Saving for your RRSP on a tight budget

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An unexpected expense here, a bottle of wine there, a grocery bill longer than your forearm... the holidays can be tough on your wallet. And right after the holidays, it’s RRSP season, an ideal time to have some extra cash, primarily to lower your taxes.

Finding it tougher to put money aside these days? Challenge yourself, you can do it! With the proper discipline and our tips, you will succeed. You’ll see that by saving small amounts here and there, it can pay off in a big way.

What you can do to get started

Some habits (we’ll get to them later) allow you to save more each month for the following year. In the short term, this gives you the chance to take action.

1. Contribute to your RRSP by the deadline

If you want your RRSP to count toward your next income taxes, the countdown has already begun: try to invest by the March 1 deadline.

Why the rush? Because then you will receive a tax refund. This cash windfall would come in handy to reduce a high-interest debt, for example, or increase your savings.

You should also learn about RRSP myths and the benefits of RRSPs to help you reach your goals or complete projects. It’s well worth your time to have a discussion with one of our financial security advisors.

Our advisor can help you evaluate your options to find the right amount for you to invest. They may advise you, for example, to take out a loan, transfer an amount from a TFSA into an RRSP etc.

2. Prepare a budget, or update your existing one

Let’s be clear. It’s not ideal to invest at the eleventh hour. It’s better to spread out your contributions over the year. By the way, do you know how much you can invest each month?

An updated budget will let you know exactly where your money is going. To prepare a budget, you can use your online bank statements or invoices to calculate your expenses. You can group them by category:

  • Fixed monthly payments, like your mortgage or lease, or your cable subscription fees
  • Spontaneous purchases such as a latte on some days
  • Variable expenses such as telephone bills that fluctuate based on your data consumption
  • Annual or seasonal expenses such as municipal taxes, car registration, signing up for courses, etc.

Then, let the numbers do the talking. Once compiled, you can see if your income (including your revenues, government benefits, etc.) covers your expenses. Are you living within your means?

You can now have an overview of your expenses and spot where you can cut down. It’s simple: the more surplus you have at the end of the month, the more you can save!

Habits you can adopt

There are dozens of tricks to help you cut back on your expenses so you can put more into your RRSP. Here are a few paths you can explore, even on a tight budget.

Start with your groceries

Groceries take a heavy toll on our budget. A sure way to save is to consume the foods that have been in your cupboard or fridge for an extended time. Make an inventory and plan your meals based on these foods.

We often accumulate (or waste) too much of this food for no good reason. So be sure to consume these items and every once in a while, clear out your fridge by making a casserole with what’s left!

Travel for less

Getting around in the city can be expensive. If you don’t really need to own a car, consider options like car pooling, car sharing or public transport.

Absolutely need your own car? Then consider fuel-efficient driving to reduce your fuel expenses: driving slower or less often, for example, will reduce your gas consumption.

Sell off what you don’t need

The web is full of sites to sell stuff you no longer need: your old skis, the door you replaced, board games you barely touched. Turn these unused items into cash.

Explore all your options before buying

A lot of people spend their money too quickly, without thinking it through. Do you sometimes max out your credit or debit card without a second thought? Fortunately, you can change this habit You can keep more of your money for investment if you ask yourself a few simple questions:

  • Do I really need this expense?
  • Do I already have something just like it, that would do the trick?
  • Can I borrow or rent a tool that I rarely use, make a trade, buy a used one?

Don’t forget about repairs. It will cost you a lot less to have your winter boots repaired at the shoemaker’s than buying a new pair.

Start saving each month

Regardless of your budget, the sooner you start saving, the better. Plan automatic monthly transfers so you can invest all year long. You can always adjust the amount whenever you like. Until then, every deposit matters.

Making monthly contributions works out better than a one-time deposit, for many reasons:

  • When you contribute to your RRSP just once a year, you lose out on months of tax-free returns. Saving each month will therefore pay off in the long run because your contributions start yielding a return as soon as you make the deposit.
  • That way, you don't need to invest all your money in one period. Spreading out your investment in the stock market over different periods of the year allows you to diversify your portfolio. It would be a shame if you pushed all your money in during the worst period in a fluctuating market.
  • Lastly, it’s easier to plan for several instalments rather than one lump sum. Test it out yourself!

Go from a tight budget to a broader future

If you want to turn your efforts into profits, be sure to contact a financial security advisor. You can find out if the RRSP is the right investment vehicle for you (it usually is, but not always). And you’ll also get personalized recommendations.

Saving all year long is a prosperous idea. It definitely pays off more than a new year’s resolution of joining a gym!