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Reduce debt and accumulate assets

Reduce debt and accumulate assets

July 25, 2019

Reduce debt.

Debt is a threat to your financial health because it doesn’t let you make the most of your money. That’s why debt reduction is a financial goal for many people.

The correct financial strategy for each household can be different, however, there are a few general rules that often apply.

Paying down debt is always a good idea. Start with loans that have the highest interest rate charge. Credit card balances should be paid monthly before the astronomical rates apply.

Check to see what options you have on your mortgage to prepay above and beyond normal mortgage payments. Reducing your mortgage from time to time can, over time, result in significant mortgage interest rate savings.

Accumulate assets.

If you have a high taxable income making annual RRSP contributions is a good idea. Contributions can be used to reduce your personal income which saves you taxes.

For every dollar contributed to an RRSP you could save 30, 40 or 50 cents depending on your tax bracket.

Most people have three financial stages of their lives.

Stage one. When you have personal debt and a relatively high income, maximizing RRSP contributions while reducing your debt is a good strategy.

Stage two. After your personal debt is eliminated, continue making RRSP contributions, but now also start saving outside an RRSP. Two options are a Tax Free Savings Account and regular non-registered investments.

Stage Three. Now you have retired, and it is time for you to start creating your own pay cheque. What funds are coming in from employment pensions and government entitlements? Start a regular withdrawal from your savings in order to continue with your desired lifestyle.

There are other considerations. A Registered Educational Savings Plan allows parents to save for the post-secondary education of their children.

Savings to an RESP are encouraged by offering an annual grant by the government. Try and make annual contribution limits in order to achieve the total grant of $7,200 per child.

Reduce debt, accumulate assets, and live the life you desire.