Spend wisely today, plan for tomorrow
Eric Putnam, AMP, RQIC
To prepare for retirement, you have to make a plan well in advance. That includes spending wisely today, and don't count on winning the lottery.
Golfing, sailing, travelling–what a life those 65-going-on-25-year-old retirees live in those television ads! For many of us, that day seems too distant to even contemplate. The earlier our planning begins, however, the better our chances of having financial security and freedom at retirement.
Whatever our age, preparing now will enable us to live our future dreams: launch a business, pay for the grandkids’ college education, or buy a vacation home. Here’s how to make your retirement dreams come true:
Visualize Your Future
Write down your goals for the short term (the next year or two), the medium term (two to 10 years), and the long term. This will help you focus on what’s important to you and allow you to measure your progress.
Make a Plan
A clear picture of your current financial situation will allow you to create strategies to take you from where you are to where you want to be. A financial expert can provide objective advice, help you create a net worth statement outlining what you own and what you owe, and help you formulate a spending plan to achieve your goals.
Pay Down Debts
Reduce debts with high interest rates. If you’re tempted to spend money, instead try investing in Canada Savings Bonds through your employer’s payroll savings program or arrange for monthly RRSP contribution withholdings.
Start an RRSP
It will reduce taxes and allow you to save for retirement and participate in the Home Buyers Plan. It allows you to withdraw up to $20,000 tax-free from your RRSP to purchase your first home.
Limit Your Mortgage Size
Don’t rely on a lender to determine what you can afford. Calculate not just fees, principal, and interest payments, but all the other costs of home ownership, including insurance, property tax, maintenance, utilities, and furnishings. Always allow enough wiggle room so you can manage your mortgage payments should interest rates rise.
Establish an Emergency Fund
Put aside enough to cover your bills for at least six months. The tax-free savings account (TFSA) recently introduced by the federal government is a great way to do this. The TFSA enables you to contribute up to $5,000 annually. The interest these funds earn is non-taxable and you can withdraw funds whenever you need them–tax-free.
Don’t Count on Winning the Lottery
The odds of winning a lottery are less than one in a million. Your best bet for living the retirement of your dreams? Spend wisely today and plan for tomorrow.