![]() ![]() The remaining 20% of your budget should go toward the future. ![]() Wants are things you enjoy that you spend money on by choice, such as: You subscribe to a streaming service to watch your favorite show, not because you need the subscription to live. Minimum required payments on a credit card or a loan also belong in this category. If you can honestly say “I can’t live without it,” you have identified a need. These are expenses that must be met no matter what, such as: Let’s take a closer look at each category.Ībout half of your budget should go toward needs. The savings category also includes money you will need to realize your future goals. ![]() The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. If taxes are withheld, subtract that amount from your total earnings. With some basic information, you can get on the road to financial well-being. It also offers recommendations on how much money to use for each. The 50-30-20 rule splits expenses into just three categories. A detailed budget, though, can be complex to manage. “You could take a, I don’t know, a $10,000 loan and be paying on it and then that $10,000 investment that you purchased could go down in value to $8,000.Creating a budget can help you make confident decisions and enjoy peace of mind. “There’s no guarantee on your return,” she said. Janet Gray, an advice-only certified financial planner with Money Coaches Canada, said if an investor is expecting a large tax bill this year, an RRSP loan and large contribution might make sense to help offset the bill.īut, she cautioned, there is risk associated with borrowing to invest. “You definitely have to have an appetite for risk when you’re using somebody else’s money to invest,” Lalonde said. He also said if an investor is in a high tax bracket today, but knows they will be in a lower tax bracket in a few years, it might make sense to use up their RRSP contribution room now when the tax benefit of making a contribution is bigger. Lalonde said seasonal workers or commission-based sales people who have uneven income throughout the year may find an RRSP useful if they don’t have the cash right now to make a contribution, but know they will have the money later to repay the debt. There are a few circumstances where a loan might be worth considering. I mean, at eight per cent, you know, on the loan, it’s pretty tough to beat that safely in the market,” said Lalonde, who is president of MDL Financial Group.Īnd while interest payments on loans taken out for investing purposes can sometimes be tax-deductible, this is not the case for RRSP loans. He said the pitch used to be that you could earn more on the investments than you would have to pay in interest on the loan. Gabriel Lalonde, a certified financial planner, said RRSP loans were more attractive when interest rates were lower. If an investor has the contribution room and is short on cash, the idea of a larger tax refund than they would otherwise receive if they didn’t take out a loan does sound enticing.īut Tran says those considering taking on debt to invest need to look at more than the potential size of a tax refund.Īn investor’s tax bracket, cash flow and savings priority should also be considered, she says.Įven investors who have used an RRSP loan successfully in the past will want to consider the higher interest rates charged on loans this year. “An RRSP loan is not for everyone,” she said. ![]()
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