Client Login Contact Us
Book an appointment with Jordan School District Human Resources using SetMore
TFSA, RRSP or Mortgage: Where Should Your Money Go?

TFSA, RRSP or Mortgage: Where Should Your Money Go?

What would you do if you suddenly won the lottery? Would you save the money? Would you spend it on the things you desire?

The most basic option is to spend it, pay your debt, give the money away or invest it. However, there are even more ways in which you can use the money available to you – you can pay down a mortgage, contribute to a retirement savings plan or a tax-free savings account.

Mortgage or RRSP

People often wonder if they need to pay their mortgage down or increase their RRSP savings. The method commonly used is to increase the RRSP, which promotes some tax savings, usually in the form of a tax refund. This refund can then be applied to your mortgage. It’s a win-win.

Paying the mortgage down will ensure savings while there is no guarantee of a favorable return from an RRSP. It’s also wise to pay off the mortgage before your children are ready for college as it’ll be easier to pay university fees. You should always pay high-interest debt and credit cards off before you contribute money to an RRSP.

TFSA or RRSP

The marginal tax rate (MTR) today and the possible MTR rate you may get in retirement is what you need to consider when deciding between a TFSA or an RRSP. If the MTR is higher now than you feel it’ll be in retirement, it’s time to contribute to the RRSP. This will allow you to benefit from the tax savings at the high rate now and pay at a reduced rate later on when you need to make withdrawals.

However, if the MTR is low now and is projected to increase during retirement, it’ll be more beneficial to go with the TFSA. You won’t get the tax deduction now, but you could save more in taxes during retirement.

Mortgage or TFSA

When it comes to the option of supplementing your TFSA or paying the mortgage down, they are quite similar, as they both offer a tax-free return rate. If you have a 4% mortgage rate, then paying the mortgage down means getting a 4% guaranteed return rate after taxes. If you attain a larger rate of return in the TFSA than the mortgage interest, then go with the TFSA option.

There are other considerations to take into account. If your mortgage is fully paid off, are you likely to invest the same payments you were submitting to the mortgage? If not, then paying the mortgage down first doesn’t make a lot of sense.

4 Tips to Help You Attain Financial Freedom

4 Tips to Help You Attain Financial Freedom

Did you have any financial gains or losses so far this year? If so, what lessons did you learn from them? It’s important when talking about finances to consider what you gain from an experience and how you can better prepare yourself for when an opportunity arises or a misfortune develops.

Make the Right Big Purchases

Buying the little things to keep you going throughout the day such as a morning coffee or grabbing lunch at your favorite regular is totally fine once it’s factored in to your budget and well within your means. The acquisitions you really need to be wary of are fancy cars and/or expensive houses. While you may think you’re happy with your purchase now, buyer’s remorse may soon set in when you come to realize that your financial freedom felt better than the item you’ve obtained.

Minimize Your Credit Card Usage

If you have credit cards, consider not keeping them in your wallet and leave them at home so you’re not tempted to use them. Yes, credit cards are an important part to your financial health, but think of the interest that they can accumulate. With a good credit score, you can reduce your borrowing costs. Use those cards wisely.

Save for Your Retirement

Everybody wants to save for retirement and see out the rest of their lives comfortably. Don’t think of saving as a chore, but rather a necessary duty that will reward you later on in life. Saving for the future means ensuring yourself solid financial footing.  Financial freedom comes in the form of saving, not buying.

Realize Where You’re at Financially

It’s important you know what you’re paying in taxes, where the money is being spent and why the money is being spent. It’s valuable to know what your net worth is and to talk to someone constructively about your finances. Talking to people about the lessons both of you have learned and what experiences you have had can inspire and offer a perspective on how you could best utilize the money you have, but it can also give you a better understanding on what financial pitfalls you should side step along the way.