It’s the New Year and Tax

Welcome to the new year! Have you got your new year resolutions well under way? Yup neither have I. But one thing that I do have under way, is my income tax return roughly figured out so that I have lowered my due taxes and maximized my savings.

For my fellow Canadians, you have at your disposal a great tax saving tool called RRSP. With the RRSP, you can reduce the amount you pay into income tax every year. The most effective way to do this, is to pay smaller amounts through the year. In my other post I mention that you can do as little as $200 and retire with $1,000,000.

But now say your budget is pretty tight and you can’t save that amount every month. What can you do about getting money into savings you ask? Well what I do on a yearly basis is see if adding money to my RRSP contribution line on my income tax will lower / return the same amount that I add. So say I added an extra $500 onto the RRSP line and I lower / get back that exact $500. I would contiue to add to that line until the rate of return is not worth it. So if you get to the point where you add $500 and the return is only $400, you qould have to determin if that is still of value to you or not.

If you are working on getting a payable balance down, and you are thinking that you can’t afford to put money into savings to bring this amount down, just remember you will be paying the amount regardless of if it goes into your savings or to the government. And I am pretty certain you wohld agree that money into your savings is a better place for your money.

So now fast forward 10 years, and assume that you have used this process for each of the 10 years, I’m certain that you will have a nice little nest egg. If you were able to put the $200 monthley equivalent into saving and get the 10% interest, you would have $38,249.82 in the bank and it would all be from tax savings via the RRSP process.