where should you put your money first? should you focus on the tfsa rrsp or ESP hey guys it's Adrian
here the Canadian and t-shirt and today I'll be breaking down which investing account to use and
in what order this can be confusing there are many accounts available in Canada and there's a
lot to cover so let's jump in first off max out your employer's rrsp or RPP matching program if
available that's free money so take it then pay off all credit card debts High interest debt and
build up that emergency savings fund now it's time for investing start with the resp if you have kids
to max out that grant money but stop there then focus on the new fhsa to buy your first home next
we have the chief essay and rrsp which are almost out of time after that go back to the resp and
max out your contributions now your tax filtered accounts are maxed out so you're left with the
non-registered account these are the steps to follow and repeat every single year as you gain
more contribution room and of course personal finance is personal everyone is in a different
situation if you don't have kids skip the resp if you already own your home skip the fhsa I made
this blueprint to be as general as possible for everyday Canadians to maximize tax efficiency and
build long-term wealth and that's key I'm only talking about long-term goals here if you need
money in the short term two to three years that's a different story and you'll need a different plan
so let's dive into the details with step Number One max out your employer's rrsp or RPP matching
program not every job will offer this but if they do take advantage of it it's free money so don't
leave it on the table it usually works like this you can contribute up to five percent of your
paycheck into your company's retirement fund and then your employer will match that amount so if
you put in two hundred dollars you your employer also puts in 200 so now you have four hundred
dollars invested for your retirement you've basically doubled your money instantly that's a
100 rate of return on top of whatever profits you make from those Investments there is a limit to
this usually four or five percent of your paycheck depending on the job so make sure you max out your
employer's matching amount and then stop these employer retirement funds come with higher fees
and you'll have little control of your Investments so once the free money is maxed out stop there
and move on with your own Investment Portfolio and note that both your contributions and your
employer's contributions will take away from your available rrsp room it's still free money but make
sure you have the room and don't exceed your limit check out my rrsp mistakes video for more
details step number two pay off your credit card debt I've said this a hundred times so I'll keep
it short you should not be investing if you have credit card debt or high interest debt there is
no investment out there that can beat a guaranteed 20 or 25 interest rate working against you credit
card debt cost you so much in the long run plus it kills your credit score making it harder to get a
car loan a mortgage or even rent an apartment so pay off this debt as soon as possible mortgages
and low interest loans that's a different story once your high interest debt is gone now you want
to build up your emergency savings fund that's step three this money isn't going to make you
rich it's designed to protect your Investments and prevent you from falling into credit card
debt emergencies will happen and you don't want to be forced to sell your assets out of desperation
so hold that money in a high interest savings account I'll include links below where your money
will be safe protected and available whenever you need it this cash Reserve should be able to
cover your expenses for at least three months if you have kids and a family bump it up even
higher now we're at the fun part investing there are many invest asking accounts to use but for
step four we'll start with the resp the registered education savings plan if you don't have kids skip
ahead to step five the resp is designed to fund your child's post-secondary education you get to
invest tax-free for years while your child grows up and even better you gain an extra 20 of grant
money from the government that's why I put the resp ahead of the other investing accounts you
get to lock in a 20 rate of return on top of your investment profits but there is a limit
I've already made two whole videos on the rules for the resp but here's the bottom line that
twenty percent free grant money is capped at 500 per year so to maximize this contribute twenty
five hundred dollars per child every year into the resp that way you'll receive the max 500 of
free money every year for each child keep that up and after 14 years you'll reach the lifetime Max
of seven thousand two hundred dollars in Grants that's seventy two hundred dollars of free money
from the government per child don't miss out on it but don't go beyond 2500 just yet our Focus
for now is to max out the grant money without the grants we actually get better tax benefits
from the other accounts on this list so we'll come back to the resp later in the video but for
now here's the plan put in twenty five hundred dollars per child every year into the resp and
stop there you'll receive that extra 500 from the government and then we move on to step five
the fhsa the first Home Savings Account this is a brand new tax return account it just came out
in April and it's designed to help you save up for your first home if you already own your home
skip ahead the fhsa is very powerful it combines the benefits of the tfsa and the rrsp that's why
it's higher on the list your money can be invested grown and eventually withdrawn tax-free just like
the tfsa even better the money you put in your contributions are tax deductible you can lower
your tax bill just like the rrsp this really is the best of both worlds as long as you're using
it to buy a home and it's pretty flexible you can keep the account open and invest tax-free for up
to 15 years plenty of time to build up that down payment but even if you're buying a home this year
put in eight thousand dollars into the fhsa to lock in that tax refund if you're in the 30 tax
bracket this will earn you an extra 2 400 from the government so don't miss out try to max out your
fhsa as soon as possible you can contribute up to eight thousand dollars per year until you reach
the lifetime limit of forty thousand if you're going to buy a home in the next 15 years the fhsa
should be a priority and if you never buy a home you can transfer this money into your rrsp so you
can't go wrong check out my fhsa explained video for all of the rules all the accounts I cover in
this video can be open with questrade they've been my favorite investing platform for years there's
plenty of great options in Canada but most of the banks don't offer the fhsa just yet and will
simple trade doesn't offer The resp Quest Rate can handle all of them so if you'd like to sign up use
my referral link down below to get 50 in trade rebates plus I'll get a smaller flow bonus up
next we have the chief essay and the rrsp these are the two most popular accounts in Canada and
they're both very powerful it's hard to choose a clear winner it really does depend on your
situation but I'm gonna give the slight Edge to the tfsa because there are no downsides the tvsa
can never hurt you it can only help you for many people the rrsp can be even more beneficial but
there are situations when the rrsp can actually cost you but you can't go wrong with the cheapest
a no matter who you are you will benefit from it it's simple and flexible your investment income
will be tax-free and you can withdraw that money tax free there's no reason not to Max it out and
you have flexibility if you change your mind you can transfer your money and stocks from your Chief
essay into your rrsp but going the other direction is not recommended transferring out of your rrsp
will cost you taxes and you don't regain that contribution room the chief essay is far more
flexible so when in doubt go for the tfsa there's a lot more to discuss I'll make a whole video
on the tfsa versus the rrsp and the different scenarios to consider in the meantime check out my
rrsp guide to learn all the rules and tricks but here's the short version the rrsp is a retirement
account that gives you two main benefits it allows your Investments to grow tax-free and you're able
to defer your taxes for years until retirement the money you put into an rrsp is tax deductible that
means you can reduce your taxes today in your high income years and pay a much smaller tax bill when
you retire since you'll be in a lower tax bracket the rrsp is incredibly powerful for high income
earners since you can reduce your taxable income and collect a tax refund from the government now
you can use that extra money to invest and grow your wealth even faster but it's not for
everyone if you're in a low tax bracket or you're expecting a large retirement income saved from a
Company pension then the rrsp probably won't help you in that case focus on the tfsa and the other
accounts on this list for step eight we're coming back to the resp remember in step four we focused
on maxing out those government grants we put in 2500 every year to earn that extra 500 and we did
this for 14 years 14 years later and we've earned seven thousand dollars of free money and we've put
in thirty five thousand dollars of our money but we still have some tax filtered room left the resp
has a lifetime limit of fifty thousand so we can contribute another fifty thousand into the resp
we chose not to Max this out right away because once the government grants are used up the tfsa
is just a better version of the rasp but now that our tvsa is maxed out we can come back to the resp
and take advantage of this remaining tax sheltered room so contribute the final 15K into your child's
resp this time there's no need to wait or limit yourself to 2500 a year we only did that
to maximize the grants now the grants are used up fill up the resp quickly to give your Investments
more time to grow tax-free so now your child will have 50k of your money plus 7 200 from the
government plus whatever investment income you've earned over the past 18 years and when your child
is ready for college they'll be able to access this money mostly tax-free again I have a whole
video on how resp withdrawals are taxed but bottom line the 50k of your contributions is totally
tax-free the government grants and the investment income will be taxed but under your child's
name for most students they're in the lowest tax bracket so they'll barely pay any taxes in fact as
long as their income is below 15 000 they will pay a dollar in Federal taxes so this is a great deal
once all your tax shuttled accounts are maxed out the last step is the non-registered account also
known as a cash account margin or taxable account there are no limits you can invest as much as you
want but any income you earn will be taxed whether that's interest dividends drips or capital gains
you'll have to pay some tax on your profits that's why this is the last step avoid paying taxes by
using your tax sheltered accounts first so that's the blueprint to follow and repeat every single
year to build that long-term wealth and you should always re-evaluate if your situation changes it's
not written in stone you can move things around to fit your needs it's your money and your choice
so thanks everyone and I'll see you guys on the next episode of the Canadian in a t-shirt bye guys