How to prioritize RRSPs when budgets are tight post-holidays
Want to save for your future while bouncing back from holiday spending? You can do both—we’ll show you how.
By ATB Financial 20 December 2022 3 min read
While budgets can be tight post-holidays there are opportunities for you to add to your RRSP before the contribution deadline, bringing you one step closer to making your financial goals possible.
Balance post-holiday debts (or lower savings) with tax season preparations
Sometimes the holidays can lead to high-interest debts from credit cards or loans. Pay off these debts right away to save on interest. When these debts are taken care of, consider adding to your RRSP in time for tax season—this year’s RRSP contribution deadline is March 1, 2023.
Looking for resources to help you pay off your debt faster? Try our budget spreadsheet or create a personalized plan with one of our financial advisors.
How to add to your RRSP savings when budgets are tight
No matter how much you have to work with, you can still contribute to your RRSP post-holidays. If you start with adding $25, $50 or $100 in January, that small amount can snowball into significant savings as you contribute consistently.
To keep your savings growing, set up pre-authorized contributions (PACs). PACs are recurring automatic withdrawals that transfer a pre-specified amount of money from your bank account into an investment or savings account—like an RRSP or TFSA. You can schedule PACs to suit your lifestyle and goals, whether weekly, bi-weekly, semi-monthly or monthly.
To start, try scheduling your PACs to come out of your account the day you get paid. This way the money will be directed to your savings before you even notice it’s gone, making it easier to factor savings into your budget.
Why put additional funds into your RRSPs and TFSAs before filing taxes?
Not only can contributing to investment accounts allow you to enjoy tax benefits, it also gets you closer to meeting your long-term and short-term goals.
Generally, your income is higher during your working years and the total amount of your RRSP contribution is reduced from your taxable income. This can lower the amount you pay on your annual income tax and may even provide a tax refund. When it comes time for you to withdraw from your RRSPs in retirement, you’ll be taxed on the money but ideally in a lower tax bracket.
TFSAs are not tax deductible, but will grow tax-free inside the account. When you withdraw from your TFSA, it will not count towards your taxable income. If you aren’t sure where to direct your funds, learn more about deciding between RRSPs and TFSAs.
Prepare in January and February for tax season
- Know your tax rate: this can help you to identify the amount of after-tax cash flow available to pay for your lifestyle expenses, properly evaluate investment opportunities and identify strategies to lower your overall tax bill.
- Look at your previous year’s tax return: this allows you to determine your taxable income, marginal tax rate and effective tax rate for the past year. With this information you can evaluate how this coming year could compare, equipping you with an understanding of your personal tax situation.
Set yourself up for the next holiday season
Plan ahead for your holiday expenses by saving a little each month to create a holiday fund—starting now. When your celebrations come, you’ll have savings to use for your holiday spending instead of dipping into funds you need for regular expenses.
As you begin this year, it’s an opportunity to reimagine what’s possible and start contributing to your future. If you’d like to partner with an expert, connect with an advisor. Together, you can create a plan that works for your now and your tomorrows.
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