Investing regularly is important. If you?re going to achieve your retirement and other financial goals, you should consistently feed your RRSPs and non-registered investments. ?Paying yourself first? through monthly contributions is perhaps the best strategy for realizing maximum growth potential by taking full advantage of dollar cost averaging and the miracle of compounding.
But, if you?re like most Canadians, you often find it difficult to set aside investment dollars in the face of day-to-day living expenses. Well, there is a way ? in fact, three good ways ? to uncover ?hidden? money you already have that you can use to fund your investments on a regular basis. All it takes is a bit of creative money management, using strategies like these ?
You may have a number of small loans or are carrying debt on a bunch of credit cards. If so, consider consolidating that debt through a larger debt consolidation loan (available from many financial institutions). Your interest rate will likely be lower and your overall monthly payment will be, too. Alternatively, you could transfer your credit card balances to a personal line of credit. The interest on a line of credit is often dramatically lower than the rates charged on most credit cards. Typically, you?ll pay in the area of the prime rate plus two per cent for a line of credit loan compared with annual rates of 18 to 28 per cent for credit cards.
By consolidating debt, you?ll reduce the amount of your monthly loan/debt payments. Invest the difference each month and you?ll not only enhance the potential growth of your portfolio, you can also use any added portfolio returns to help pay off the interest on your consolidation loan.
Get tax back now, not later. Getting a tax return cheque from the government each year might seem like a ?windfall? profit ? but it?s not. By having too much tax withheld from your pay each month, you are giving the government your money to use throughout the year ? and they aren?t paying interest to you for your kind gesture. Instead, you can reduce the amount withheld from your paycheque each month by filing a T-1213 form with the Canada Revenue Agency. You can then invest part of your usual year-end tax return immediately each pay period.
Perhaps you buy a regular coffee on your way to work each day. That may not seem like much, but consider this: A regular coffee at a popular coffee shop often sells for about $2.28, tax included. A large latte might be $4.50, tax included. That?s a small amount of money, but when you break your coffee habit and invest those ?little amounts? in an RRSP, here?s what happens: Thanks to the magic of compounding, by saving the price of your daily coffee and contributing it to your RRSP, you?d have over $11,000 in your plan at the end of a 10-year period assuming an annual return of six per cent. Over 30 years, the accumulated amount would be nearly $67,000, which would provide an annual pre-tax retirement income of approximately $5,000 over 25 years. That?s for the price of regular cup of coffee ? if you instead save the price of your daily latte in the previous example, the results are even better. After 10 years, you?d have $22,000 in your RRSP, and after 30 years, over $132,000, which converts to a pre-tax annual retirement income of $10,000 a year for 25 years!
If you?re worried you won?t have the discipline to make regular contributions to your portfolio, force yourself through a Pre-Authorized Contribution (PAC) plan where direct withdrawals are made from your bank account to an investment account. A professional financial advisor can help you implement these and other strategies that will put you on a faster track to reaching your financial goals.
* The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.