It’s coming soon: RRSP season. We’ll all get lectures about how we don’t contribute enough (and I kinda sorta gotta chime in *cough* the median ave. BC contribution for 2006 was $3000, slightly above the national average of $2730 *cough*), and feel guilted out and panicked about our meagre portfolios.
And as if that weren’t enough, my combined experience as a money coach and work at the bank tells me pretty clearly – a lot of us Canucks don’t really ‘get’ RRSPs. So here are some 101’s:
1. They’re not something you buy. Seriously. Think of it more like a special kind of account, and anything you put into that account is deducted from your income now, and added to your income later, when you take it out. Hense the tax savings. So you can set up an RRSP account. You cannot ‘buy’ RRSPs. So if you want to sound savvy, don’t call your bank and say ‘I’d like to buy some RRSPs’. Say instead, “I want to contribute to my RRSP (account). ” – and read #2 for the next piece:
2. You can buy stuff to put into your RRSP account.
– you could just put some money into your account and leave it sitting there as cash, doin’ zip.nada.nothin’ in terms of growing in value (but why would you?)
– you could put it into an savings account. Better than having it just sit there as cash, but only just a bit better.
– you could buy term deposits/gic’s (think of them like glorified savings accounts – except you promise the bank you won’t ask for the money, and they in turn favour you with a higher interest rate. Consider Shared World Terms in which the principal is lent out to emerging business people in developing countries)
– you could buy mutual funds (you pool your $ with a bunch of other Canucks, and that pool buys a collection of shares in companies. Consider ethical funds, if you’d like a feel good factor)
– you could buy stocks and bonds of your own choosing (yeah! the DIY plan, of which I’m a huge fan!)
3. They are not always the best thing to do, but saving or investing IS always the best thing. Your financial planner probably won’t ever say not to contribute to your RRSPs, but it’s true. While setting aside money for when you retire is always, always smart, you can do that just by normal savings/investing, without putting it into an RRSP account. Check out “Million Dollar Journey” for a bit more info on this (the post may require some coffee and focus, but it’s good stuff. Note the last paragraphs in particular, and the comments are worth a read too)
If you’d like to learn some more about RRSPs, I’ll happily send you my e-booklet on the topic for free. Just e-mail me (contact at your money by design -all one word- dot come).