Give Yourself the Means to Contribute to Your RRSP

Do you think you can contribute to your RRSP this year? For most Quebecers, the answer is no. Others could make a contribution, but not one as big as they would have liked. The main reason given: lack of liquidity.

Here is an effective strategy that you can put in place right now to give you the means to contribute to your RRSP year after year.

Step 1 – Automatic Savings (because you have to start somewhere)

Pre-authorized savings deductions^{footnote *} are a very effective form of self-discipline. This solution is an ideal way to start saving money without even noticing.

Advantages:

• Easy to budget: to start off, plan deductions of 5% to 10% of your pay.
• Efficient: to contribute to an RRSP, it is much easier to plan $50 per pay than to pay $2,600 in one shot on February 28.
• Simple to create a savings habit: once the deductions are a part of your routine, the money accumulates without you feeling deprived.
• Automatic: just choose the amount to save per pay!

The Strategy: set up an annual savings strategy as soon as possible to suit your situation. Aim for a realistic amount and increase it periodically.

Step 2 – Use Your RRSP as Leverage

RRSPs are used to save for retirement while decreasing your taxable income. At the end of the year, that means more money for you.

Advantages:

• Save tax! For many, this deduction can even result in a tax refund.
• Reduce your taxable income. For some, this translates into eligibility for income-related social and government program rebates, such as Registered Education Savings Plan Grants, the Canada Child Benefit, and child care expenses.

The Strategy: if you are eligible for a tax refund, use it to re-invest in your RRSP, save more, or repay debts.

Step 3 – Grow Your Savings

Paying in to your RRSP is good, but investing the money you contribute is better. Boosting your savings is the best way to achieve your goals.

Advantages:

• Generate returns that are higher than inflation through optimal diversification of your investment portfolio^{footnote **}.
• Take advantage in declining markets and avoid buying only when the news is good. By investing on a periodic basis, you get the best average cost. That's why it pays to invest regularly.
• Reach your savings goals faster.

The Strategy: establish your investor profile and invest your savings as soon as possible in order to take advantage of the markets!

As with anything else, the hardest part is to start. So, what are you waiting for?