutual funds keep an eye on management expense ratios that can eat into whatever gains the fund makes. A well managed fund may increase in value more than one that just follows the market, but the gains may be obliterated by the management expenses. I do get the feeling that a lot of professional advisers are often interested only in making a sale, so its worth spending some time figuring out how to judge these funds for yourself and assesing your objectives with respect to security, time scales and expectations. Ultimately its kind of a crap shoot anyway. Best to take a long term view on returns and try not to stress over short term market fluctuations.

As far as phones go, we are not big users either, and pay $100 a year for virgin mobile pre paid. No data, but good for emergencies or just coordinating a meet up somewhere or a texted shopping list etc.

Zoe Bell

Get yourself a financial advisor. they often have little tips and tricks that you'd never thought of.

Thanks to ours we are managing to do some sweet money maneuvering to help us out.

Don't remember where you are located but I have a Toronto recommendation if you want

montreal mike

http://www.cbc.ca/news/business/hidd...vice-1.2553560

they are no smarter than you in many cases

maybe even worse

iaink

"Among the most pressing issues: Financial advisers are not in fact required to act in the client’s best interest."


Keep this in mind at all times Ask around for personal recommendations.

Zoe Bell

Yes, sorry, my apologies for making a suggestion.
the OP should keep their money in a tin box under the mattress.

montreal mike

actually ZB your suggestion is sound

all I am saying is: be careful

JonboyE

I agree with iaink's advice. The first priority, once you are debt-free, is to build up an emergency fund of around six months living expenses. A TFSA is an ideal way to do this. Once you have the emergency fund in place start thinking about RRSPs.

Steve_

If you're American, there's only one option really which is an RRSP because it's recognized in the tax treaty. TFSAs are not. Nor are RESPs. Unless you just want to stick it in something that isn't a tax shelter anyway.

When you file your 1040 you have to declare the RRSP to the IRS on Form 8891, there is an obscure bit in the instructions that says basically, this is a replacement for form 3520 - what it doesn't tell you is that there are places on 1040 and possibly the schedules where form 3520 is mentioned and you should mention the stuff you've put on 8891 instead - the questions tell you where to put it on 1040 but just bear it in mind if you're filling in an obscure schedule.

Having said that, the current long-term capital gains tax rate in the US for people in the 15% tax bracket or below is 0%, so if you are in that tax bracket and used a TFSA to invest in things that would only create a long-term capital gain, you could use a TFSA but pretty much any mutual fund for example is going to have dividends and short-term capital gains so it would very seriously limit your investment options. Plus it would be a disincentive against earning more money!

Also putting money into an RRSP, it's harder to get it out, so it forces you to save it.

There's also a tax fiddle if you become resident in the US again, as the withholding tax for non-residents on RRSP withdrawals is 25%, which can be lower (or higher) than the withholding tax for residents, but the income tax rate in the US can be lower than in Canada, so you can save in Canada then withdraw it with less tax attached to the withdrawal after you've moved to the US.

Steve_

Always put foreign investments in an RRSP or TFSA, because of the tax treatment. Canadian dividends have a dividend tax credit so if you max out your RRSP and TFSA you should do it so that foreign stuff is in them and Canadian stocks are not.

Deva

A TFSA isn't just a savings account. You can have shares, bonds, GICs etc within a TFSA.

You can put in $5,500 a year ($5,000 per year from 2009-2012). If you don't use the contribution room it carries forward.

iaink

Thanks for the clarification.

mutuals, GICs and bonds etc tend to be locked in with penalties for early withdrawal in my limited experience. Flexibility to withdraw at short notice comes at the price of lower returns.

Aviator

Take a look at this. 3% a year, not a certainty, but better than most out there right now. The money is locked in though. ANother option to consider for liquid funds is an ING TFSA savings account, which has interest calculated daily, so benefits from compounding.

http://www.rbcroyalbank.com/products...DD201B48FD14D3

danfolkestone

If you are in an area served by Canadian Western (various cities in BC, Alberta, Saskatchewan or Manitoba), they typically have amongst the best TFSA interest rates with instant access. They're offering 2.25% at the moment.

Peoples Trust always seem to top the charts for interest rates - 3% right now - but their basic website always made me worry about the security of their IT. Then this happened: http://www.thestar.com/business/pers...y_roseman.html

montreal mike

http://www.cbc.ca/news/business/hidd...vice-1.2553560

Tax Season
Hidden camera investigation uncovers ‘atrocious’ investment advice

I just watched the show on local montreal cbc

quite an eye opener