To Enjoy or To Save?
Is it better to enjoy money that you earn now, or to save it for future use?
Do you know that interest earned from bank savings is considered part of your income? In other words, the sum of annual income (from a full-time position) and interest from savings, is the TOTAL income of an individual. This is taxable, based on the tax bracket it falls under. In a summary: the more you save up (and earn from savings interest), the more tax you pay. Does it mean that we should spend lavishly and enjoy life, instead of saving up and paying more tax?
There are ways to get around with this dilemma, fortunately. As a matter of fact, RRSP (Registered Retirement Savings Plan) in Canada allows a certain amount of savings (depending on annual income), in which the interest earned from savings or the profit from investments (stock market, bonds etc.), is non-taxable!! Savings in RRSP help to lower the tax bracket too. The downside of it? Withdrawal from these savings is made available only at the age of retirement. However, exceptions are given to a homeowner buying his/her first home, someone returning to school as a full-time student etc., and needs the access to savings. Some conditions apply under these circumstances. Having said that, savings from the RRSP are still accessible in case of emergency, subject to tax and possibility of losing the interests earned.
TFSA (Tax-Free Savings Account) is newly introduced by the Canadian goverment, as of January 1st, 2009. Individuals are allowed to deposit up to $5,000 per calendar year, and benefit from the tax-free priviledge on the interests earned. Withdrawal can be also be done at any given time. How wonderful is that? Furthermore, the remaining amount can be carried over to the following year, in the case where the $5,000 threshold is not met. For instance, person A deposits $3,000 in 2009; he’s then eligible to deposit up to a maximum amount of $7,000 in 2010. TFSA, is certainly something worth considering.
Enjoy life now, and save for later, is probably the best thing to do ;)
Tags: Economy
January 23rd, 2009 at 5:12 am
Personally, I think to dump everything into retirement plan is riskier than having cash at hand. Those people handling these funds keep buying (long position) into shares or unit trusts that keep dropping like a bomb. I don’t understand why they don’t do short positions here for retirement plans. Can they short positions in Canada?
January 24th, 2009 at 12:31 am
Aishiang,
You’re absolutely right. It’s never a good idea to put all eggs in one basket. There are different investments available for retirement plans in Canada, short positions would be one of them.
January 27th, 2009 at 1:14 pm
Good work! Thank you very much!
I always wanted to write in my blog something like that. Can I take part of your post to my site?
Of course, I will add backlink?
Regards, Timur Alhimenkov
January 27th, 2009 at 5:45 pm
Timur,
You’re very welcome. Thanks for the compliments :)
Feel free to use backlink. It’s a neat blog that you have by the way, and it’s in Russian! I had to use a translator to understand what you said. Just out of curiosity, did you find this site through the search engine?
February 5th, 2009 at 5:01 pm
Your site displays incorrectly in Firefox, but content excellent! Thanks for your wise words =)