According to the BMO Financial group,

[quote]40% of Canadians still don’t know the difference between a TFSA and RRSP.[/quote]

This sounds like a high figure but in speaking to some of my peers, personal finance is not a topic most people enjoy to talk about.

The sample size was 1500 Canadians so it was not a large sample size based on the population.

I wanted to create a small table that compares the 2 popular Canadian savings vehicles.

• Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
• Investment income earned in a TFSA is tax-free.
• Withdrawals from a TFSA are tax-free.
• Unused TFSA contribution room is carried forward and accumulates in future years.
• Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
• Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
• Contributions are not tax-deductible.
• The TFSA is useful for low-income seniors because these tax-free withdrawals won’t trigger clawbacks of Old Age Security (OAS) or the Guaranteed Income Supplement.

• If you are under the age of 69 and have earned income in the previous year, then you are eligible for an RRSP.
• Earned income accumulates tax-free.
• Earned income includes income from employment, and can also include supplementary unemployment benefits, alimony and maintenance payments, royalties, research grants, net business income, net rental income, and a few other miscellaneous types of income.
• Your maximum contribution limit is 18% of your previous year’s earned income up to the maximum level for that year.
• The eligible investments for an RRSP include: guaranteed investment certificates (GICs), shares of Canadian companies listed on a recognized Canadian stock exchange, bonds, treasury bills, strip coupons, mortgage backed securities, covered call options, warrants and rights issued by companies listed on a Canadian stock exchange, mutual funds, and eligible foreign investments.
• When money is withdrawn from the plan, after retirement, it will then be subject to income tax, that should be a lower rate.

Both have there positives and I believe each has a purpose. I personally believe your TFSA should be used for part emergency savings and a long-term savings plan. Also, if you have a pension plan from your employer, you may not need a heavy RRSP account.

As a blogger running Canadian Personal Finance, I have expenses. I also run both of these blogs as a business as they generate revenue and that is my main goal with these blogs (not a hobby).

One of the best things a person can do to earn extra money is to start a part-time business. It doesn’t matter what skills you have (decorating, sewing, writing, carpentry, design, yard care). All these skills are valuable because another person will pay for these services.

[quote]When you start a blog, the expenses that are attributable to your blogging business are deductible.[/quote]

Examples of expenses that are potentially deductible include:

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• Home office: you can deduct a percentage of utilities, insurance, and even mortgage interest or rent that is used to conduct business. However, the part of your home or apartment must be used exclusively and regularly for business. The space must be exclusively workspace and it must be your actual office and not just at your home for convenience.
• Business Cards to advertise your blog.
• Books for research for your blog.
• Magazine subscriptions in your niche. For example, if I subscribed to National Post or Globe and Mail, it would be a valid deduction.
• Membership dues: Are you a Toastmasters member or do you belong to a club where you have dues that is related to you niche?
• Internet Service charges: How much of your Internet do you attribute to your blog writing?
• Website Hosting and Design: Did you hire someone to design a logo or host your blog?
• Video or Digital Camera: If you run a food blog or do review of products, photo and video are important. This is an expense you could have.
• Phone charges: Do you interview people or have to call editors?
• PC and upgrades: This is a reasonable expense if you are running a professional blog.
• Storage: Do you save your backups with Dropbox?
• Anti-virus or software: Do you use Word or Office? It is reasonable to use these costs as an expense for your business.
• Trade-show attendance: Did you go to any trade shows last year in your niche? The most you can attend and legally deduct in Canada is 2 at the moment. Includes Transporation, Hotel, Parking, Conference Fees, and Food and Drink purchases.

Before relying on any information given on this site, contact a tax professional to discuss your particular situation. If you have a question.

Most people dream of attaining financial freedom but only a few turn it into reality. If you want to become financially successful, there are few actions that must be on your to-do list for sure: prioritize your debts, Seek options for additional income and part ways of friendship & business.

A famous quote on financial freedom:  “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”

Furthermore, we share with you the 11 step finance planning guide which will pave the way towards your financial freedom.  These steps can give you a ray of hope, to begin with, your journey towards attaining financial freedom.

Step 1: Have you set your financial goals? If not, then start now.

One of the essential steps in the process of attaining financial freedom is to set your financial goals. Setting your own goals depends on the things you wish to do or possess in life.  Before you start listing your life goals, pen down how much you have in your bank account. This will give you a clear picture of how much you need to save more and the time to achieve those goals.

Step 2:  Look for opportunities to fetch additional income       

If you wish you become a self-made millionaire, then never rely on a singular source of income. Being smart is all about looking for various opportunities to fetch additional income. To fulfill the extra demands, you need to create multiple revenue streams. Jot down the alternate things you wish to do in life apart from your regular job.

Sometimes hobbies can be a source of extra income. If you are passionate about photography or painting, then look for ways to use the spare time to pursue your passion and get money as well.

 Step 3: Set your budget

A budget is a key factor for becoming financially successful. You need to set a budget for everything starting from your monthly bills, shopping, entertainment etc. It will help you to manage your finances and give a clear insight of unnecessary expenses as well.  You can set a monthly routine to check your dues, savings and expenses. Your budget will help to cut-off the unwanted expenses and save more money.

Step 4: Opt for automatic savings

Most people opt for automatic savings without even realizing its benefits. Auto savings option helps in stacking a fixed amount in your savings account every month. You can enroll in your employer’s retirement plan and get the benefits. Keep options of automatic withdrawal as well, if you need money for any emergency purpose.

Step 5: Make clearing your debts a priority

Debt is the biggest hurdle in your journey towards financial freedom. So, make it your first priority to clear-off debts.  Debt is like cancer which grows exponentially with time and becomes your most expensive liability. Once you get your paycheck, set a rule to clear-off the debts.  This will help you in becoming debt-free and clear the path towards attaining financial freedom.

Step 6: Pay off your credit card in full

If you don’t keep a track of the credit card dues, you might end up in huge trouble.  Set a reminder to pay off the full amount of credit card every month, once you get your paycheck. It is better to use credit cards only in case of emergency instead opt for debit cards or cash. This will save you from paying the unwanted interest amount in case of late payment.

Step 7: Never waste time

It is well said: “Time and tides wait for none.”  Try to use your time for maximum productivity. Time is an essential factor that determines success. Invest your time in setting up priorities, life goals, more saving ideas and sources of alternate income.  Relaxation is equally important but utilizing time efficiently is the key to success.

Step 8: Don’t hesitate to negotiate
Most of us hesitate when it comes to negotiating for price, be it any commodity or service. You might be surprised to know that “Negotiation is an art”. If you sport it well, you can save more dollars every year. Most SME’s are open to negotiation, and it’s no harm in trying your luck when you can save more.

Step 9: Stay updated with market trends

Keep yourself updated with the changes in tax laws to get the maximum benefit.  Update your investment portfolio with the market trends for news on stocks and exchanges.

Step 10: Proper maintenance, fewer expenses

Proper maintenance of commodities increases its life span; be it a car, a house or anything. This reduces the unwanted expenses that might occur due to repairing or poor maintenance.

Step 11: Health is wealth

Money is essential but health is everything. Taking care of your health can help you save more. How?

• No sick leaves
• No insurance premium
• Work till retirement & even more.

It is well said: “If money is lost, something is lost. But if health is lost, everything is lost.”

In the journey of attaining financial freedom, it is also important to balance your mental peace. Hope this 11 step guide will give you an insight of how to manage money to become financially successful.