Perhaps you expected a larger refund or at least hoped you wouldn’t have to pay?
If all of this tax stuff seems a bit daunting to you, and right now you’re essentially just handing a shoebox of receipts to your accountant while hoping for the best – don’t worry, you’re not alone, and there is help. You can start by checking out our article on how to get more money back from your tax return, or simply read on for the quickest, simplest way to make sure that next year, more of your money stays with you!
Make Every Season RRSP Season
One of my pet peeves about January/February is the strong push for everyone to make use of their RRSP and start investing. Just because the deadline for having your 2017 RRSP contribution included on your past year’s taxes happens to fall on March 1st, 2018, doesn’t mean that your planning should start the last week of February!
Ideally, there should be no rush in February to make a last-ditch effort to get something in your investing account.
Instead, you can guarantee yourself a juicy tax refund AND a well-funded RRSP account by following two simple steps:
1) Create a simple and straightforward contribution plan.
2) Automate that simple plan so you don’t get in your own way.
If we’re keeping things 100 here, let’s admit that most of us don’t love the idea of moving money around. I’m a money geek – and I only like doing this stuff sometimes.
Remembering to make that RRSP contribution at the end of every month can be a hassle, and sometimes it’s easier to “double it up next month” or to “treat yo self” this month to some concert tickets with that 10% you had earmarked for future you to enjoy.
Work Smarter In 2018 With SmartFolio
BMO SmartFolio¹ (one of Canada’s robo advisors) is here to make this process as quick and easy as possible. The basic idea is that they’ll help you set up your investments in a way that is easy to understand, and appropriate for your unique financial goals and risk tolerance – and then you simply go about your life and let your investments balance themselves out over the long haul.
Study after study, and pretty much all the smart money people that look at how human beings interact with money say that we’re best off automating our savings strategy. In other words, if you set up your plan with BMO SmartFolio and commit to sending $500 their way every month, then it will automatically come out of your chequing account (sort of like your mortgage payment probably does) and get split up into several investments that fit your unique situation.
What this solution does very well is counteract our basic human instincts, and the influence of expert marketing techniques. If you set up your automatic $500 RRSP contribution for the day after you get paid, you’re likely to miss that cash less than you think. (I know that sounds like a bit of a stretch, but the truth is that most people learn to adapt to their adjusted “take home pay” fairly quickly.) You’ll never fail to miss a payment due to procrastinating “money stuff” and it will make your budget for luxury spending much simpler than trying to keep a running balance in your head so that you have “enough left over for building a nest egg”.
Avoiding the Last Minute Scramble
Too many Canadians follow this pattern of RRSP contributions:
A) Put retirement savings on the backburner for most of the year because there are more pressing issues and few reminders.
B) Spend a substantial chunk of money on Christmas gifts (and possibly even take on some debt in an effort to make the season “extra special” this year).
C) Make a New Year’s Resolution to save more and/or meet with a financial advisor that tells you to contribute to an RRSP immediately so that you can take advantage of “counting back” your contribution to last year’s taxes.
Now, instead picture a world where you:
A) Dedicate one or two hours to setting up your ideal savings plan one rainy/snowy morning or afternoon. Then forget about it. Seriously… go swimming, spend time with loved ones, read a book – whatever – just don’t worry about savings.
B) Spend what you have left after making your automatic contribution at Christmas (you’ll never even see the money if you set it up right).
C) Enjoy the holiday season and simplify your tax situation!
If you have any questions along the way, BMO SmartFolio has all different kinds of online support ready and willing to go.
Supercharging Your Tax Refund
If we look at a hypothetical Canadian who makes 65K per year in 2017, and what a $500-per month contribution would mean for them, we see that it would generate you somewhere around $1,650 on your tax return if you lived in Nunavut, and $2,227 if you lived in Quebec, with the other provinces falling somewhere in between. (These are “round calculations” which don’t account for other variables such as tax credits, family situations, etc)
If you and your partner both make these contributions, you’re looking at a $4,000+ tax refund!
Similarly, if our hypothetical Canadian was fortunate enough to make $90,000 per year, and saved $750 per month, they’d generate $2,524-worth of tax savings in Nunavut and $3,524-worth in Quebec.
If you’re wondering why there is a fairly substantial gap in those provincial estimates, the reason is the different marginal tax rates each province has. Because Quebec has relatively high income tax rates, the savings you are able to generate through an RRSP contribution are high as well.
Don’t get caught in the weird annual cycle of one-off savings contributions that don’t quite get the job done. Instead, make a plan that you can stick to, and then let SmartFolio keep you on the right track. For more information, check out our complete BMO SmartFolio Review (and try it for free using my promo code – YTSF!)
¹BMO SmartFolio is a product of BMO Nesbitt Burns Inc.