Saving: Where to Start?

Whether you want to start saving (or improve saving) in a TFSA, RRSP or a plain old savings account with your bank, you have to make a decision before you even consider risk tolerance, savings vehicle, and investment goals. You have to figure out how you're actually going to do the saving.

There are two methods of saving that I've seen fail pretty consistently, and they are as follows:

1. Deciding to save whatever you have left at the end of a pay period after you've paid all of your expenses. So you get your paycheque (let's say for simplicity's sake you clear $1,200 biweekly), and after paying rent, bills, etc. you put whatever is left into your savings vehicle.

2. Having easy access to your savings account. So, regardless of how you decide to save, you can remove the money with the click of a button anytime you feel like accessing it.

These two styles fail for two different reasons.

The first fails because, honestly, most people either forget to tuck the money away every two weeks, or they get to the end of the two weeks and realize they don't actually have much, or any, cash to add to the account. I've been working as a financial advisor for 4 years, and in that time I've had a few clients come in and tell me very confidently that they can save better on their own, without my help or plan. Fast forward a year from that meeting when we sit down again to do an annual review. I show them how much they would have saved with me, and then I ask them how much they saved on their own. Almost without fail, I've got the winning number and we end up moving forward together. This is partly because my method involves a set Pre-Authorized Contribution (PAC), say $100, set to the day your paycheque lands in your bank. We call this "paying yourself first" in the biz. So mentally, you're living as though you have $1,100 landing in your account biweekly. We always choose a conservative number to start, so that you're not overwhelmed with a slash to your budget. It's just a phone call to increase or decrease your PAC, so don't get too hung up on the number you start saving.

The second point above fails because accessibility to your savings can create a situation where you're putting $100 in every two weeks and pulling it right back out with a few mouse clicks. Sometimes having your savings being an extra step away (like a phone call to your advisor or a temporary hold) can make you question whether you really need to remove it or whether you should keep saving for that vacation you want to take next year, or those snow tires you'll need for winter, or that early retirement someday.

So. The best way to start saving, regardless of your budget or goals, is to set up a PAC for the day your paycheque lands and put your money in a vehicle like a TFSA or RRSP (vs a savings account you can access with the SAVINGS button on your debit card, for example).

I can personally attest to this method. Years before I began working as a financial advisor, I set up two TFSAs. One was for "bulk saving" where I would consciously put extra money, and the other had a $25/week PAC. In the beginning my bulk saving TFSA was much larger, but within a few months my PAC TFSA slowly took over. I hate to relate all of this back to fables but this is a true case of the tortoise and the hare.

There are definitely exceptions and some people take an active interest in their savings. Nine times out of ten though this "set it and forget it" method of saving is going to get you consistent results, and it doesn't hurt! Most times, my clients don't even notice a change of lifestyle at all.

As always, if you have any questions just reach out and ask! I'm happy to help, and happy to see the women around me grow their wealth and knowledge.

Peace, love, and WEALTH,
-Rachael

RRSPs vs. TFSAs: A Breakdown

this gif serves no purpose

Sometimes when I meet a client and ask what they have for savings, they’ll say they have a TFSA and some mutual funds. Then I ask them what their TFSA is invested in, and I get a blank look. This is totally common in that many first-time investors had a TFSA opened at their bank because someone suggested it (Dad, teller, online ad), but totally abnormal in that TFSAs and mutual funds are not mutually exclusive. Tax-Free Savings Accounts and Registered Retirement Savings Plans are what we call Investment Vehicles. They are the car model you’ve decided to go with. Mutual funds, savings bonds, cash: all of these can be the drivers of your vehicle (aka: the money that you put in your vehicle still needs a driver). I don’t want to get into investment options yet, because I want you to understand the difference between two of the biggest savings vehicles we have available as investors: RRSPs and TFSAs. These savings vehicles are what we call registered, in that they are government-created vehicles that have tax advantages. The growth of money inside of non-registered investments is taxed every year. I made this table below to answer some quick questions and to compare the two registered vehicles. 

Feature	TFSA	RRSP
What kind of dollars are contributed?	After-Tax dollars go into a TFSA (aka you’re not getting a return at tax time)	Pre-Tax dollars go into an RRSP (aka you could get a return at tax time)
When I withdraw, how is it taxed?	None of your original contributions or any growth will be taxed at all, because they were taxed before they were contributed.	100% of what you pull out (original contributions plus growth) will be taxed as income. But remember, you haven’t paid taxes on any of this yet.
What can I invest in inside this account?	Cash, GICs, bonds, stocks, mutual funds (same!)	Cash, GICs, bonds, stocks, mutual funds (same!)
How much can I contribute?	Contribution room starts accumulating when you’re 18 (around $5000/year). This question would require some investigation!	18% of your previous year’s income, plus any carry-forward from years’ previous (there are maximums. This year it’s $26,230). This question would require some investigation!

To help you further understand which one might be right for you, I’ve made this handy little chart! Often, clients will have both vehicles because they have a few different goals in mind. To use the chart below correctly, focus on one goal at a time.

RRSPs vs. TFSAs

1.      For the first result to the left, I’ve indicated that if you were saving for the short-term, you may want to consider a TFSA. Taking money out of a TFSA doesn’t trigger taxes, and none of the potential growth from investments is taxed either, which means that if you wanted to take out $2,000 for a vacation, you would get $2,000 in your pocket. Alternatively, with an RRSP, you would end up with $1,343 (having paid $656 in taxes at an income of $45,000 annually) or withdraw $3,025 to net $2,000.

2.      For the second result, I’ve indicated that if you’re making more now than you hope to in retirement, you may want to consider an RRSP. Because all withdrawals from RRSPs are taxed as income, and because you’ll be making less annually in retirement, you’ll be in a lower tax bracket. So, withdrawing $2,000 while making $60,000 will cost you ~$706, vs when you’re making $40,000 annually in retirement, withdrawing $2,000 will cost you ~$541. What this means is that in contributing years while making $60,000 annually, you’ll receive the higher tax bracket percentage back (so, $706) as a tax return but when you withdraw it later on in life while making an income of $40,000 you’ll only pay $541, which means you’ve saved $165 in this example.

3.      For the opposite reason above, I would potentially recommend a TFSA if you’re currently making less now than you anticipate making in retirement. RRSPs exist to help save on taxes overall. If you had an RRSP in the case of less-now more-later, you would end up paying MORE in taxes overall. Ew!

4.      The first yellow box is to address potential home buyers’ concerns. If you’re saving up for the down payment on your first home, you can utilize the First Time Home Buyer’s Plan which allows you to access your RRSP savings without paying taxes (repayment time limits exist). You should definitely look into this before you decide how you want to start saving for your home!

5.      The last yellow box is a toss-up between an RRSP and TFSA depending on the saver. Perhaps you want to save for retirement in theory but you’re not sure if you’ll need the money for something else along the way. Perhaps you’re saving up to take a year off work. Perhaps you’re paying for a child’s education in a decade or two (in that case, an Registered Education Savings Plan needs to be discussed!).

This chart is by no means a flawless solve-all for savings. We also haven’t gotten into the finer details of risk tolerance, investment style, or fees. That being said, it’s a great start to help you see how you can be making decisions right now to impact your economic future.

Peace, love and WEALTH,

Rachael

Financially Fluent Females - Chapter One: Introduction

If you've read any of my blog, spoken with me in person, or taken a micro-second to scroll through my personal Facebook page, it is not hard to discern that I am a feminist. I've spent a long time educating myself on the inequalities and unbalanced power dynamics that create violent and oppressive situations for women in school, the workplace, relationships and basically everywhere. I have taken steps to ensure that my feminism is intersectional (ie: I'm straight and white, which means I typically will experience the best-case-scenario of sexism), and I've explored the different insidious ways that sexism impacts us, whether it be how teachers call on us in class, the levels to which we need to prove our points in order to be heard, the steps we often take (but shouldn't have to!) to keep ourselves and our friends safe on a night out, or the...you know what? I better cut myself off because I could go on and on and on and...

I started at Freedom 55 Financial as a financial advisor in August of 2014. I was in a training class composed largely of men, my teachers and trainers were men, and when I passed all of the tests to earn the licenses to work in New Brunswick, most of my colleagues and all of my directors were men. This is how my industry currently operates, but I know that I wasn't hired simply to show upper management "hey, we got one". As my director will attest, I was recruited to this position because of solid community connections (through years of volunteer work and outreach), a genuine interest in others' goals and struggles, and I'm smart as heck. 

It is impossible for me to drop the ~feminist~ lens that I use to look at the world. It's less a pair of glasses and more a biological part of my eye at this stage. So when it came time for my trainer to tell me how to approach clients, how to put together effective financial plans and how to position myself as an advisor, I took a moment to question. These sales strategies and training methods were created by men for male advisors in a time when the "money person" in a relationship was a man. But wait a minute, I can hear you say, you're a woman! I knew that if I wanted to find success in this career I would have to look outside my board room for source material, and if necessary, re-imagine a client-focused, feminist approach all on my own. 

And this, ladies and gents (haha jk this is just for women), is how, through research, conversations with my few female peers, and a few amazing books for women in business, I created Financial Fluent Females - a woman-centered approach to financial planning. I take into consideration the the following:

1. Women earn less money on the dollar than men.

2. Women live longer than men.

3. Women on average begin financial planning ten years later than men

There are also a myriad of other factors that I consider, including the financial literacy gender gap, maternity leave, entrepreneurial setbacks (did you know women are approved less often, and when approved receive less funding than their male counterparts, when applying for start-up funding?), and unique health concerns. 

It brings me borderline-embarrassing joy to have found feminist fulfillment in my career. I'll be sharing saving tips, plan advice and financial red flags, as well as some treat-yo-self strategies as I continue on with this blog (do people still call these blogs?), and I'm so excited to be sharing it all with you.

Peace, love and WEALTH,

-Rachael