Tax Free Savings Accounts for Canadians

Jan 07

It’s January 2009.¬† And, do you know where your money is?¬† I’m guessing it’s not in your wallet, and worse, it may not even be in your savings account.¬† In fact, if you’re like the average Canadian, your money is tied up in paying off debt and you owe $9,000 on a line of credit and $2,400 on credit cards.¬† If we’ve learned anything over the past two decades, it is – spend now, pay later.¬†

In 1984, household debt (including mortgage and credit cards) equalled 71 cents of every dollar of income.¬† Fast forward to today and the debt has increased to $1.27 for each dollar of income.¬† The average Canadian today saves about 3% of their earnings (versus 20% in 1982.)¬† It’s no wonder new debt gets shovelled onto old debt.¬† With no savings to cushion unexpected expenditures (anything from car repairs to your pre-teen kid’s braces) the only option is to use a line of credit or charge it – and pray that somehow you’ll be able to pay it off… one day.¬†

TFSAs allow you to withdraw your money anytime with no penalty

The Canadian government is now offering an incentive to rebuild the savings that were lost over the past three decades with the new Tax Free Savings Account or TFSA (pronounced tifsa).¬† According to National Post , TFSA’s “were the biggest innovation and tax break since the registered retirement savings plan (RRSP) was introduced a half-century ago.”¬† And if you haven’t heard about it yet (it’s been written about in every newspaper), you probably also don’t know that you should stop buying $5 lattes at Starbucks and settle for a home brewed cup of java.¬†

As of now, January 2009, Canadians can open a TFSA and start earning money, tax free.

The plan is similar to a Registered Retirement Savings Plan (RRSP), so if you understand how they work, the TFSA is even simpler.  Here are the major features:

  • You must be at least 18 years old to own a TFSA.
  • You may invest in anything, such as a savings account, bonds, stocks, mutual funds, GIC’s.¬† Like RRSPs.
  • All dollars earned – either through interest or capital gains – are not taxed when withdrawn.¬† Unlike RRSPs (a tax-break is given when you contribute, then you are taxed on withdrawal.)
  • The contribution limit is $5000 per year, regardless of your income.¬† Unlike RRSPs (contribution room is based on income.)
  • If you do not contribute the full $5000 one year, the remaining amount is carried forward every year for the rest of your life.¬† So, if you put $4000 into a TFSA in 2009, you can put in an extra $1000 in 2010, or whatever year you have that extra thousand dollars to save.¬† Unlike RRSPs (there is an age limit to contributing.)
  • You can withdraw your money anytime you want with no penalty.¬† Need to purchase snow tires one particularly blustery winter?¬† Have to pay for your son’s speech therapy?¬† No problem.¬† Just dip into your TFSA and withdraw your necessary funds.¬† Unlike RRSPs.
    • The amount withdrawn is added to your contribution room the next year, so you can replenish that tire money later, in addition to your annual $5000 limit.
  • If you are in a single earner family because one spouse is at home with the kids, any income earned in a TFSA by the stay-at-home parent is not attributed back to the working spouse.

It’s so simple.¬† For families, the main benefits of a TFSA appear to be the steady availability of funds (versus RESPs and RRSPs), the income splitting opportunity, and the tax-free earnings to help save for big purchases (think house, car, private schooling.)¬† For more detailed and professional guidance on how to make the most of TFSA’s, you can buy a book written by Gordon Pape called (surprise!) Tax Free Savings Accounts.¬†

Now – how to cut back on your spending and actually acquire enough money to put in a TFSA?¬† You’ll have to figure that one out by yourself.

Financial Post has a number of with author Gordon Pape to further illuminate Canadians on the qualities of the TFSA.

Sources: National Post New TFSAs change a guru’s game plan by Jonathan Chevreau, MoneySense December/January 2009 issue

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Drive to Save Gas

Dec 09

Interested in saving some gas money?¬† Well, maybe it’s not quite so urgent now that gas prices have dropped (Christmas isn’t the only reason to cry¬†Alleluia!)¬† Nonetheless,¬†with a recession in full swing and green consciousness burgeoning among North Americans, cutting back on gas consumption is a frugal, if not noble, act.¬†¬†And, buying a hybrid¬†automobile is a luxury that most of us cannot afford¬†given the financial and practical constraints¬†of¬†the typical family.¬† I know my minivan is an oversized gas-guzzler, but¬†with¬†three¬†mini-hockey players, the only way we’ll be driving a Prius is if there are rooftop seats.¬†

Luckily, minivan drivers like myself can still do our part in cutting down on¬†our emissions with what is known as Hypermiling.¬† It was developed by Wayne Gerdes, and is all about following certain protocols to keep your gas bill low and your gas meter high.¬† Aside from keeping your car well-maintained (like keeping your tires properly inflated), the main thrust of this technique is in the pedal.¬† Go easy on the brakes, no screeching at the last minute when you reach a stop sign.¬† Allow your car to coast towards a yellow light rather than race in the hopes of crossing the pedestrian line before red flashes.¬† Then gently accelerate when it’s time to move again – no screeching tires.¬†¬†Don’t speed, rather stay within or below speed limits.¬†

Yes¬†- you risk becoming the most irritating driver on the road, and you may have to turn the other cheek when some young punk flips you the bird.¬† But remember!¬† You’re helping to save the planet (and a few bucks!)¬† According to writer and carblogger¬†Phil Raby¬†in the latest issue of¬†MoneySense Magazine, he was able to cut his fuel consumption by about 30% in city driving and 10% in highway driving (city driving typically guzzles more gas than highway driving) thus¬†creating an annual savings¬†of about $750.

Some additional points to consider to save on the gauge:

  • Drive slow and steady
  • Start to coast in anticipation of traffic lights so as to prevent heavy braking.¬† Then inch away slowly after stopping, rather than revving forward
  • Think about purchasing a that keeps provies instant readings of how much gas your car is using
  • As for synthetic oil at your next check up
  • Properly inflate tires
  • Keep away from drive-thru restaurants – park and walk in for your order
  • Refrain from blasting the A/C or heater.¬† The A/C can suck up to a quarter of your fuel
  • Drive with the windows closed since the drag it creates when they’re open burns more gas
  • Remove rooftop carriers when you don’t need to use them
  • Keep your trunk clear of any stuff you don’t need

(Source: MoneySense Dec/Jan 2009 issue by Phil Raby)

And -¬†here’s the tough one – get your kids out the front door on time.¬† That way you won’t need to ram your car out the driveway,¬†speed to the stop sign, slam on the brakes and zoom to the school/doctor appointment/piano lesson…¬†without being late.¬†¬†Close to impossible, I know.¬†¬†But no one said saving the world was going to be easy…

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Being Frugal Means Losing Your Cool

Oct 29

Frugality.  A word that, not so long ago, was only uttered in hushed tones, under the guise of night between panicked spouses who dared peer into their trench of credit.  At a time when spending with carefree abandon was de rigueur and credit was the perfect friend – handing out favours, no strings attached.  Who knew that relationship could turn so sour?  With the financial markets bottoming out (hopefully, soon) and employment security an oxymoron, frugality is enjoying a resurgence not seen since the emergence of Dollar Stores.  Even the word itself (froogalitee) personifies a pencil-thin man in wire-rimmed glasses, sporting a red bow tie.  Nerdy, but level-headed – the kind of fellow with whom no hoodie-wearing, video-game-playing, cool kid would befriend. 

In fact, the more a family invites frugality into their home, the lower the cool-factor descends.  I’ve noticed that my tactics to cut spending and bring financial Zen to our household, are diametrically opposed to the coolness factor.  In other words, when frugality goes up, coolness goes down.  Here are a few effective, yet humbling, suggestions to ready yourselves for tough times ahead.

Clip coupons.  Okay, the act of cutting along the dashed lines is not going to hurt the coolness factor because this part can be done in solitude.  However, the key to success is actually using the coupons.  I recommend you store your stash in a zip-lock bag and discreetly review its contents as you push your cart along the grocery store aisles (it helps to be familiar with your clippings beforehand.)  At the check out counter, I like to surreptitiously place each coupon on the product as it glides prostrate upon the conveyor belt.  Be alert!  The cashier often does not notice them.  Do not be intimidated by the line of sighing mothers and crying kids behind you.  Loudly point out the cashier’s delinquent behaviour and demand your entitled discount.  With thorough flyer research and eagle-eye diligence, you can save up to $5.00 each time you shop (certain limitations and exclusions apply.)  To avoid embarrassment, your son or daughter may walk several paces ahead of you as you exit the store.


Buy cheap food.  It’s better than it sounds, actually.  The least expensive food is often the healthiest.  The more packaging there is, the higher the price, and ditto for the amount of ingredients and level of preparation already completed on your behalf (does anyone really need to buy pre-cooked noodles?)  Among the cheapest produce available are: rutabaga, cabbage, carrots, and .  What do I do with a rutabaga, you ask?  Well, when it’s $1.49, you figure something out – just like I did.  My head of cabbage, however, is still rolling around the refrigerator’s crisper.  Let’s not forget beans.  A bag of green lentils for $1.59 – and these are organic – will provide for at least three meals.  The coolness factor takes two hits for this tactic.  One – when the kids invite friends over they’ll be stuck snacking on Premium Plus crackers and left over rutabaga, rather than chips and fruit roll-ups.  Expect to hear exclaims of ‘Ew, what’s that?’  Two – the fiber intake will create a flatulence situation that may be hard to contain.  However, if you have boys, like me, this may actually increase the cool factor, and thus, cancel out the other coolness setback.


Buy second-hand.  Or, even better… go trash-hunting.  Thanks to CraigsList and eBay, buying used has grown quite acceptable among the masses (cool kids, excepted.)  When my son asked for a BMX bike this summer, we searched online and found a “perfectly good” bike for $35.  A new BMX at CyclePath was priced at about $350 and rather than wait until they went on sale to get 10 percent off, we chose to buy a bike at 10 percent the price.  My son was not, however, content with getting a bike that only fulfilled 10 percent his dream.  He was pleased when a short time later, our neighbour gave him an old BMX  that they’d planned to toss out with the garbage.  It was the perfect size, the perfect brand (too expensive to buy new) and the price unbeatable.  A few days later, when his buddy guffawed that he had a “used” bike, my son shrugged it off with nonchalance.  And I swelled with pride.


Scale down your fashionista ways.  Do blondes really have more fun?  Well, it’s time for you to find out.  Let the dark roots grow in, quit the manicures and pedicures, and stop buying clothes that cost more than your weekly grocery allowance.  No one is saying it’s easy to bend over and paint your own toenails, but if you keep your tummy muscles tight, you’ll be working your abs and thus, eliminating the need for a personal trainer, too.  I gave up my golden tresses a year ago, and despite moments of winter blahs when I’m tempted to book highlights, I’ve come to like (read: accept) my new, natural look.  And women aren’t the only ones making sacrifices.  In the U.K., for example, supermarket Aldi, can barely keep up with demand for its two-piece pinstripe suits that sell for $50.  This suggestion for frugality will not likely deflate your kids’ sense of coolness, unless you start wearing muu muus or jean overalls (please don’t.)  It may, I should caution, affect your own. 


Being in vogue is for mannequins.  In real life, we need to be sensible and entrust our ways to our bowtie-wearing friend, frugality.  Because coolness be damned, I’ll take nerdy over bankruptcy any day.


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