Quick, would you rather: give advice or get advice? If you have ever dated, married, been pregnant, raised kids, adopted a dog or embarked on a slimming program, then you will recall what it feels like to be inundated with advice. When it comes to decisions about handling your finances however, do you find your friends and family uncharacteristically quiet?
Maybe they feel unqualified or perhaps they worry there is too much at risk. Women in particular often consider finances a “private” topic and just won’t dish. And yet… is there any other topic where we couldn’t all stand to learn a little more and benefit from some good advice?
This is why we feel Financial Literacy Month is so important — it gets the conversations going! Earlier this month we were lucky to score an interview with Ahmad Dajani, Scotiabank’s VP of Retail Deposits and Investments. Scotiabank financial advisors offer personalized advice and tools to help people understand their finances and their financial health. We asked Ahmad for his best professional advice on balancing saving priorities, the benefits of investing and how to get started.
GGF: What are the benefits of starting young when it comes to investing? What is an easy “entry level” type of investment for a first time investor?
AD: The earlier you start to invest the better off you will be financially. Investing even a small amount can grow to a surprising figure over time, with the power of compound interest.
No two savers/investors are the same and therefore there is no one size fits all type of investment. In addition to your risk tolerance, consider the goals you are saving for and when you’ll need the money. Different goals will require different investment strategies. Of course, being a young investor means you’ll have many years ahead of you, so you’ll want to try and maximize your return. I always recommend speaking to a Scotiabank advisor who can help you create a financial plan along with the investing strategies that fit your unique needs. You don’t need a minimum portfolio size to create a financial plan with the help of advisors at Scotiabank, and they are available at no cost.
GGF: What is better – paying down debt or putting money aside for saving and investing? I struggle to pay my credit card balance each month, so how can I find the money to save and invest too?
AD: This is a common situation. While it can be difficult, we recommend that you try to do both, while recognizing that carrying high interest debt is not in your best interest and paying it off needs to be a top priority.
The best approach to saving would be to Pay Yourself First. What I mean by this, is putting aside a portion of your income to save, before you begin to pay any other expenses. And, by making saving automatic using a pre-authorized contribution, saving becomes a habit. Even starting with a contribution of $25.00 a pay cheque will help set you up for success and you can always revisit how much you contribute as your situation and goals change.
Keep in mind it is always a good idea to create a budget in order to understand where your money is going. And of course, seek out the assistance of a financial expert to create a customized plan for you with strategies on how to become better off.
GGF: I would like to work with an advisor but don’t you need a lot of money for that? Are there minimum amounts you need to invest to be able to work with an advisor?
AD: Anyone can meet with a Scotiabank advisor – they are available at no cost and no minimum portfolio is needed to create a financial plan. While some investments may require a minimum to start, many other investments don’t. Whether you are planning for retirement, a big purchase, or your child’s education, Scotiabank advisors will work with you to help you achieve your goals.
GGF: If I save $2,500 this year, would it be better to put it into an RESP for my child, or into an RRSP for myself?
AD: The decision on whether to invest in one versus the other is not straightforward. Ideally you should contribute to both based on your goals.
An RESP is a great way to save for your child’s post-secondary education. You don’t pay any tax on the investment income earned while your funds are in the RESP and best of all; federal grants are available up to a maximum of $7,200 per child, along with provincial incentives too in some provinces. RESPs are a key vehicle to help you maximize educational savings – so please don’t miss out.
An RRSP helps you maximize your retirement savings by reducing the tax you pay today on contributions made. Earnings within an RSP are tax sheltered. When you withdraw money at retirement, you pay tax on your withdrawals, but perhaps at a lower tax bracket since your income may have decreased.
An investment expert can help you to review your options and eligibility criteria for each.
GGF: All my savings are in an RRSP account. Is it a good idea to use funds from an RRSP for a down payment on a first home?
AD: The Home Buyers Plan (HBP) is a good option for first time homebuyers. It allows you to withdraw funds from your Registered Retirement Savings Plan (RRSP) to help pay for your down payment. You can withdraw up to $25,000 ($50,000 when combined with a spouse) towards the down payment of your home. Just remember that you have 15 years to repay the withdrawn amount back into your RRSP.
GGF: Is it better to save money in an RRSP or a TFSA?
AD: Both are great plans and offer different features and benefits that complement one another. Canadians can have both and should if possible.
A Tax Free Savings Account (TFSA) is a registered plan that allows your investments and savings to grow tax-free. A TFSA gives you the flexibility to withdraw your savings without penalty, at any time for any purpose. This is great for someone who is saving to purchase a car or go on a big trip, for example, as they can save tax free and withdraw when they are ready.
An RRSP helps you maximize your retirement savings by reducing the tax you pay today on contributions made. Earnings within an RSP are also tax sheltered. When you withdraw money at retirement, you pay tax on your withdrawals, but perhaps at a lower tax bracket since your income may have decreased.
There are circumstances where maximizing your available contributions to a TFSA may be more beneficial than an RSP, or vice versa. Please speak to our advisors and they can help you create strategies for your unique situation.
GGF: What are some other simple ways to help Canadians maximum their savings?
AD: We love the concept of allowing Canadians to save while they spend.
For example, Scotiabank’s credit card rewards programs provide rich rewards, with a simple way to both earn and then redeem those rewards for travel, retail and cashback. Another example is Scotiabank’s ‘Bank the Rest’ program, which allows you to round-up your debit purchase to the next $1 or $5. You pocket the difference in your savings account and overtime you’ll see the dollars and cents really add up.
GGF: If I have a goal of buying a car, or a house or a cottage, or saving for my kids’ education, can someone at the bank help me devise a strategy to achieve that?
AD: A Scotiabank advisor is one of the best resources to help you create a financial plan and devise a strategy to achieve your goals. You can work with them to build a financial plan for free and they have the experience to help you create a plan that fits your unique goals.
GGF: Help! I haven’t ever felt I had enough income to save for retirement and now I’m 50. Is it too late to get started? How do I start a retirement plan later in life?
AD: It’s never too late to get started and very important that you are addressing your retirement goals today. A couple of tips that I would recommend to get started:
- Meet with a financial expert. They can help you determine a realistic retirement savings goal and how to get there faster. An advisor can map it out for you to help you realize your objectives.
- Paying yourself first using pre-authorized contributions will help make saving a habit. Align your pre-authorized contributions with your pay cycle - you won’t miss the money after a few cycles and the savings will add up quickly.
GGF: Thanks for the great advice Ahmad!
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