RRSP? TFSA? RESP? What These Acronyms For Saving Plans Mean

Are you confused about popular savings plan acronyms? Do you know what an RRSP or TFSA are? If you don’t, that’s okay. This 2 minute video explains what some savings terms mean for the average Canadian. Consolidated Credit’s Executive Director, Jeffrey Schwartz shares his expert tips in the Huffington Post’s 2 Minutes to transform video series. 

It’s RRSP Season – Are You Ready?

It is February and Registered Retirement Savings Plan (RRSP) season is HERE! The deadline to contribute to your RRSP this year is Wednesday March 1st. So what does that mean to you? It may mean – it’s time to buckle down and prepare your contribution.  Or if your retirement planning is the furthest thing from your mind right now – this deadline won’t mean anything to you. But it should. 

“In an ideal situation, your retirement savings strategy would be a part of your overall financial plan. However many Canadians are carrying record levels of debt and as a consequence, their retirement planning is the farthest thing on their minds right now,” says Jeffrey Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“Carrying a heavy load of debt is a burden unto itself however the key to any financial situation is to make sure you have a budget in place to help you not only to manage your day to day expenses, but your future too,” says Schwartz.

If you don’t know why it’s a good idea to have a RRSP, here are three major tax advantages you can take advantage of:

Tax deductible contributions:

We live in a society of fast results, when you contribute to an RRSP; you get instant tax relief by deducting your contributions from your income on a yearly basis.

Tax sheltered earnings

The money you make from your RRSP is tax sheltered which means – you will not be taxed provided you keep the funds in your RRSP.

Tax deferral

You will not receive any tax implications unless you take the money out of your plan.  If you are like most, your income will likely drop in retirement, and when you draw on your RRSP, the tax you pay should be less!  However if you take funds out during your income earning years – you’ll be subjected to a heavier tax penalty. So the moral of the story – contribute early, and leave them to grow as long as you can!

Now RRSPs can be a difficult concept to grasp for many Canadians, Consolidated Credit Counseling Services of Canada offers the following suggestions to help you with your retirement planning:

Contribute today! 

The longer you have to grow your retirement savings, the more you will have in retirement, not only from the contribution itself, but the growth over time.  And remember, that growth is sheltered from taxes until you use it.

Make your contribution invisible

Let your bank automatically deduct payments from your paycheque to your RRSP. Every little bit helps. This way you do not have to make lump sum payments come every February.

Use your tax refund

Dedicate your tax refund to your RRSP on a yearly basis. This strategy may help you to get a bigger tax refund on a yearly basis too. So forget about going on a tax refund shopping spree and take your refund to your RRSP!

For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at www.jamati.budgetlounge.ca and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free # 1-844-329-3834 and speak with a trained credit counsellors from Consolidated Credit.

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40 per cent of jobs could be lost to automation

New technological advancements could eliminate jobs

The Canadian workforce is going to be a lot lighter in the next 10 years with the loss of 40 per cent of jobs due to automation according to the chair of the government’s economic growth advisory council. 

The Chair of the council, Dominic Barton says two out of five jobs will be lost because of technological advances which may leave many workers in the workforce vulnerable. Barton says Canada should focus on some areas to invest in instead of trying to essentially be “great at everything.”

“Automation takes time, and doesn’t happen overnight, but we have all seen what can happen when vital parts of our economy change rapidly and the effect it can have on our financial well-being if we are not prepared.  Take for example the oil industry, and the impact it is having on residents in Alberta, or back in 2008/2009 when the auto industry took a turn and the impact it had on communities that depended on jobs in that sector.  Some communities still haven’t bounced back,” says Jeffrey Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“Automation is happening and it will have an impact on the economic viability of many jobs, companies and communities if we aren’t prepared,” says Schwartz.

Although it can be difficult to plan for the unexpected, Consolidated Credit Counseling Services of Canada recommends the following for consumers so that they can be prepared:

Know your worth-today

Take a proactive stance with your finances by creating a current budget. This will give a clear indication of your monthly expenses and how much money you will need to manage it in the event of a reduction in your income temporary or otherwise.

Save for a rainy day

Almost 50 per cent of Canadians are ill-prepared for an emergency.  Consumers can save themselves from a lot of heartache by creating an emergency fund before an emergency occurs (e.g. job loss). Aim to set aside at least three to six months’ worth of living expenses (food, mortgage, insurance etc.).

Create a new me

If you sense that your job might be in jeopardy as a result of automation, don’t wait for that day to come.  Be proactive, what other skills do you have, or which of your current skills are transferrable to other roles? Alternatively, consider learning a new skill or taking on professional development for roles in a thriving industry.

Contact your creditors

If the loss of your job is a done deal and your budget is indicating you are unable to pay your bills, pick up the phone and call your creditors. You may be able to negotiate a temporary payment plan. Just remember ignoring your bills is the worst possible thing to do. Refraining from paying your bills will not only affect your credit score – it can affect your payment terms too.

Seek help

If you just lost your job and you are at your whit’s end trying to contemplate how you’re going to pay your bills, stop worrying and pick up the phone for some help. No one should have to carry a heavy burden of debt alone. Speak to a trained credit counsellor and they will help you manage your debt.

For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at www.jamati.budgetlounge.ca and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free # 1-844-329-3834 and speak with a trained credit counsellors from Consolidated Credit.

Interest rates going up? Signs point to yes

For several years now, interest rates have been hovering near record lows. In fact, they’ve been there for so long that many people have grown used to being able to borrow “cheap” money. 

“The focus has been for years on how much more house, car or other big ticket item the consumer can obtain because interest rates have been so low. The focus needs to now turn to paying down that debt that consumers have loaded up on for the past several years before the rates go up. If your debt load is high, it’s about to get higher, even if you don’t spend any more money,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

There is strong evidence that an interest rate hike might be around the corner. There are several factors presenting themselves in the marketplace that suggest a rate hike is very likely. And if you are already stretched thin, even a slight rate hike could present problems.

Reasons that a rate hike is likely coming

Although analysts and economists have been predicting a rate hike for years now, there is strong evidence to suggest that interest rates are set to go up soon.

For one, the U.S. Federal Reserve raised interest rates in December. Although we are our own country, we tend to follow economic trend lines set out by our neighbours to the south. It stands to reason that a rate increase in Canada will come shortly.

Another factor that will push interest rates up is inflation.  Basically, inflation measures the increases in price for goods and services. According to Stats Canada, inflation went up slightly in November to 1.2 per cent. Typically, when inflation goes up, so do interest rates.

A little increase equals big money

How much matters? Even a half a per cent sounds tiny, but when you actually translate that into dollars, the increase can be substantial. And if you’re already scrambling to make ends meet, that could tip the scales into a bad direction.

Depending on how much mortgage you carry, a 0.5 per cent increase could translate into thousands of extra dollars towards your mortgage in a year (and hundreds more month to month).

If your mortgage is coming up for renewal soon, make sure to shop around to get the best mortgage rate. Lenders will often give rate guarantees 120 days in advance. If the rate goes down, you benefit, but if it goes up, you still get the rate they offered you.

Don’t forget your other credit

Although the focus is often on mortgage payments in regards to interest rates, don’t forget that all of your variable interest rate credit products will go up too (lines of credit and credit cards). How vulnerable are you?

“One way to combat the risks of a rate hike is to reduce your debt. You may want to consider a consolidation loan, which will generally offer a set interest rate over the term of the loan. Another benefit to doing that is that it lets you more easily live a cash lifestyle, because your cash flow is increased with your debts going down,” says Schwartz.

Would a change in interest rates make you vulnerable? Take time now before rates go up to pay down your debt. For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at www.jamati.budgetlounge.ca and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free # 1-844-329-3834 and speak with a trained credit counsellors from Consolidated Credit.

Interest rates going up? Signs point to yes

For several years now, interest rates have been hovering near record lows. In fact, they’ve been there for so long that many people have grown used to being able to borrow “cheap” money. 

“The focus has been for years on how much more house, car or other big ticket item the consumer can obtain because interest rates have been so low. The focus needs to now turn to paying down that debt that consumers have loaded up on for the past several years before the rates go up. If your debt load is high, it’s about to get higher, even if you don’t spend any more money,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

There is strong evidence that an interest rate hike might be around the corner. There are several factors presenting themselves in the marketplace that suggest a rate hike is very likely. And if you are already stretched thin, even a slight rate hike could present problems.

Reasons that a rate hike is likely coming

Although analysts and economists have been predicting a rate hike for years now, there is strong evidence to suggest that interest rates are set to go up soon.

For one, the U.S. Federal Reserve raised interest rates in December. Although we are our own country, we tend to follow economic trend lines set out by our neighbours to the south. It stands to reason that a rate increase in Canada will come shortly.

Another factor that will push interest rates up is inflation.  Basically, inflation measures the increases in price for goods and services. According to Stats Canada, inflation went up slightly in November to 1.2 per cent. Typically, when inflation goes up, so do interest rates.

A little increase equals big money

How much matters? Even a half a per cent sounds tiny, but when you actually translate that into dollars, the increase can be substantial. And if you’re already scrambling to make ends meet, that could tip the scales into a bad direction.

Depending on how much mortgage you carry, a 0.5 per cent increase could translate into thousands of extra dollars towards your mortgage in a year (and hundreds more month to month).

If your mortgage is coming up for renewal soon, make sure to shop around to get the best mortgage rate. Lenders will often give rate guarantees 120 days in advance. If the rate goes down, you benefit, but if it goes up, you still get the rate they offered you.

Don’t forget your other credit

Although the focus is often on mortgage payments in regards to interest rates, don’t forget that all of your variable interest rate credit products will go up too (lines of credit and credit cards). How vulnerable are you?

“One way to combat the risks of a rate hike is to reduce your debt. You may want to consider a consolidation loan, which will generally offer a set interest rate over the term of the loan. Another benefit to doing that is that it lets you more easily live a cash lifestyle, because your cash flow is increased with your debts going down,” says Schwartz.

Would a change in interest rates make you vulnerable? Take time now before rates go up to pay down your debt. For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at www.jamati.budgetlounge.ca and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free # 1-844-329-3834 and speak with a trained credit counsellors from Consolidated Credit.

Self-employed? Work part time or on contract?

It’s time to set up your own pension plan!

As an entrepreneur, you’ve worked long and hard to establish your business and earned the right to be your own boss. There are definite perks to being your own boss, but one of the drawbacks is that you can’t fall back on company sponsored pensions or retirement funds.

And it’s not just the self-employed that may find themselves vulnerable come retirement. People who work part-time or on contract may have little or no company pension to support them in retirement.

“Whatever your work arrangement, if you don’t have a company pension waiting for you in retirement, you need to be more strategic and more aggressive with your savings. You need to be constantly mindful of reducing debt and maximizing savings during your working years, so that you don’t suffer a cash shortfall and need to turn to debt in retirement,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“You need to act now to become versed in your financial options, so that you can make the most of your financial options for the future,” says Schwartz.

If you are self-employed, work part-time or on contract, or if you want to boost your own savings in general, here are some tips on how to set up your own “pension plan”

How much?

The most effective way to achieve your savings goal is to determine first of all how much you’ll need to support yourself in retirement. It’s a good idea to meet with a financial advisor or a representative from your financial institution to help you nail down what you need. To start, here is a guide from the Government of Canada that can help you determine what you’ll need for income during your retirement (based in part on your income now, your age, and planned age to retire). It also takes into account other post-retirement benefits, like Old Age Security (OAS) and the Canadian Pension Plan (CPP).

When you have an idea of what you’ll need, you can develop a plan as to how you’ll achieve that goal.

Specifically for business owners

A recent poll from BMO Wealth Management found that most private business owners are unprepared for retirement financially and are likely facing a retirement funding shortfall.

The poll also shows that most business owners are counting on selling their business assets in order to fund their retirement, but a third of respondents said that they don’t know what exit option to consider.

The other issue here is that business owners are relying too heavily on the assumption that they’ll be able to sell their businesses for the required amount in the future, which is a risky move.  You never put all of your eggs in one basket. More liquid savings need to be part of the mix.

Diversification is key

On the same note, many homeowners avoid cash savings assuming that they’ll be able to sell their homes to fund their retirement. That too is a risky move, because like selling business assets, that value depends on what the market declares the value to be, which changes. And what if you’re forced to sell for less?

Know your options

As a rule of thumb, reduce debt as much as possible, so that you can keep that gap of between your investments and your debts as wide.

RRSPs are an excellent choice to really leverage your retirement savings power. The investments that you hold inside your RRSP are more liquid than business assets or house equity and you get a tax benefit from your contributions.

Tax Free Savings Accounts (TFSA) are a good idea as well, because they let you accumulate savings, with a flexible withdrawal policy (and a generous contribution limit). You also don’t pay tax on the interest that you generate, which is a nice tax benefit as well.

Are you nearing retirement, but your debt levels remain high? Take steps to start paying that debt down today so that you can focus on saving for your retirement.

For more information on this and other financial literacy and credit issues, visit the online Financial Education Centre at www.jamati.budgetlounge.ca and http://iicanada.org/epb/finance or if you are experiencing financial stress due to debt issues and would like to find solutions, you may call this toll-free # 1-844-329-3834 and speak with a trained credit counsellors from Consolidated Credit.