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As much as we’d all love to be money masterminds like Leonardo DiCaprio in The Wolf of Wall Street, you’re likely already aware that finances can be a little more challenging than the movies make them out to be.

Investing might not be a complicated concept in theory, but there’s plenty to unpack for the average Canadian. With a host of definitions and terms, things can get very confusing very fast. It’s always best to understand the basics before deciding whether investing is right for you.

One of the most crucial starting points is your budget. If you know where all your money is going every month, it’ll make it a lot easier to determine if investing is a viable option for you. We get it, people have bills to pay and interest to chop down. Knowing if and when you’re ready to invest takes a certain level of self-awareness in order to work, so honesty is always the best policy.

Now that you know what you need to get started, let’s take a look at some of the basics every investment beginner should know.

Start as Early as Possible

This might seem like common sense to some people, but investing early is an easy way to guarantee yourself money later on.

The later in life you start investing, the more money you’ll have to save annually. Based on a 6% annual growth rate, a 25-year-old with a retirement savings goal of $500,000 will only need to save about $3,231 a year to reach that number. That same goal for a 45-year-old will mean about $13,592 annually.

In addition to having to save less when you’re younger, there’s also a knowledge advantage. Someone who has been investing since the age of 25 will likely know more about how the process works and can learn from early mistakes. This can translate into being more comfortable with larger and more complex investments later in life as well.

The Truth About RRSPs and TFSAs

The real crux of investing is ensuring you have money for the future. Two ways Canadians commonly do this is through a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).

While both these plans serve a similar purpose, they do differ in a few ways. RRSPs give you immediate tax savings through a deduction from your taxable income for the year they’re purchased. TFSAs, on the other hand, make all the money earned on investments non-taxable. With TFSAs, you can also withdraw money without penalty while RRSP withdrawals must be claimed as income at the time.

The decision really comes down to need. Since you can withdraw from a TFSA without penalty at any time, it’s ideal to double up as an emergency fund, as well. Since they’re tax-deductible, being in a higher tax bracket also makes sense for setting up an RRSP. There is no wrong choice per se, but you need to identify your needs.

Understanding the Risks

Investing money is a big decision, and you shouldn’t have to go through the process alone. Talking to a financial advisor is always a great idea as they can shed light on valuable insights you simply may not have access to.

These are decisions that can impact you and your family for years to come, so educate yourself with the help of a professional.

Our trusted team of financial advisors will give you all the information you need to make the best investment decisions for your future. Contact us today!