Baby’s first TFSA

By baby I mean me. By first I mean not really. When I was about 25, I had about 16k in debt and 10k in a TFSA. Those were the days. I remember the advisor at the bank being impressed that I was thinking about saving money so young. HA. A few life changes later I was back to broke.

Now that I’m back in black, I am once again considering tucking away some money into something that isn’t a lame chequing account that not only doesn’t pay me anything, but charges me an exorbitant amount of fees.  Originally I wanted to start storing money away in an RRSP but was quickly told not to.

What’s the difference between a TFSA and an RRSP?

Okay, I’m sure someone much smarter than me can probably give you the rundown (like here or here), but I’ll just tell you what the difference is in the context of moi. An RRSP offers a tax deferral, meaning you receive a hefty tax refund when you contribute the maximum. A TFSA, on the other hand, is more liquid and allows your investment to grow tax-free but isn’t eligible for an income tax deferral.

Background via banknerd.ca

Why shouldn’t I opt for the RRSP?

Originally I wanted the RRSP because it is less liquid – I like my money where I can’t see it. I was told, however, that because my income is likely in the lowest bracket (womp womp) and because I still have education tax credits, I likely wouldn’t benefit much from the tax savings of an RRSP. Storing my funds in a TFSA and waiting until I know my total taxable income for the year is my best bet for now. In later years when I have a higher income and no education credits, I can use all of my RRSP room, including carry forward amounts to max out my RRSP.

What now?

From hereon out, I’m going to try to put about $1,000 into savings every month. Key word being ‘try.’ Yeah.  As much as I wish I already had a ton banked away, I’m a saving ninja so hopefully I can make up for lost time with a healthy mix of working hard, frugality, and just plain ass-kicking.

Note: Because I don’t want to get sued for stealing images, because I don’t want traffic sent to my blog because of random titles of pictures I’ve innocently stolen, and because Jeremy scared me into thinking I’ll go to jail, going forward I will no longer be using images I stumble upon on the internet. Instead, I will be subjecting you all to my bad Photoshop skills as I practice. I promise I’ll have mad skill soon and won’t have to subject you to my awkward photo manipulations.

Do you have any tips for me and my savings plans? Do you like my awkward photos? Do you want me to stop?

LF

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9 thoughts on “Baby’s first TFSA

  1. I think your plan sounds great, as long as it’s sustainable! I put money into both my RSP and TFSA, simply because I can’t decide which is better.

    • Thanks! I hope its sustainable! I really don’t know whats better either so sticking with both sounds great, lol.

  2. I’m pretty sure I didn’t mention anything about jail, but thanks for the mention though lol. I’m looking forward to seeing your photoshop skills or lack of them 😉 With your pic in this post you would technically have to give credit to the frog photographer too, but they are far less likely to ever find that photo.

    As for TFSA vs RRSP, my plan is to contribute up to $25K in my RRSP and then switch over to contributing to my TFSA. The reason is that as a first time home buyer I can withdraw $25K from my RRSP to help fund a downpayment without having to pay taxes on that withdrawal. The only catch is that I have to refund that $25K in my RRSP account in a set time frame. The TFSA seems to make a lot of sense so that you’re not stuck paying a big tax bill down the road.

  3. You’ll be pleased to know that *I’m* the frog photographer (its from a Costa Rica trip!). I figure since I have tons of my own pics on my comp, I should just use them in my posts…throwing in some shoddy photoshopping 😀

    Contributing to your RRSP for the HBP is a great idea. That’s originally why I thought I should go that route. But because I still have education credit left and I’m in a lower tax bracket, I might as well just wait until I can really benefit from the RRSP…although it does come with the big tax bill down the road like you said :/ Nothing is perfect I guess!

  4. I’m also of the mindset that subscribes to both because I can’t decide =\ I have both an RRSP and a TFSA… though since getting the job I have now I stopped contributing to my RRSP since I have a pension through work — and as I learned this past tax season, that counts in your RRSP contributions!!

    • From the sounds of it, your work pension is pretty sweet! Awesome that it counts in your contributions too! I was dumb and quit my first job after 1.5 years when the pension-matching vested after 2 years…oh to be young and stupid again 😛

    • Yikes! RRSPs sound like a great tax break but we need to remember that once they’re pulled out, they’re really not.

  5. Pingback: Mid July 2012 Blog Update | Modest Money

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