Step 1:
Contribute to your RRSP
We can help you put money to work for you to help you achieve a comfortable retirement while at the same time trimming down your taxable income. This can lead to significant tax savings and even a large tax refund. Book a call to complete step one.
Step 2:
Use your tax savings to pay off debt
Ok, now you have your fat tax return cheque in hand. Stop! Don't book a big vacation, pay off your debt instead and I'll tell you why.
If you carry a credit card balance you need to know the Rule of 72. Divide 72 by your interest rate and you'll find out how many years it takes your money to double.
Example 1: In your shiny new RRSP, if you get an annual return of 8% your money will double every 9 years. 72/8=9
Example 2: If you buy a vacation rather than pay off your credit card balance, the cost of the borrowing interest will double the cost of your vacation in 3.6 years 72/19.9=3.6
Example 3: Don't carry credit card balance? Great! Pay down your car loan.
By making a $5000 lump sum payment on a 7%, 2 year old car loan, you will not only shorten the loan term but also save on interest:
- You'll save about 11.25% of the original loan term (9 months out of 80).
- The total interest savings over the life of the loan will be significant, potentially in the range of $1,500 to $2,000
Bonus Step: How do I get 8% or better returns?
There are no guarantees in life except death, taxes and this: If you don't learn about investing, you'll only ever have access to low risk, low interest investments like GIC's. That's ok for reaching short term savings, but terrible for building a retirement fund, even if you're making an above average income.
Now repeat after me, "Past performance is not an indication of future returns of investment funds."
