2015 Federal Budget: Doubling TFSA Contribution Room

Traditional, before the Finance Minister delivers the budget,
he purchases a new pair of shoes.
After months of delays, the Federal Budget was finally announced. Normally, I don't really care what is announced. Most things don't affect me.

Blame that on young people taking no interest in politics. As a result, most of the benefits are targeted towards the older population as they are the ones who go out to vote*.

However, this year was different. As was expected for a few years now, the Federal Government doubled the TFSA contribution room once the budget was balanced.

Of course, doubling of the contribution room when the original pledge was made in the 2011 election campaign and not the doubling of the current TFSA contribution room. It's a difference of $1,000, but still an increase to $10,000 from $5,500.

Of course, despite this excellent news, there are those who will complain.

Wah! Wah! I can't even max out the $5,500 contribution room, how will I find the money for $10,000?

Boo! This is only for the 1%!

Middle class families will not be able to benefit from this.

First off, this should be more of an incentive to save your money.

If you're the better than average family in Canada earning a household income of $100,000 a year, that's $20,000 a year in your TFSA and $18,000 a year in your RRSP. That's $38,000 a year you can put into registered accounts. After taxes, payroll deductions, tax refunds, pension benefits, and whatever, you're likely bringing in around $80,000 a year.

$38,000 of $80,000 is 47.5%. That means you'll still have $42,000 a year for expenses like the mortgage and groceries.

Your expenses exceed $42,000 a year? Where is your money going? Do you really want to work those extra years so you can have a HDTV in every room of your house? Or to upgrade your phone every year? Or so you can drink those $8 grande chocolate sprinkled pumpkin spiced cappucinos every workday?

Before my transformation into Loonie IT Guy, we were spending almost 89% of our after tax income a year. This is great if you subscribe to the save 10% of your money crowd.

Where was this money going? A quick browse through the expenses and I could see lot of purchases of gadgets, clothing, and lots of (probably unnecessary) trips to WalMart. A lot of this money was going to insurance and gas. You can also chalk some of this money to monthly home phone and cable charges.

Small changes really add up to big savings. I talked about some of those changes in a recent post here.

Here's an excerpt:
We cut our cable, switched from whole life to term insurance, picked up groceries by biking to the store, relied less on air conditioning, changed to a prepaid phone plan, and I even biked a few days to work.
Now we're on pace to spend 55-60% of our income making our projected savings rate at least 40%.

Just for fun, I went back to Mint.com to look at our net worth from January 2013 to now. After plugging in the numbers into my own spreadsheet (Mint's information contained many errors), I came up with the following graph.

I updated our property value in June 2014.
There was also a payment due in September 2014. 

As you can see, before my transformation in April 2014, our net worth was barely hovering the black line. After April 2014 when we started to cut back on our expenses and put our savings into index investing, you can see the slope of the line change.

With the increase in the TFSA contribution room, we'll be able to put more money into the registered accounts and not into the non-registered accounts.

Yes, things are getting more expensive. But you don't need to max all your available contribution room for your TFSA and RRSP. 

Gas prices have dropped substantially since last June. Why not take the money you would have spent on gas and throw that into your investment account?

Mortgage rates dropped in February. If you have a variable rate mortgage, take the difference and throw that into your investment account as well.

Instead of buying your coffee every morning, why not brew your own at home and take it to work?

Every little bit helps and small changes can be the difference between a 30 year working career and a 45 year working career**.

*I do vote. It's important to do so.

**Based on my own projections of where we were and where we are currently.


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