There’s a news story this week that most Canadians want to put some money into RRSPs but don’t have the cash. That’s great news!
If you want to be a doctor, you’re not doing surgeries today. You’re getting your MD, and then you’re ready to do surgeries. In the same way, it’s not the other way around with paying off your debts versus savings. It’s pointless to put some money into RRSPs while you’re in debt, or to send $200 to Visa and the next day put $200 into your savings account. Just send the $400 to Visa and get done with it. Then, and only then, can you focus 100% on getting wealthy and save the whole $400 a month.
If you have debts, forget savings and your RRSP for a year or two. Your tax deduction and interest aren’t going to equal the interest you’ll save by paying down your debts. But this is not about math – this is about behaviors and it’s 80% psychological. If it was about math, you wouldn’t sign up for a stupid 20% credit card or owe on your line of credit a decade later.
And if you think that borrowing to put money into your RRSP is a good idea, you’re doomed to be in debt for a very long time to come. You must be kidding? You’re broke, in debt, and your best thinking figures that the solution is MORE debt? Hello? If that’s what some financial person at the bank or wherever is telling you – run away fast! That person is on commission. They are making money from selling you to borrow. They’ll make money on the loan, on the RRSP, on commissions up front, and on trailer fees. THAT is the person you’re going to listen to? You have to be kidding me.
I’ve seen it hundreds and hundreds of times when people attempt to put a little into their RRSP, pay $20 extra on the credit card and juggle savings and debt. It won’t work – guaranteed. You save $50 in an RRSP and just think: That doesn’t add up to squat and you’re right. You pay $50 extra on your credit card and realize: That’s not worth the effort and I’m not getting anywhere so what’s the use – and you’re right. That shotgun approach won’t work. It takes 100% focus and commitment to one thing! Take a step back from savings and only focus on getting every debt paid off except your house. THEN you’ll have so much freed up money you’ll end up with five or 10 times as much into savings as trying to do everything off the bat.
Guaranteed, you’ll become debt free in a year or two, but only if you follow the steps one at a time:
Step one: 1 week of your net pay in an emergency savings account. It’s more than 60% of people have and turns your next emergency into an inconvenience.
Step two: Get debt free on everything but your mortgage. No more credit cards or borrowing – it hasn’t worked so far in your life. List your debts smallest to largest. Pay minimum payments on everything but the smallest. That smallest bill gets every spare dollar you have. That’ll pay it off in just a few months. Then onto the next smallest and you’re not looking up until all your debts are paid off.
Step three: 3 months of all your monthly expenses in the full emergency account
Step four: Save 10-20% in investment and retirement money
Step five: Now start paying extra on your mortgage.
If you want to reinvent the wheel and do it differently – good luck to you. E mail me in three or four years when you’re right back to where you were today – honest!
