Penny-savvy bloggers share some of their helpful tips

Experts offer simple advice as RRSP season approaches

When it comes to your finances, it’s easy to get bogged down in conflicting advice and unimportant details. We asked four Canadian financial bloggers to offer a single key piece of advice each to help ordinary folk stay on track for RRSP season. Here’s what they had to say:

Marie Engen, 62, fee-only financial planner West Kelowna, B.C. Boomer and Echo (boomerandecho.com) Key advice: Budgeting is crucial to making regular RRSP contributions.

In order to come up with a contribution, you need a realistic budget that allows room for saving. Begin by taking a look at your bank and credit card statements over the last six to 12 months. Since it’s often tough for beginning budgeters to know where their money should be going, I sometimes recommend allocating 50 per cent of cash flow to fixed costs like rent and car payments, 20 per cent to financial goals (paying off debt or retirement savings) and 30 per cent for flexible spending. This won’t work for everyone — you might have to adjust the parameters if you live in an expensive city, or are in debt.

But sometimes people say they can’t afford to save because their bills are too high, or they don’t earn enough, and yet they regularly pay overdraft or late fees, or socialize at restaurants and bars. There’s almost always room for savings.

Kyle Prevost, 29, teacher Manitoba Blog: Young and Thrifty ( youngandthrifty.ca) Key advice: RRSP versus TFSA? Who cares! Just do something!

People sometimes get so tied up in a knot about whether to invest in an RRSP or TFSA that they don’t do either. It’s a classic case of paralysis by analysis.

My rule of thumb is this: If you predict your yearly RRSP withdrawals, OAS, CPP and or a pension (if you’re fortunate enough to have one) in retirement will all add up to less than half of what you currently make — use an RRSP.

If you think those revenues will add up to close to the annual income figure that you’re currently pulling down, go with a TFSA.

Generally people making less than $40,000 would be better off in a TFSA, while people making more than $120,000 and wanting to live a traditional middle-class Canadian retirement would be better off with an RRSP.

But ultimately, the important thing is to make sure your spending is in check so you have money to invest. Agonizing over which one tax shelter might benefit you a few tax percentage points one way or the other is sort of the cherry on top of the personal finance sundae — don’t focus on it at the expense of the main course and the rest of the dessert!

Dan Bortolotti, 47, associate portfolio manager at PWL Capital Toronto Blog: Canadian Couch Potato (canadiancouchpotato.com) Key advice: Keep an eye on fees

As investors we can’t control everything: we have no idea which direction the markets will move, whether interest rates will rise or fall, or what the next economic shock will be. But investment costs are one thing we can control. And over time, lowering your costs can have a huge impact on your portfolio’s growth.

Consider a $100,000 portfolio and assume the markets return 6 per cent before costs. If a 2-per-cent fee reduces that return to 4 per cent, the portfolio will be worth $271,377 after 25 years (compounded monthly). If you can earn 5 per cent by lowering your fees one percentage point, the same portfolio would grow to $348,129 over the same period.

How can you keep fees low? I usually advise beginner investors to choose a do-it-yourself option. This is easy thanks to the appearance of so-called “robo-advisors,” that offer well diversified, low-cost portfolios of exchange traded funds, which typically include all of the stocks or bonds in a broad market index. Including the cost of the ETFs, the overall fee with these online firms is about 0.75 per cent.

If you want a little more flexibility and even lower cost (about 0.45 per cent for a balanced portfolio), I’m a big fan of the TD e-Series index funds. You’ll need to open an online account with TD Direct Investing and make the trades yourself, so it’s a bit more work than a robo-advisor, but still pretty straightforward.

Once you’ve amassed a larger portfolio, it’s even more important to keep costs down. At that point, managing your own portfolio using ETFs is a great option, as you can get your annual costs below 0.20 per cent.

Just remember that managing a large ETF portfolio on your own isn’t as easy as it sounds. I encourage investors to use a small number of broadly diversified funds, keep things nice and simple and try not to tinker.

Barry Choi, 35, personal finance expert Toronto Blog: Money We Have (moneywehave.ca) Key advice: There are times when you shouldn’t invest in an RRSP.

This pretty much goes against all conventional thinking, especially at this time of the year, but there are times when investing in your RRSP might not be the best idea.

If you have high-interest debt owing (credit card debt, for example), don’t even think about investing in an RRSP. Ditto if your income is lower than the basic personal amount allowed in Canada (line 300 of your tax return). There’s really no point, as you won’t get a refund anyway.

Finally, your RRSP account is meant to be a tax deferral plan. The theory? Once you retire, you’ll earn less income. But maybe you’re expecting an inheritance, or you’re one of the lucky few with a defined benefit pension plan along with other assets. If you expect your retirement income to be higher than your current income, it’s probably best to skip making any RRSP contributions.

Note: that doesn’t mean you should give up saving altogether — just that you might want to invest in a TFSA or an RESP instead.