how to use your tax free savings account
How to invest using your Tax Free Savings Account in different financial situations. First, if you are in a healthy position, with lots of savings. Second, if you are saving less than 15% of your total income. Third, if you have no savings at all and are carrying a lot of debt.
How to best use your TFSA in different financial situations
In my opinion the TFSA is the solution to a lack of retirement savings and pension plans that will be available to the millenium generation. That's people born between 1980 and 1990. This just happens to be my generation and Ive already seen professions change their retirement planning. Most companies have gotten rid of it all together and without your employer helping you with your retirement it leaves all the responsibility all up to you.
This is where the TFSA has come into play but no one has said why they are introducing it. Well maybe I haven't done enough research but either way my generation has to do something and we're so undiciplined with finances that hardly any of us have any savings. According to the Globe and Mail Canadians save about 3% of their income. I spend that much on gin and tonics in a week.
If you save a lot already and have a healthy portfolio open a TFSA account anyways and keep putting in the maximum amount of $5000 but be sure not to put more then that or you will be penalized. Use the $5000 for 2-3 high risk ventures or even incubating some projects personally. With a good savings record youre not going to worry if this money is lost but in the event one of the projects does take off you'll have a healthy position in it and best of all, the profit will be tax free. Imagine finding a small company, investing early and reaping the rewards tax free.
If you have some savings, less than 15% of your income open a TFSA and park money there in the mean time. Build up your savings and when you are financially healthy enough to start investing start by putting the money in moderately risky ventures. But only after you have increased your income or have a large enough of a buffer, something like six months living expenses should be safe enough.
Lastly, if you have no savings and are in debt. Unfortunately, this is where most of us lie. But guess what? Open up a Tax Free Savings Account anyway. Why? because you can accumulate your contribution ammounts. So if you are in debt, focus on paying that off first. Then in 3 years, if you haven't deposited anything in your TFSA you can put up $15000 because it lets you carry forward your contribution levels.
What's the lesson here? open a TFSA right now.Go to your bank today and talk to a professional about opening up a Tax Free Savings Account today!