After all the bills are paid, sometimes we find ourselves with a surplus of cash and are left wondering the best way to use it. Your options for available cash essentially fall into three categories: spending it, investing it, or pay down debt. Trying to perfect the balancing act of savings as much as possible while still trying to pay for a mortgage can be stressful and somewhat confusing. While there is no one-size-fits-all solution for allocating cash, there are some tried and true principles that could help you make the most of your money.
Dollar Cost Averaging (DCA) is a structured approach to buying investments. DCA is intended to temper the volatility of your investment portfolio by breaking large holding purchases into smaller buys done over time.
Instead of buying a large holding of a single investment vehicle all at once, the entire purchase is divided into smaller transactions and spread over a period of time.
Investments can represent a major source of income for some individuals and with that income comes a wide variety of tax implications. The good news is that some types of investment incomes are subject to special tax treatment. Understanding how your investments are taxed is an important part of your financial plan. The most common types of investment income most investors will have to deal with are interest, dividends, and capital gains.
The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.
Of course opting for both: reducing debt and increasing savings is the ideal. As for which is better, however, really depends on the individuals involved, their goals and feelings and their unique financial situations.
One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?
Here’s the good news – it doesn’t have to be an either or choice. Why not do both? Below are the features of both plans to help you understand the differences.
Tax Free Savings Account (TFSA)
- Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income. There is no maximum age for contribution.
- Maximum contribution is $5,500 per year.
- There is carry forward room for each year in which the maximum contribution was not made. For those who have not yet contributed to a TFSA, the cumulative total contribution room as of 2017 is $52,000.