The TFSA contribution amount for 2022 is $6,000. And the very best day to make that contribution is January 3, 2022, so that your money is invested as soon as possible. The sooner you contribute to your TFSA, the better since tax-free growth only starts once the money is deposited.
What’s that, you say? You don’t have $6,000 lying around, waiting to be invested? Your money tree isn’t casting off riches in the dead of winter?
No worries, my dear Reader. You start where you are and you do what you can. Right now, many of us are in the thick of holiday activities. After last year’s lockdown, there’s a good chance you’re itching to see family and friends in person. (And if you do, please be very, very careful and follow guidelines for not spreading COVID-19 as you go about your merry-making!) There might be some shopping or baking or carolling in your plans. Perhaps, you’re walking around to see the festive light displays of neighbours and town centres.
I can certainly understand that you probably have other things on your mind at this time of year. I myself still have a number of things to cross off my To-Do list before Santa Claus makes his appearance in two weeks. At the top of that list is remember to be nice instead of naughty… tough to do when we’re all a bit stressed and crazed by the madness that seems inherent in holiday preparations.
Be that as it may, believe me when I say the following. You still have to do what you can to achieve your dreams. Let’s be honest here – no one else cares about your dreams as much as you do. They’re too busy working on their own dreams, aren’t they? The reality is that you have to know yourself in order to prioritize that which is most important to you and to direct your money accordingly.
Dreams cost money. Coming up with $6,000 at the drop of a hat isn’t easy for the vast majority of us. No argument there! Yet, it’s likely that you could find $5 a week – maybe even $20? Start with that. Set up an automatic transfer from your chequing account to your TFSA and get in the habit of contributing regularly. As your budget allows, increase the transfer amount. Your goal is to stuff your TFSA without going over the current contribution limits. Unless you have a lot of disposable income, contributing the maximum amount will not be super-easy. Don’t feel bad that it might take you longer than someone else to get the money into your TFSA. At the end of the day, the most important element of this whole endeavour is to get the money into your TFSA. The speed with which you do so is secondary.
As you pay off debts, increase your contribution amount. Truthfully, $6,000 per year is $115 per week. That’s a good chunk of money, so work up to it. Did you get a raise? Great! Save half and spend the rest. Did you pay off your car loan? Awesome! Re-direct 75% of your former payment to your TFSA. Student loans finally gone? Let the good times roll… but first make sure that two-thirds of your former payment are re-directed to your TFSA. Money from Santa? I think you know what to do – save a good chunk and enjoy the rest!
Hey! I’m not going to quibble over the precise amount. You’re more familiar with your own numbers better than I am. My suggestion is based on personal observation. Money that isn’t immediately re-directed from a former payment to an investment of some sort inevitably get absorbed into the costs of daily living. I don’t always know how it happens, just that it does.
One of the best things about the TFSA is also one of its worst features. Your contribution room rolls over to the following year if you don’t use it. That means, if you don’t put money in today, then you can put it tomorrow. I strongly urge you to no delay your contributions. Money that isn’t invested will never benefit from tax-free growth!!!
Yes – that’s right. I said tax-free growth. TFSA is an acronym for Tax Free Savings Account. It still confounds me that the Powers That Be didn’t call it a Tax Free Investment Account. Your TFSA need not be limited to savings accounts. Considering that inflation is decimating the rate that you’re earning in a savings account, you need to have your TFSA invested in an equity ETF. Over the long term, equity investments outpace both savings accounts and inflation. It can be a bumpy ride but your odds of seeing growth in your portfolio go up tremendously with investments in equity.
The TFSA is too amazing of a tool for you to ignore. Find a way to get your money invested within your TFSA as soon as possible. If you can’t make the maximum annual contribution, don’t fret. Just do what you can!