Hello, today I'll be writing about RESP and how you can open and manage your own RESP to avoid paying a hefty management fee. First off, for those that don't know what RESP is, it stands for Register Education Saving Plans. Like the name suggests, it helps with parents saving for their kid's education fund. There are two big benefits to this plan, the first is that the gains are not taxed if the money is used for education. The second benefit is the Canada Education Savings Grant (CESG), which is the government's contribution to the RESP. The government will contribute a maximum of $600 into the RESP depending on your income and contribution.
For more information with regards to CESG, you can find it on the CRA website. Here is the link: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-education-savings-plans-resps/canada-education-savings-programs-cesp/canada-education-savings-grant-cesg.html
There is also a lifetime contribution limits of $50,000, again I'll suggest you check out the CRA website for all the information.
Opening an RESP
Well, first of all, you must be a parent to open an RESP. Sorry, if you are just planning to become a parent, the government won't let you plan that far ahead. Once your child is born then you can go to any organization that can sell investment or securities and open an RESP account. I myself opened an RESP Direct Investing account through my bank, similar to what I did for my TFSA. A lot of people think that just because it's an RESP you have to go through some education mutual fund company. However, you can buy individual stocks, ETF or index fund within an RESP account. Banks will never tell you that option because they'll want to sell you one of their mutual fund for your RESP, therefore you'll have to specifically ask for a direct investment account.
Why do you want to do this? Because this way you can invest in a low-cost index fund for your RESP instead of a high-cost mutual fund. One of the RESP funds I saw had an annual management fee of 3% compared that to an index fund where the management fee is around 0.05-0.5%.
Managing your RESP
There isn't much management to be done, once you have an account open, set up for an automatic monthly contribution of $210, this will max out the government's contribution. Then you can go in every month to buy a low-cost index fund, mine is currently invested with the TD e-series Index funds. Then in a few months time, you'll see the government's contribution automatically being put into your account. I usually spend 5 minutes a month managing the RESP, so it is completely doable for any parents.
Watch it Grow
Then now you can sit back and watch your child and the RESP grow for the next 18 years.
Here are some cost-saving tips that I have learned over the years. My post about my monthly budget also talked about a few cost-saving tips that my wife and I use.
- Utilities Cost Doesn't matter if you rent or own a house you'll still need to pay for utilities. Depending on where you are living the price of utilities vary drastically (i.e Ontario vs Alberta). The thing about utilities is that the less you use the less you paid. A very obvious statement that a lot of people fail to use to their advantage. Here are a few things that usually cost you the most but are easy to cut back on:
- Heating - Setting your house to a high temperature so that you can wear a T-Shirt around the house in the winter is a very costly habit. A few degrees less can save you big time over the span of winter.
- Shower - Taking a long shower does two things, uses water and uses electricity or gas to heat up the water. Just remember that it is not just the water you are using but also the boiler for the hot water.
- Dishwasher - Dishwasher is the same as shower, it uses hot water for washing then electricity for drying the dishes. Set your dishwasher for air dry if possible, it'll take a little longer to dry but will use less electricity.
- Auto Insurance A very simple cost-saving measure is to increase your deductible on your insurance. This means that if you ever decide to claim insurance you'll have to pay more out of pocket for your repairs. If you think about it, most people don't claim insurance for the minor incident and when you require major repairs the cost will be much higher than your deductible. Also, remember your insurance policy gets taxed so having a more expensive plan means paying more tax. Increase your deductible, pay less tax and save the difference.
- Internet/Cables You don't need the fastest internet available unless you have a lot of people living with you. The cheapest plan is often enough for all your internet needs such as Netflix or gaming. If you need more then upgrade to a better plan after. As for TV, I realize that a lot of on-demand option such as Netflix or Sports TV subscription will still end up being much cheaper than a cable package.
- Repair > Replace When something breaks in your house you can either repair it or replace it. Sadly a lot of people opt for the latter and end up spending way more than they need to. I remember when my refrigerator broke my first instinct was to get a new one to replace it. After some research on Google, I was able to diagnosis the problem and end up buying a replacement part for $70. If you try to replace things when they break then you will spending a lot of money.
Hello everyone, today I am going to write about Tax Free Savings Account (TFSA) vs Registered Retirement Savings Plan. A lot of people I've spoken to knows about the two products but don't truly understand the difference between them. To start off, the ultimate aim of these products is to promote you to save money by giving you tax incentive.
Here is my net worth for September 2019.
TFSA Investment: $96,040.11(Market Value)
RESP: $2,804.00 (Market Value)
Real Estate: $224,000 (Purchase Price of my house)
Real Estate Rental Property: $200,000 (Purchase Price of the house)
*Define Benefit Work Pension (Transfer Value): ~$153,000 (Last checked in Jul 2017,aprox $1000 a month of contribution)
*Have not been updated since the start of this blog.
**Automobile is not included (No monthly car payment)
Rental Mortgage: $196,235
*Credit Card is paid in full every month
Last Net Worth Update: $359,147.97
Current Net Worth: $363,765.24 (+1.29%)
TFSA Passive Income: $3,365.42/Year or $280.45/Month (TFSA only, RESP and rental property not included)