There’s a little bit of failure built into even the smartest financial plans.
The optimum savings goal is to max out your registered retirement savings plan, tax-free savings account and registered education savings plan, and have both an emergency fund to cover three months’ expenses and a non-registered investment portfolio. For a favoured few families, and for wannabe monks who embrace the simple life, ticking off all these boxes may be possible. For the vast majority, failure looms.
And yet, the earth continues to rotate. People keep working, spending, retiring and living their lives. We do the best we can with what we have. Make that your motto when trying to juggle RRSPs, TFSAs, RESPs and other savings goals.
A financial planner (that is, someone who produces an actual financial plan rather than simply selling investments) can tailor a strategy for getting the most out of these savings vehicles based on your age, assets, salary, likely career trajectory and life goals. Some quick guidelines for working through these goals on your own:
1. TFSAs: They’re an ideal way for young adults just entering the workforce to save for a wedding or a house down payment, and they’re quite useful as a way to begin saving for retirement.
2. RRSPs: The foundation of your retirement savings if you’re earning a good salary and imagine you’ll be in a lower tax bracket after you leave the workforce.
3. RESPs: A must-have for parents who believe in helping their kids afford the fast-rising cost of college and university.
Can’t do it all? Join the club. Let me tell you how we’ve juggled savings priorities in my family. With one son about to start Grade 11 and another in the second year of a 4-year university program out of town, we have for many years been emphasizing RESPs, with RRSPs a close second. It’s important for us that our boys are not weighed down by massive debts when they graduate. Retirement is more fluid because I expect to keep working to a limited extent, by choice, long after age 65. As for TFSAs, there’s not much money left over for them just now. We’ll re-evaluate when the boys are mostly through their post-secondary studies.
Let’s take some of the pressure off your decision about how to save and invest. Pick a savings vehicle that makes sense for your family and start making automatic deposits every time you get paid. Failure to max out RRSPs, TFSAs and RESPs is not critical. Failure to commit to at least one – now that’s a problem.