Being self-employed allows you to benefit from freedom and varied advantages. However, it requires being well organized to save and plan for retirement.
By being self-employed, you constantly question your future. You wish to anticipate fluctuations in your results and be able to face less profitable periods. Not benefiting from a pension fund, you must also save for your retirement fund.
However, choosing between accumulating emergency funds in your bank account, investing in a Tax-Free Savings Account (TFSA), or investing in a Registered Retirement Savings Plan (RRSP) can raise many questions, such as: Where to start and what amounts to invest?
Where to start
First, you must consider certain elements to determine the amount of money you need for your retirement. For example:
– At what age do you wish to retire?
– What will your financial obligations be (fixed charges, debts, etc.)?
– What are your projects (travel, family, part-time job, etc.)?
The answers to these questions will influence the amount of savings you will need to accumulate for retirement to meet your expectations. To know how much you should contribute, contact a financial security advisor.
Here are, however, some practical tips
Contribute to an RRSP
Joining a Registered Retirement Savings Plan (RRSP) will allow you to grow your money tax-free while reducing the amount of contributions from your taxable income. Thus, depending on your situation, you could get a good tax refund. Investment funds will only be taxed when withdrawn from your RRSP.
Provide for an emergency fund.
As a self-employed worker, you must also think about short-term contingencies, and that’s where the TFSA can be useful to you. Since it is impossible to predict what your future holds, it is wise to build an emergency fund in addition to saving for your numerous projects. This fund will allow you to face the vagaries of self-employed life without having to borrow.
As a general rule, think about putting aside three to six months of income or regular expenses. However, remember to adjust the amount of your emergency fund if your financial situation evolves.
Save regularly.
Set savings goals, contribute regularly, whether your savings are small or large, and ensure you control your financial future.
In summary, to facilitate the realization of your retirement savings
– Think about automatically deducting contributions from your bank account.
– Determine the amount and frequency of withdrawals to reach your goal. This way, your savings will be integrated into your monthly budget and you will avoid having to pay a sum in case of a problem.
– Do business with a financial security advisor who can guide you and recommend the savings products best suited to your situation.
Long-awaited tax refund
Once the maximum of your tax refund is recovered, use this money wisely. It is not a gift, but rather the reimbursement of a part of your income that was over-collected throughout the year. For example, you can deposit this amount into your TFSA or RRSP, invest in a placement, or use it to pay off a loan or debt. Make an appointment with a competent financial security advisor who can guide you and help you make the most of this money. Do not hesitate to consult the Canada Revenue Agency website to obtain the detailed list of available deductions and tax credits.
N.B: After finishing your tax return, keep all your receipts, documents, and forms used for your calculations. In case of a tax audit, these supporting documents could be requested up to six years after the tax year in question.
