Get the most out of a financial windfall
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If you’ve ever come into extra money – whether from a bonus or a generous gift – you might have wondered: “Should I use this to pay off my debt or invest it?” The answer depends on your personal situation and the type of debt you’re carrying.
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Compare Your Interest Rates
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Start by comparing the interest rate of your debt to the potential return on your investment. Let’s say your mortgage has an interest rate of 4% but you’re considering an index fund that’s earning 10% annually. In this case, you’ll likely come out ahead financially by investing your money.
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Pay Off High-Interest Debt First
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High-interest debt (like credit card balances) should usually be the top priority. While investments can grow your wealth, a credit card with a 20% interest rate can eat away at it. It’s hard to find an investment that consistently earns that kind of return. By paying off high-interest debt, you’ll save on the interest in the long run.
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Don't Touch Your Investments
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Thinking about pulling money from your investments to pay down debt? Unless you’re facing significant financial hardship, give it a second thought. Your investments are key to your long-term financial health. Instead of cashing out, explore other options, such as cutting back on expenses, consolidating debt, or refinancing a loan.
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Balance Debt Repayment & Saving
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While paying down your debt is important, so is planning for your future. It’s crucial to continue contributing to your retirement fund, even if you’re working on reducing your debt. Finding a balance between debt repayment and saving for retirement with a plan like SPP can set you up for financial success.
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Does SPP have contribution limits?
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SPP gives you a lot of flexibility when it comes to building your retirement savings. While the plan doesn’t set its own specific contribution limits, it’s tied to your RRSP (Registered Retirement Savings Plan) contribution room.
This means you can contribute as much to your SPP as your RRSP limit allows each year. Be mindful of your RRSP contribution room to ensure you maximize your contributions without exceeding the cap.
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Transfer-In from Unlocked Savings
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In addition to regular contributions, SPP allows you to transfer funds of any amount from unlocked RRSPs, RRIFs (Registered Retirement Income Funds), RPPs (Registered Pension Plans), and DPSPs (Deferred Profit Sharing Plans). This makes it easier to keep your retirement savings in one place, helping you more effectively manage your finances.
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Thanks to compound interest, the earlier you start saving for retirement, the more your money can grow. Even small contributions can build to a larger nest egg over time.
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Stay on track for retirement
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Ready to take control of your financial future? Reach out to SPP today to learn how you can maximize your contributions and consolidate your retirement savings in one easy-to-manage plan.
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