ÉDITORIAL

Making the Most of the Money We Have

Ian Barrett

 

Tax season is the natural time to think about our finances.  Given how easy it has been to take out loans over the last several years, many households find themselves in tight situations with rising interest rates and high inflation.  Although there are no easy answers, there are a number of options available that can help us to do more with the income that we have.

When it comes to personal finances, there’s no shortage of contradictory advice coming from the media or friends and family.  Cryptocurrencies are certainly fashionable, but tend to bewilder most people.  Others recommend more traditional investments or a simple savings account.  Regardless of the approach you choose, there is one guaranteed way to get the most from your savings - minimize the fees financial institutions are charging you for whatever type of investment you prefer.  As an example, consider funds built on stocks and bonds.  These are among the most popular ways to save, be it in mutual funds or ETFs (exchange-traded funds, which are sold on the stock market).  What many people don’t realize is that the fees charged on these types of funds vary substantially.  They can go as low as 0.03% to in excess of 2%, and even more for specialized products.  The practical implications of this are immense, as fees are charged on the total amount you have invested, year in and year out.  For someone who’s managed to save $500,000 for their retirement, these fees would amount to $150 a year with 0.03% fees, versus $10,000 per year with 2% fees.  Because these charges are subtracted from the growth of your savings, many people don’t notice how much they’re paying.  Worst of all, mutual funds often have fees of close to 2%.  Switching to ETFs or simply shopping around for mutual funds with lower fees can save a substantial amount of money each year.

Canada also has a large number of registered savings accounts to help people put some money away, either for a rainy day or for their retirement.  The most popular of these programs are RRSPs (Registered Retirement Savings Accounts) and TFSAs (Tax Free Savings Accounts).  However, there is another program called RESPs (Registered Education Savings Accounts) which for parents of young children can be the most generous of all.  This program helps families to save for future tuition costs for their children.  Contributing $2,500 in a year to this program gets at least a $600 combined bonus from the federal and provincial governments.  Even better, low income families get a $500 bonus just for opening an RESP, without needing to contribute anything at all.

One problem with RESPs is that the amounts that can be contributed and which are eligible for government bonuses are not indexed, and stay the same year after year.  Given how fast the cost of tuition rises, it would be nice for these amounts to increase as well.

Overall, taking a few hours to explore the financial options available to us is time well spent, and can ease pressure on our budgets in these uncertain times.