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Do You Eat 3 Meals At Night? The Fiction of RRSP Season

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As a personal finance blogger, I feel it would be irresponsible to not post something to do with RRSP contributions.  We are now in the last week of February.  You may notice recently the offices of the financial advisors at your bank are consistently packed.  There are advertisements and articles in every financial magazine or newspaper reminding you to contribute now.  Contributing to your RRSPs is incredibly important, I’m not going to tell you otherwise even for an instant.  Having meals is also really important.  Do you have the whole day’s worth of food at night – or do you spread it out?  Is there really such thing as an RRSP Season?

This is what I think every February.  Why do so many Canadians wait until the end of the tax year to contribute?

Breakfast – March to May

If you are getting a tax refund, this is the most important “meal” of the day.  This is your opportunity to reinvest that money back into your retirement savings.  You can get a great start to the investment year.  If you aren’t getting a refund, this is also a good time to revamp your budget.   See if you can squeeze some extra money for a regular RRSP contribution.

I get that this is not the fun choice when you get a refund cheque.  It is very tempting to have some fun with that money, maybe swap out toast for a toaster pastry.  By contributing your refund, or setting up a regular contribution for the year you are starting off your day well.  You are setting yourself up for success!

Lunch – June to September

As Spring turns to Summer, your meal is more about maintenance than anything.  You had a solid breakfast so you don’t need to stress about the meal.   If you eat a little something throughout the day you won’t end up starving at night.  Lunch doesn’t need to be anything special.  If you were able to start making regular contributions during breakfast this is more about keeping up that trend.  If you found you didn’t have any breakfast food (March-May), you still have an empty stomach.  An empty stomach is going to start affecting your performance.

I can’t stress this enough…you don’t need to wait until next tax season to start contributing.  As soon as you can…do!  So many people I talk to that don’t contribute regularly.  They think it makes sense to wait until the new tax year to start.  The only reason to hold off is if you are on financial shaky ground and want to make sure you won’t need access to the money you are putting in.  The last thing you want to do is start withdrawing from your RRSP to pay a credit card bill or other debt.  The tax hit is not worth it.

Dinner – October to January

The colder months come along, the sun is setting and you are sitting down for your final meal of the day.  This is where it pays off considerably to have regular contributions – especially if you have lots of gifts to buy for the holiday season.  If you were able to contribute regularly, there isn’t any extra stress at this point.  You can have a regular meal instead of emptying your fridge in a fit of hunger.  Even if you weren’t able to contribute throughout the year, you can still start a regular contribution at this point.  What you want to avoid is panicking and throwing money you need for other things into your RRSP.  You don’t want to put yourself in any type of financial danger trying to play catch up.

If you start making small contributions in the later months of the year, chances are you aren’t going to make that big of a dent into your contribution room.  You also likely will not be getting a huge refund cheque.  That’s okay though because what you are doing is setting yourself up for a great start for the next tax year.  If you do have to pay extra for your taxes, a little contribution now might actually help balance out those taxes while still contributing to your future.

Isn’t There 12 Months in a Year?

Correctomundo! I’ve saved the best for last.  February is touted by many Canadians as being RRSP season.  People will take out loans, sacrifice other parts of their budget and basically beg, borrow or steal (not recommended) to throw as much money as they can before the RRSP deadline.  Essentially, they try and eat all 3 meals in one sitting.  If you’ve been contributing regularly, this isn’t the time to have another meal.  You my friend, get to have dessert!  For me, February is usually the month where I get to treat myself to a little extra contribution without any stress.   I’ve already had 3 meals, so there is no physical requirement to take in any more calories but that pecan tart looks friggin’ delicious!

What Do You Mean “Usually”?

I say February is usually the month where I get to treat myself because this year was a bit of an exception.  In a previous post, I talked about how last year I got a working notice that I was going to be laid off at the end of 2016.  Sarah and I did a budget revamp to lower our cost of living to fit on just her income immediately and started socking away my pay to help cover things in case I wasn’t able to find a new job.  One of the sacrifices we chose to make was our regular RRSP contribution.  It was the last cut we made, and it cut the deepest.  We had already made a nice contribution to our retirement savings for “breakfast” so that provided some mental relief but instead of dessert we are looking this month to have a late dinner and boost up our contributions for the year.  I ended up finding a job so we don’t need to strain ourselves trying to find the budget for it.

Three Meals a Day – Four Seasons of RRSPs

RRSP Season is fiction – contributing to your retirement savings is not like buying strawberries where they are more expensive in January than they are in July.  If anything, waiting until the last minute is more of a strain if you don’t contribute through a self-managed portfolio and rely on bankers to assist you.  You may be in for some long wait times.  You’ve also potentially missed out on any gains you could have received on contributions throughout the year if you started back in March instead of waiting until February.

Do you make regular contributions, or do you wait until the last minute?

Scott

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