It is becoming increasingly difficult for children, and parents, to burden the cost of post-secondary education. Luckily in Canada we have some options. One way that parents can soften the burden on themselves and their children is by opening a Registered Education Saving Plan (RESP) when their children are young. An RESP in Canada can be a great way for parents to maximize education savings as both provincial and federal governments offer grant contributions towards the RESPs. There are also a number of tax benefits to investing in an RESP.
Individual plans can be set up for the benefit of an individual beneficiary or a family plan can be used for more than one. Although there is no longer a maximum annual contribution to an RESP, the maximum lifetime contribution per beneficiary should not exceed $50,000.
There are number of different provincial and federal grants that certain RESPs may be eligible for. They requirements vary based upon province and the contributions made by parents (or other contributors). The Canadian government provides a grant of 20 cents for every dollar that is contributed up to a maximum of $500 every year and a lifetime limit of $7,200.
Lowered Taxable Rate
Once the money from the RESP has been given to the beneficiary, the income that is earned on the plan along with the amount of federal contributions is taxed as the beneficiary’s income. As a student, the policy holder’s child will not have much taxable income. Apart from that, they will be eligible for education and tax credits. In short, they will have little to pay in taxes.
Parents have always have the assurance that if their child decides not to pursue a post-secondary education, their capital contributions to the savings plan will be returned to them tax-free. With an RESP, they will have additional assurance that up to a maximum of $50,000 of the income that has accumulated in the plan can be transferred into their RRSPs tax-free up to the extent that they have unused contribution room available.
However, they should follow three special conditions to achieve this. The plan should be in effect for a minimum of ten years, all beneficiaries should be at least 21 years of age and not seeking a higher education at present, and the policy holder must be a Canadian citizen.
Aside from having the capability to transfer the RESP to their RRSP, parents can also roll over the educational payment plan to another beneficiary without any tax implications. This is only possible if the beneficiary is under the age of 21 and is related by adoption or blood.
Tax benefits aside, RESPs are a worthwhile investment that will save parents and children the headache trying to fund their post-secondary education out-right.
Thanks to technology, it’s possible to stay on top of your banking anytime you want. Not only is this helpful for you, but it can also be helpful for the environment.
Mobile Banking and Your Finances
I love mobile banking because it provides me with a way to keep track of your finances all the time. Whenever you want an idea of where you stand, you can check your account for information. It’s possible to use mobile banking to transfer funds, and accomplish a number of other tasks.
Mobile banking provides you with a great deal of convenience and access. I especially like that many banks now allow for remote check deposit. All you have to do is take the appropriate images of your checks and send them along. It makes the whole process easier, since you don’t have to go into the bank in person. Just as long as you shred the check at home, you can manage all aspects of your finances remotely.
You can also catch problems sooner with mobile banking. From errors to fraudulent purchases, the ability to check your account can help you identify problems much sooner. Mobile banking provides you with greater convenience, as well as a greater amount of control over your bank account. You can be more informed, and you can take care of problems faster.
What About the Environment?
Mobile banking can also help the environment. I got to the brick and mortar version of my bank now that I have mobile banking and the ability to deposit checks remotely. As a result, I am using much less gas, and there are fewer pollutants in the air.
If you combine mobile banking with the ability to go paperless, then you can do even more to help the environment. If you opt to receive your statements electronically, it means fewer trees cut down, and fewer greenhouse gases in the environment.
Switching to mobile banking can also have effects if you encourage others not to use paper checks as part of the effort. There are a number of services, from PayPal to Popmoney to Google Wallet that allow you to send and receive money from others without the need for writing a check. You can reduce the paper in your life, and help the environment, when you cut back on the paper checks.
On a larger scale, mobile banking has the potential to make an even bigger impact. If more people adopt mobile banking, physical bank branches could be smaller, reducing their footprints. PayItGreen estimates that if 20 per cent of Americans switched to electronic bills, statements, and payments every year, the savings would be huge: 150 million pounds of paper and two million tons of greenhouse gases.
That’s a big deal, and illustrates the power of collective action. If you can go with mobile banking and paperless finances, and convince others to do so as well, there is a very real chance that, not only will you be doing your part, but you will be part of a larger effort as well.
What do you think? Do you like mobile banking?
One of the most important questions that many ask themselves right now is this: Will I have enough to retire?
While this is an important consideration, one of the questions you should really be asking yourself is whether or not you actually want to retire — at least in the conventional sense.
Does It Make Sense to Stop Earning Income?
When many of us think of a “traditional” retirement, we think about giving up on all work, and living off whatever nest egg has been accumulated. However, the idea of retirement is something that’s in transition. The notion of a retirement of doing nothing but spending the money you have accumulated is one that doesn’t make sense for a lot of consumers right now, for two main reasons:
- Concerns about accumulating enough: The first concern is that it might not be possible to accumulate enough to stop working altogether — or at least not as early as 55 like so many would-be retirees prefer. As a result, many people recognize the necessity of working part-time, finding a consulting gig, or looking for some other way to keep the revenue coming in during the first years of retirement.
- No desire to sit around all day: For many, though, the idea of really retiring from work-type activities isn’t appealing. More and more, it’s becoming clear that most of us thrive when we have activities to enjoy, and challenges that keep our minds sharp. Quitting work altogether might mean losses in terms of social support, and reasons to keep moving forward. As a result, it makes sense for some to plan on working longer — just as long as they choose something they enjoy.
Another consideration is longevity. Humans are living longer, and that means that you might need your nest egg to last 30 or 40 years, instead of 20 years. Rather than assume that you have to retire and quit working altogether, it makes sense to consider how you can earn a little extra income as you go along, especially during the early years of your retirement.
The real question, though, probably shouldn’t be one of whether or not you should retire away from the world to enjoy days on end of doing nothing, or engaging in a hobby. Instead, you should probably ask yourself if you are creating a situation in which you have more options open to you, and in which you have financial freedom.
Creating a retirement portfolio that includes income investments and a measure of growth is important when you are facing the possibility of a 40-year retirement. You need your portfolio to keep growing, even as you use the money. You also need to be able to do what you want, whether that’s working part-time at a job you love, volunteering, or traveling.
Consider what is likely to make your life meaningful, and help you feel fulfilled. Chances are those activities have little to do with sitting on your front porch all day. Think about whether or not you really want to retire in the more traditional sense. Chances are that you’ll find that you want to be busy — but that you want the financial freedom that allows you to be busy at the things you actually want to do.
When my husband and I first married, we were poor and in debt. It was a difficult place to be, and, even as we made inroads and improved our finances, we still felt pinched. As a result, we decided that we couldn’t “afford” to set aside money for the future.
Finally, after a few years, we finally opened a Roth IRA and started setting aside some money. As I began writing about personal finance, I realized what a mistake we made. During those early years, we could have perhaps set aside $25 per month. But we thought the amount was too small. If we couldn’t “afford” to set aside at least $100 a month, we didn’t think it was worth it.
If I could go back in time, I would shake my younger self (and her younger husband), and tell them what I have since learned: The earlier you start saving, the better off you’ll be — no matter how little you set aside at first.
The Power of Compound Interest
One of the reasons that it makes sense for you to start saving as early as you can is due to the power of compound interest. This is a concept that puts your money to work for you. With compound interest, the money you earn through interest and other returns earns money. This means that more than just your original capital is working on your behalf.
As you earn interest, and that interest earns interest, your earnings are compounded — increased over time. The earlier you start saving, the longer compound interest has to work on your behalf. Just starting five years earlier can mean a difference of thousands of dollars over the course of your lifetime.
Even though we didn’t have a whole lot to set aside early on, we did have some money available. Even that small amount, compounded over time, could have made a bit of a difference. But we missed out on the extra money we could have been earning. In fact, that $25 a month, compounded monthly at 5% a year, for 35 years comes out to $28,520.65. But if we had started five years earlier, and that $25 had 40 years to grow instead? The result would have $38,309.46. That’s almost $10,000 more — just for starting five years earlier like we should have.
A Habit of Saving
Even more important than the amount that you set aside early on is the habit of saving you develop. I’m determined to teach my son this lesson. He knows that one of the first things he does with any money that he receives is to set aside some of it for savings, whether it’s money he’s earned, allowance money, or cash gifts for his birthday.
If he earns more money, he sets aside more money for savings. This habit is one that, hopefully, will follow him his whole life. A good habit of saving starts early. Even if it’s only $10 a week, the habit can stay with you. Start saving now, and then set a goal to increase the amount that you set aside. Figure out ways to boost your savings amount when you can. You’ll develop a good habit and, meanwhile, the power of compound interest is working on your behalf.