“The real joy in life comes from finding your true purpose and aligning it with what you do every single day.” ~ Tony Robbins, MONEY Master the Game: 7 Simple Steps to Financial Freedom
In our household, my husband is definitely the financial leader – he has an interest in both the concepts behind managing our finances and planning for the future. Although I don’t share his enthusiasm for it, I am so grateful for his attention to household finances given it is such an important aspect of our lives.
We all know “money can’t buy happiness”, and it doesn’t, but money does cause stress, particularly for those who find it hard to make ends meet. In light of this fact, finding ways to minimize and/or avoid money related stress can be beneficial to our overall well-being.
While I was attending a physician health conference this past weekend, my husband was busy preparing this “guest post” for me. Coincidentally, one of the recurrent topics that came up in our discussions referred to the influence finances have on our overall wellness.
By no means is the information provided below all-inclusive, but rather information sharing for you to consider and/or explore further on your own. I will now hand it over to my husband, a radiologist with an interest in numbers (among many other things)…
Pay yourself first
If there is one thing I have learned over the years and have become well versed in – you have to pay yourself first. What does this mean? In order to get ahead financially and prepare for your future, you have to put aside money to ‘pay yourself’ and not just ‘pay your bills’. In Canada, one such way to do this is through a tax-free savings account (TFSA).
What is a TFSA?
A TFSA is a type of registered savings account, but unlike traditional savings accounts, it has specific tax benefits. The TFSA program, which was introduced in 2009, provides Canadians over 18 years of age, and who possess a valid social insurance number (SIN), an opportunity to contribute after-tax money to an account otherwise tax-free for life.
Having said this, you must have achieved the age of majority in your current province of residence to open a TFSA. If you live in British Columbia, New Brunswick, Nova Scotia or Newfoundland & Labrador, the age of majority is 19. Despite this difference, you will start to accumulate contribution room from the time you turn 18.
For many, a TFSA can be used to save money for a variety of life goals and purchases such as a down payment on a home, a new car, or a vacation. For others, as in our case as self-employed physicians, it can also be used as a powerful adjunct to an overall retirement plan.
How do I open a TFSA?
TFSAs can be opened through a financial institution, credit union, trust company or insurance company – we opened ours through MD Management Limited. Corporations are not eligible to open a TFSA. Despite this latter fact, small business owners including incorporated physicians can utilize corporate funds via dividends to make contributions to a TFSA.
How do contributions and withdrawals work?
Each year, as part of your T1 General Notice of Assessment, the Canada Revenue Agency will calculate and provide you with your available contribution room and contribution limit. Since its inception, the TFSA yearly contribution limit has steadily increased. Although contributions are not tax-deductible, all contribution amounts and any income earned in the account accumulate tax-free otherwise.
When necessary, withdrawals can be made at any point in time tax-free. These do not diminish your overall contribution room, however, re-contributions cannot be made until at least the next calendar year.
What if I can’t maximize my contributions or exceed my contribution limit?
No need to worry, if you can’t maximize your contributions in a given year, any available contribution room can be carried forward indefinitely for years to come.
On the other hand, if you exceed your yearly contribution limit, you will be subject to a penalty of 1% per month on your excess contribution amount.
In the end, financial wellness, not wealth, contributes to our well-being. Although it may be difficult, we must face this topic head-on – our overall wellness is relying on it.
At this time, I just want to give my husband a special thank you for sharing his insights in today’s post. Hopefully, it will be the first of many “guest posts” from him.
Canada Revenue Agency – Tax-Free Savings Account (TFSA) Guide for Individuals
MD Management Limited – MD Tax-Free Savings Account (TFSA)