We’d all love to believe that free lunches are possible. But, like most things in life, they generally come with hard work and time.
So here are a few things you can do today that will improve your bottom line tomorrow with only a little effort.
Contribute to company-matching RRSPs
We hear this one again and again: “ I didn’t enroll in the Company RRSP plan as I may not be at the same company in a few years and my plan has a two year vesting policy.”
That’s a pretty big maybe to give up a few thousand every year. Many companies offer competitive packages that include company-matching programs for RRSP contributions. That means that for every dollar you, the employee, contribute, the company will match it dollar for dollar, usually up to a maximum. For example, $2,000 a year, in 10 years, at 5% per year is over $26, 000. Do you really want to be taking a pass at this kind of “free lunch” money?
Take advantage of RESPs When you contribute up to $2,000 a year into a Registered Education Savings Plan (RESP) for your child, the government will put in up to $500 a year or 20% of the total annual contribution. Now, if that child after high school decides to enter a qualifying education program then that money and the compound interest that it made is your child’s, and taxed in his/her hands. So again, why wouldn’t you? Even if all you can afford is $100 a month, then you would still be eligible for a grant of $300 a year. That’s an extra $8,000 over the course of 18 years at 5% interest. If your household income is less than $83k then you may be eligible to an additional 20%. It’s as easy as 1-2-3.
Understand your Investment Fees The more people demand to know the breakdown of their investment fees, the more the industry will be forced to change. What other service do you sign up for without fully understanding the cost? Exactly. So, why leave your retirement fund, new home fund, or dream vacation hopes in the unclear waters of chance. Ensure that you understand what you are being charged. In this ever changing economy, it’s hard enough to keep your portfolio ahead without worrying about your investment fees. More and more, investors are turning towards an hourly rate versus trailer fees model. It generally works out cheaper; more importantly, it’s transparent. It’s true that your investment fees are tax deductible, but keeping costs low (and therefore income higher) is always the better strategy.
With a little bit of work and a some time (never underestimate the power of compound interest), you’ll be in good stead to buy your own “free lunch.”
This article was originally published in the Financial Post on October 27, 2011.