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Financial planning tips

December 06, 2018

Your financial checklist: 6 smart money moves to make before the year ends

Want to take control of your finances before the New Year? Check off these items from your financial to-do list this month.

With the New Year around the corner, Canadians everywhere are looking to kick off their new health, fitness and financial resolutions. But before you kiss 2018 goodbye, there’s still time to tick off a few things on your financial checklist.

Here are six smart financial moves you can make now that can help you next year, especially when tax season rolls around.

1. Maximize your RRSP

Have you reached your registered retirement savings plan (RRSP) contribution limit for the year? If you have the room and budget to put a little more into your retirement savings, then have at it. Your retired future-self will thank you for it. 

Not only will you be securing your future, you could also be reducing your tax bill for your next tax return. Plus, your money can grow tax-free within your RRSP until you take it out – which is presumably when you are retired and in a lower tax bracket.

And, if you haven’t put anything into an RRSP all year or ever at all, for that matter (it happens, no judgement here!), then now’s a great time to start. Don’t wait until the March 1 deadline to contribute. The sooner you put your money in an RRSP, the sooner it will start growing and working for you.

2. Maximize your TFSA

Speaking of growing your money, don’t neglect your tax-free savings account (TFSA). You put after-tax money in your TFSA, unlike an RRSP, so there’s no tax to pay when you make a withdrawal – not even on any investment growth that happens within your TFSA. And you can take your money out any time, for any reason. A TFSA is perfect for short-term goals like saving for a wedding, a down payment or a home reno or creating an emergency fund, or for longer-term goals like topping up your retirement savings.

TFSAs let you carry unused contribution room forward to future years, so you may not feel a pressing need to make your 2018 contribution by the end of the year. But as with any investment, the sooner you put your money to work, the more it can grow for you. If you can’t contribute up to the limit this year, you can carry that unused contribution room forward and add it onto your 2019 limit – which, it’s just been announced, is rising to $6,000.

What if you haven’t set up a TFSA yet? No problem: Any Canadian over the age of 18 can open a TFSA at any time. If you were 18 in 2009 when the government introduced TFSAs, and you’re opening a TFSA for the first time in 2018, you’ve got $57,500 in contribution room. Then, starting in January, you have room to contribute another $6,000.

3. Review your workplace benefits

Do you have to complete an end-of-year performance review at work? Those assessments may benefit your employer, but for your own sake, you should also do a year-end review of your workplace benefits and check how they’re working for you. Take some time to reassess your savings benefits to see if you’re taking full advantage of any employer matching opportunities such as group RRSPs, stock purchase plans and pensions. If you’re not, then hop on that bandwagon ASAP, because that’s free money you’re missing out on. Review your health benefits, too, to confirm that you’re enrolled in the best plan for your needs and you’re not paying for benefits you’re not using.

4. Make the most of your charitable donations

Sometimes you have to give back to get back. Chances are the festive season has already put you in a charitable mood. While your generosity is sure to help those in need, it doesn’t hurt that it can help your bank account along the way. To encourage Canadians to support charities, the federal and provincial governments reduce the income tax you pay in proportion to the donations you make, through a tax credit.

How do these tax credits work? The first $200 of your donation to a registered charity, for example, gives you a 15% federal tax credit, or $30. If your annual income is less than $205,842, any eligible donation over $200 comes with another 29% federal tax credit (using 2018 marginal tax rates and brackets). Then, you’ll have to factor in the charitable donation tax credit rates for your province. For example, in Ontario, a $1,500 donation would add a $115.18 provincial tax credit to your $407 federal tax credit, for a total of $562.18. In this example, what that really means is that a $1,500 charitable donation only costs you $937.82 ($1,500 - $562.18). If you earn more than $205,842 in 2018, a different formula applies. To find out how much tax you can save, use the CRA’s Charitable donation tax credit calculator.

Just remember to hold onto your donation receipt. Depending on the charity you’re supporting and whether you make your donations online or in-person, you might get a paper tax receipt in the mail at tax time or an electronic receipt in your inbox right away.

5. Create a new budget for 2019

Did you fall off the budget wagon this year? Does it look like the holiday season will leave you with a financial hangover? Don’t fret: While the New Year is the perfect opportunity to start fresh, you can get a head start on prepping your finances with a budget that can help you spend less and save more. Take an honest look at your spending habits and ask yourself where you can afford to cut and where you can save. Use a budget calculator to find out if you’re falling short, breaking even or coming out ahead. This tool can also help you find out if you have anything left over after paying all your regular monthly bills.

What should you do if you find you have a bit of money left over each month? Instead of spending it, ask yourself what your top financial priorities are and think about ways to invest or multiply that extra bit of cash. Perhaps you’re trying to put aside some cash to cover unexpected expenses – like emergency car or home repairs. In that case, you may consider arranging to have some money automatically transferred from your chequing account to a high-interest savings account every month. Or, maybe you’re hoping to make a down payment on a house or buy a new car? Then you might want to grow your money in a TFSA.

6. Review your finances with an advisor

RRSPs, TFSAs, high-interest savings accounts, workplace plans. With so many options at your disposal, it can be hard to know what’s best for you. That’s where talking to an advisor comes in. An advisor can help you put together a plan that suits your financial goals. Just as you would go to a doctor for an annual checkup of your physical health, you can meet with an advisor to improve your financial health.

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