3. Learn how to make your money work for you.
While paying down debt is a good start, it can also help to find ways to make the money that you have work for you. For example, setting aside some room in your monthly budget to invest in a Registered Retirement Savings Plan (RRSP) or TFSA can help you get set for retirement later on.
Money saved in an RRSP is compounded over time – making it kind of like the good twin to credit card debt. Money put into an RRSP is “pre-tax” and will grow tax-free until it is withdrawn. At the time of withdrawal, the money is taxed at the marginal rate.
Canadians who want to save money for retirement or who need to have a fund to cover a big emergency but are on a low income should consider a TFSA.
However, it’s important to note that the taxes for an RRSP withdrawal are taken from that withdrawal – if you withdraw $1,000, about 20% of it will be withheld for tax purposes, resulting in a payment of $800 (or less). So, if you’re withdrawing to cover an emergency, it’s important to take this into account.
How much money could you save in a DCP versus managing debt on your own? Check out our Debt Repayment Calculator to find out now!