In 2019, the contribution room for the Tax Free Savings Account increases from $5500 to $6000. This is great news!
There’s a big debate about whether it’s best to invest in a TFSA or in a registered retirement savings plan. I’m not going to weigh in since I’m not certified to give expert advice in this area. My suggestion, though, would be to maximize whatever tax-advantaged options you have at your disposal. If you’re one of the very fortunate ones who can invest in both a TFSA and an RRSP, then I would advise you to do so. Anything that saves you from paying more than your legally-required amount of taxes is a great tool and you should be taking advantage of any and all such tools.
Every December, I plot out my financial goals for the upcoming year. Due some shrewd moves in my younger years, I’m debt-free and able to live comfortably below my means. I’ve managed to contribute to my TFSA every year by allocating a portion of each paycheque towards the goal of maximizing my TFSA contribution room. Life without debt allows for such luxuries.
If you’re like me, then you’ve already sat down with your budget to find out where the extra $500 is going to come from next year. (For my part, I’ve promised myself to bring snacks to the office each week.) As a Singleton, I spend a lot of money on eating out with friends because sharing meals is a huge part of my social life. However, I do have a home with a functioning kitchen, many cookbooks at my disposal, and a fairly good arsenal of baking tools. I’m more than capable of baking my own muffins for my daily snack, thereby replacing purchased goods with my own homemade ones. Bringing my own snacks means that I’ll eat better, still visit with my friends at lunchtime, and I’ll have money to put into my TFSA. It’s a trifecta of benefits!
The other beauty of the TFSA is that you get to decide what you want to save for. A super-duper annual vacation? Your next car? Retirement? Starting your own business? Down payment on a house? Rental property? A significant birthday celebration? A long-term sabbatical? Plastic surgery? Golf camp? Family reunion?
I’ve never heard anyone say that they’ve regretted earning money on a tax-free basis, nor have I ever heard them complain of having too much cash available to pursue their personal goals.
The TFSA is a wonderful tool for saving money. Your money grows tax free, no matter whether your money grows through interest, dividends, or capital gains. You can invest your funds in a wide variety of options – GICs, stocks, bonds, mutual funds, exchange-traded funds, real estate investment trusts! Since the money is growing tax free, you should strive to maximize your returns without making super-risky moves or investing in a ponzi scheme.
Despite its name, the money does not have to sit in a savings account at the bank. It should’ve been named the “Tax Free Investment Account” to plant the seed in the people’s mind that this account is best used for investing. Savings accounts are currently paying far less in interest than the inflation rate, which means that your money is losing its purchasing power if its sitting in a savings account instead of being invested in things that earn more than the inflation rate.
Even if you can’t contribute the full $6000 in 2019, you will continue to accrue contribution room each year. Put whatever you can into your TFSA – give until it hurts! Continue to build your emergency fund and to pay down your debts. Once your emergency fund is fully-padded and those pesky non-mortgage debts are gone, you can re-direct your money to your TFSA until you’ve maxed out your contribution room.