Spending money can go hand-in-hand with saving for your future. The key is to spend your money on items with lasting value and plan your spending with care.
Four investments with lasting value
1. Real estate
If the cost of home ownership — including mortgage, property taxes, repairs and other bills — fits into your budget, owning a home has many advantages:
- It can go up in value – You may be able to sell it for more money than you paid for it.
- It may save you money over time – Once you pay off your mortgage, the cost of owning your property goes down.
- It may provide tax advantages – There’s no tax if you sell your main home for more than you paid. And if you make a business of buying and selling real estate, you may be able to treat the money you make as business income. In this case, you’ll pay tax at a lower rate.
- It may create income – If you buy another property as an investment, you can rent the property to cover the loan and interest. You’ll have to pay tax on the income, but you can deduct your costs, including the interest on the mortgage. However, when you sell, you’ll have to pay tax on any gains.
The average price of a Canadian home increased more than 4.6% each year between 1990 and 2010. That's before inflation, which averaged around 2% yearly over the same 20 years. (Source: Canadian Real Estate Association)
Life insurance, health insurance and disability insurance can protect you from later loss of income. If your work provides you with insurance, you may choose to buy some additional insurance on your own for extra protection.
3. Retirement savings
When you stop working, you may live mostly on your savings. Saving for retirement through an RRSP can be a way to boost the income you’ll receive from government plans like Canada Pension Plan (CPP) or a work pension.
In 2009, Canadian couples over age 65 had an average after-tax income of $54,000. Single senior men had an average income of just over $32,000 and single senior women about $24,000. (Source: Statistics Canada)
With the cost of education rising, many students graduate with large amounts of debt. Saving for education can be a way to graduate with less debt. You might consider saving money in an RESP, which offers tax breaks and government grants.
Between 1991 and 2011, the average cost of 1 year’s undergraduate tuition in Canada tripled from $1,714 to $5,366. (Source: Statistics Canada)
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca
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