Que faire avec votre épargne de confinement ? — Huit suggestions intéressantesOctober 21, 2020

8 Ways to Invest the Money You Saved During Confinement

According to Statistics Canada, during the second trimester of 2020, Canadians spent 13.7% less and saved 28.2% more than usual.

The confinement drastically limited outings, vacation and other opportunities for spending and gas prices dropped drastically. Many had access to the CERB (Canada Emergency Response Benefit), allowing them to increase their overall income during confinement. 

Now that you have this extra savings, what can you do with it? Here are a few interesting options that will help you get the most out of your savings.

Use Your Savings to Pay Off Debt

There are certain debts that you should always try to pay off as soon as possible,

  • CERB (Canada Emergency Response Benefit) taxes. If you have benefited from the CERB, keep in mind that you will owe taxes on the amounts received at the end of the year. If you haven't already done so, make sure to consult your accountant now about reserving enough of your savings or possibly adding to them in order to pay these off when they are due. Generally, if you know approximately how much you will owe on taxes and set the amount aside, you will be in the clear come Spring. Once you have paid your taxes, you can consider any leftovers as a bonus. 
  • Credit cards, lines of credit and loans. If you owe money on a credit card, line of credit or loan, use your savings to pay them off in full or at least in part. Take this as an opportunity to reorganize your financials and consolidate your debt. This will reduce your monthly payments, and you will pay less income. There are several options for paying off your debt. Unless you are close to retirement, it is not recommended that you use your savings as a lump sum payment on your mortgage. Mortgage rates are so low that it is wiser to use your money elsewhere. Rather than throwing money at your mortgage, you can always see about renegotiating your mortgage for a lower interest rate.

Invest Your Money for Long Term Growth

Well appropriated savings can lead to significant growth if you invest it in the right way. 

  • Invest in your RRSP. If you earn a substantial income, investing your savings into your RRSP (Registered Retirement Savings Plan) will let you benefit from tax breaks and a decent credit come Spring. If your income is on the lower side, look at investing in your RRSP as a step in buying your first home. You are allowed to withdraw up to $35 000 from your RRSP for this purpose. You can also draw from your HBP (Home Buyers Plan). If you plan to continue your education, you can also use up to $20 000 from your RESP to help you do that.
  • Invest in an RESP. An RESP is a Registered Education Savings Plan. It is an excellent investment for families with young children. While you will not receive a tax break, you can be eligible for several provincial and federal grants. When it comes time to withdraw your funds, you will only pay taxes on the amounts you gained through grants. You can save up to $50 000 per child. 
  • Open a TFSA. A TFSA (Tax-Free Savings Account) allows you to save money for short or long-term goals. While you will not receive a tax break, you will not have to pay taxes on the amounts you deposit nor on the amounts accrued in interest. While there is a fixed allowance for how much you can add to your TFSA each year, they are cumulative. A TFSA allows you the freedom to withdraw what you want when you want without any penalties. 

Put Your Money in A Savings Account

Understandably, some are not ready to contribute to an RRSP, RESP or TFSA. In such cases, you may prefer to opt for a savings account.

  • Create an emergency fund. Even in the best of times, we can experience unexpected setbacks. More than ever before, with the hit of the pandemic earlier this year, we've all seen the effect crisis can have on our employment. It's ever so important to have an emergency fund for such times. Typically, an emergency fund covers three months of expenses. This money is not for vacations or large purchases like a car. Your emergency fund is for unexpected costs, such as a car or house repair, or to tide you over when you face illness or job loss. If you don't have enough set aside for an emergency, you can always take out a loan to help you pass through your hardship. Contact Money Supplier for more information. 
  • Save for a project. Do you plan on buying a car, renovating your home or taking a vacation? Use your savings as a launching pad and add to it as you can. Make sure you have a separate account for savings so that you are less tempted to dip into it.

Use Some of Your Savings to Treat Yourself

Investing, saving and paying off debt are all great ways to use your pandemic savings. However, there is nothing wrong with using a bit of that money to spoil yourself. 

Have you been eyeing the latest in fashion, a series you want to read, or a new video game console? If you have enough savings for an emergency, why not use a little of your money for fun?

Use Discernment in When Making Financial Decisions

We all need money to live. Regardless of how much we have in our savings, we need to use discernment and good sense when making financial decisions. Planning ahead will help us sail through future emergencies. 

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