3 ways to reduce financial stress
Do you have financial stress?
Are you worried about having enough money for the future? Does the idea of retiring make you want to curl up in a ball? Are you anxious about investing your money? Does that anxiety keep you from investing, which makes you worry you won’t meet your goals, which makes you even worse?
You might be getting uncomfortable just reading this.
Fortunately, there are ways to reduce your discomfort. Here are three ways to alleviate your worries about money.
Make your money work harder for you
For many Canadians, the idea of working harder can result in more worries. But if it’s in relation to your money, the opposite is true. The harder your money is working for you, the less you have to worry about it.
When you keep your funds in a low-interest savings account, it doesn’t work as hard. And, unsurprisingly, if it isn’t working hard then your money could be doing more for you. A low-interest account can pay as little as 0.05% interest, and it offers no other real benefits to you. That means that $1,000 would only earn $12.58 in interest after 25 years.
To alleviate the money tension, the first step is to get your money working harder. Look into seeing if putting it to work in an investment with better returns, like low-cost Exchange Traded Funds (ETFs), mutual funds, GICs or a high interest savings account is right for you. These options can offer additional benefits with opportunities for higher gains. Hard work really does pay off!
Exercise your money
For many people, a little bit of weight lifting is a good first step toward bulking up. Your money could use a little bulking up, too. And there are two trainers that shine above the rest: Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). These together are called registered accounts – they have contribution limits and receive special tax treatment from the Canadian Revenue Agency (CRA).
In regular (non-registered) accounts, you have no contribution limit for tax purposes and all the interest and investment income you earn is taxed as income. TFSAs can help your money grow faster because funds are sheltered in a registered account, meaning that your interest and investment income isn’t taxed. TFSAs can hold all kinds of investments, including stocks, mutual funds, ETFs, GICs, and savings accounts.
RRSPs can also help your money grow faster by deferring the income tax on your contributions and interest until retirement. This is especially helpful because your income will likely be much lower in retirement, resulting in a lower overall bill to the CRA. You can avoid paying a much higher tax rate now, and the difference, theoretically, frees up even more cash to save for retirement.
Just like TFSAs, RRSPs can hold all kinds of investments, not just savings accounts.
Paying tax on interest hinders your money’s ability to get in shape. These registered accounts can help it realize its full potential. Arnold would be proud.
Get money peace of mind
You’ve worked hard for your money, you’ve put your money to work for you, and you’ve given it the exercise it needs. However, there’s still the question of what to do with your money in the end.
In a perfect world, the plan is to save as much as you can while you’re working, live a long and healthy retirement, and have enough left over to pay for a funeral and perhaps leave some money for loved ones.
What happens with that extra money is where things can get a bit more complicated. Not knowing what might happen to your funds after you pass away can be a heavy weight. But you can get peace of mind by assigning beneficiaries for your TFSA and RRSP accounts.
With TFSAs, you can assign a successor holder or a beneficiary. A successor must be your spouse or common-law partner, and they can take over the account after you pass away. A beneficiary can be anybody, but the account loses its tax-free status when it’s transferred and the recipient pays tax on any subsequent gains.
Without a named successor or beneficiary, your TFSA will become part of your estate. This means that they will be distributed according to the terms of your will.
For RRSPs, the potential benefits of naming a beneficiary are higher. Your entire RRSP balance is treated as taxable income in the year you pass away, unless you name your spouse, common-law partner or a dependent as the beneficiary. Your RRSP beneficiary can then transfer the balance into their own tax-sheltered account to protect your investment from tax.
Taking some time to update your beneficiaries can give peace of mind to you and to whomever you leave your savings with.
Feel your financial stress melt away
Saving for the future doesn’t have to be stressful, but it often is. Thankfully, doing these three things can help you feel good about the fact that your money is in top shape.
By making your money work harder for you, using your TFSA and RRSP, and assigning beneficiaries, you can take away much of the money anxiety that keeps you up at night.
Article submitted by Ratehub.ca
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