now which to invest in first tfsa RSB or the relatively new fhsa if you're new here to Canada or new to investing it might get a bit confusing with all these choices but I found this really awesome chart online that I think does a really great job at guiding you through the decision-making process what to prioritize based on your circumstances and also explain a bit why so let's go through it together so tfsa versus RSB versus fhsa let's start the first question ask yourself is does your employer offer RSB matching and for those of you who do not know what RSB matching is RSB matching is a benefit that is offered by some companies in Canada whereby the employer matches your contribution to a group RSB so group RSB and not your personal RSB so it could go something like this you contribute 5% just an example to this group RSB which by the way is managed by an external company and then your employer will match these contributions Le 5% to a certain extent so let's just say that you earn $100,000 per year and you contribute 5% per year which would be $5,000 then your employer in the case of a onetoone matching will also put $5,000 into that group RSB it is basically free money and that is why if yes your employer offers RSB matching you should definitely maximize that free money because else you would be leaving money on the table but let's just say that your employer right Now does not offer RSB matching then move to a different company no just joking I mean of course that could be an option ask yourself the question do you have any debt and the point here is just if you have some money do you use that to pay off your debt first or do you use it to invest and here again it depends scroll to the next page so let's say yes you do have some debt the next question to ask is what kind of debt is it is it high interest debt like credit cards where the anual interest rate can go anywhere from 15 20% even up to 30% or is it a low interest Deb like a mortgage a relatively lower interest rate let's say now if it's a high interest rate especially if the interest rate is in the high 20% or even 30% which is just crazy then yes stop do not invest first but use any spare cash to eliminate High interest debt and this is in fact the same thing that most Financial groups online Financial blogs will recommend I mean it's just common sense let's say that you have $5,000 outstanding on your credit card balance and you pay 30% annual interest on that which is $1,500 per year that's basically just like throwing money out of the window so you should tackle that first and once that's done then you can get back to investing but now let's just say that you do not have any High interest debt what you have is low interest debt for example like a mortgage which could currently be at at five or six percentage or if you're lucky and you still have a mortgage from one two decades ago maybe you're just paying 2 something per. now if that's out of the way and you do not have any looming High interest rate the next question to ask yourself first before investing is do you have an emergency fund no matter what your financial goals are it is super super important for everyone to have an emergency fund to cover unexpected things that happen in life you never know Medical expenses or your car breaks down there's a repair you need to do and you're not covered by insurance or whatever so sh happens and you just need a couple ,000 at least to be prepared for it now how much that emergency fund should be there is quite some debate on that but in general you will find most Financial experts recommend an emergency fund of at least 3 to 6 months of your salary but of course it will depend on many other factors but at least have some kind of emergency fund make sure that you don't have 0 in your account now let's assume that you're prepared and yes you have an emergency fund what's next next let's consider what your financial goals are and let's start with the middle one which is a home so let's just assume that you are planning to buy home in your time so if you're planning to buy a home and this is the first home that you are going to purchase so is it your first home yes then the recommendation is to contribute to an fhsa so an fhsa or a first Home Savings Account account is an account that is designed to help firsttime home buyers to yes buy their first home and it comes with a lot of advantages just as a quick summary or refresher on the fhsa the yearly contribution that you can make to your fhsa account is $8,000 up to a maximum contribution room of $40,000 and there's a time limit yes you will have a total of 15 years from the time that you open the fhsa account to use those funds to purchase your home so some of you here might be asking why should I put it into my fhsa why not just put it into the RSB and then use the hppp or the home buyers plan instead that's also an option right and yes there's something that both the fhsa as well as the RSP have in common which is that in both cases contributions to these accounts will reduce your taxable income which is awesome but here's one thing that the fhsa has that the RSP doesn't which is that when you take the funds out of your fhsa to purchase this home you do not need to repay the funds into that account on the other hand if you withdraw funds from your RSB via the HBP the home buyer plan to purchase your home you will need to return that money within 15 years and that is why you should first max out your fhsa after that sure you can still contribute to your RSB as well but after maximizing your fhsa next should you put your money into your tfsa or RSB so that will lead us to the next Branch here which we will get to later because a lot of other threads also lead to the same question now remember we talked about financial goals let's say that your primary goal at the moment is to save for retirement so the next question to ask is do you already own a home if the answer is no you're thinking about saveing for retirement but you do not own a home yet then it's still a great idea to contribute to the fhsa first you might change your mind in the future in the next 15 years and decide yes I do want to buy a home then you can benefit from having your fhsa but even in the case that you never buy a home your money will not be lost as it says here and if you don't buy a home you can roll the money into an RSB without affecting your RSB contribution room so you can accumulate that money to the fhsa and later on if you decide H I don't really want to buy a house after all I want to just continue renting then you can just transfer the funds into your RSB and it will not reduce that contribution room so this be gives you options you kind of have a backup solution in case you do want to buy a house now back to the question so you're saving for retirement do you own a home yes what if you already own a home in that case you won't really benefit from the fhsa so if you have money to invest do you put it into an RSP or tfsa and that will also lead us to this next decision point where it will depend on your income but before we get to that let's look at the last Financial goal which is short-term purchase so if you're saving for a short-term purchase let's say that is your wedding that is coming up in a couple of years or you're planning to buy a grand piano or whatever in that case this chart just leads us through all the way to the nend which is contribute to a tfsa and the reason for this is pretty simple when you make contributions to your tfsa that money that goes in there is after tax money so it has already been taxed you put that after tax money into your tfsa and there it can grow taxfree so let's just say that you put in $110,000 into your tfsa and after 2 years let's just say it grew to $113,000 if at that point in time you want to with draw that $113,000 and use it for something for example to buy that grand piano I'm not really sure how much grand pianos cost these days but let's just assume you want to use that money then you can withdraw that money without having having to pay taxes unlike the RSB where at the time when you withdraw your money from your RSB you will have to pay taxes according to the tax bracket that you are in at that time so we were talking about short-term purchase if there's something that you want to buy in the next few years but you don't just want that money lying around in the meantime you can put it into a tfsa and if you're a rather conservative investor and you want to make sure that that money is intact by the time you need it then you can easily do that by selecting the right type of investment for you so if you put that money into your tfsa and invest it into stocks or ETFs then of course there's a volatility risk the price can go up and down so let's say you put in $10,000 but by the time you want to withdraw that money in 3 years the price of your uh shares your ETFs have dropped and it's no longer worth 10,000 it's only worth $88,500 I know but that can happen and in that case your money will no longer be sufficient for your purchase but the value has even reduced if you want to secure the principle and also earn some interest at the same time you could for example just an example opt to invest your money into a GIC if you want to know more about gic's I have a video here that explains it all now let's go on so we ran through these different scenarios what your investment goals are so now let's continue to this decision not here decision Point decision not so after we've got all of that sorted out you do not have any High interest debt you have an emergency fund you know what your financial goals are that leads us to this decision KN that asks us do you earn more than $50,000 per year or not and this is the question that several of you have asked me in the comment section of my previous videos and yes depending on what your annual income is it can be a better idea to invest in an RSB or a tfsa but before we continue I just just want to point out how awesome this chart is I found this chart on the wealth simple Instagram and by the way I myself have also been using wealth symbol for a couple of years now about 3 years now and I'm pretty happy with it overall I've been doing much of my investments on this platform I've opened a tfsa an RSB I've also utilized the HBP program by withdrawing funds from my RSB here and I've also invested in a bit of crypto but just to make it clear I cannot say at the point that wealth simple is the best investment platform because I have not tried out all the other investment platforms that are out there but so far personally I've been pretty happy with it it has been working very fine and and I love how the interface looks it's very user friendly so so far I had no problems with it so just in case you want to try it out you can use my referral Link in the descriptions below and just note that if you click on it if you open an account and fund it then I will get a small Commission of $25 but not just so will you you will also get $25 once you open the account and fund it now back to the video let's look at this decision not how does your income influence whether or not you should put your money into RSB first or your tfsa first now let's just say that the answer is no so you do not earn more than $50,000 you earn $35,000 $47,000 and so on what do you do in that case and we get to the last page which leads us to tfsa the recommendation is to contribute to a tfsa and that is also what I read in General on online Financial blogs and financial experts saying that's approximately the recommended cut off $50,000 if you earn less than that then put it into a tfsa first but why why prioritize the tfsa and why not just put it into your RSB the reason is that with a lower income the tax contributions for each dollar that you contribute to your RSB drops so here's an example let's just say that in example a you earned $100,000 and you contribute $10,000 to your RSP that means that the $10,000 that you contribute is not taxed or to be more precise it's tax deferred this is a very very important point because at some later point when you want to withdraw that money then yes you will need to pay taxes on that but just for now for that tax year that $110,000 contribution reduces your taxable income from pre prly $100,000 to now only $90,000 that is taxed so let's just say that at that income of $100,000 or $90,000 your tax rate would be 30% so this is not the actual tax rate depends on manufacturers but this is just an example that means that the amount of taxes that you would save approximately would be that $10,000 that you contributed at times at 30% so let's say approximately $3,000 in another example example B let's say that that you just earn $40,000 and for some miraculous reason in the totally expensive city of Toronto you managed to also contribute $10,000 to your RSB so where previously your taxable income was $40,000 now it's minus that $10,000 it's only $30,000 I'm just oversimplifying these examples I'm for example not taking into consideration that there's something called the personal basic amount the basic personal amount the basic personal amount that is not taxed so let's just say for this example that at an income of $40,000 or $30,000 your tax packet is 20% so again just an example not the actual tax rate that will depend on many factors so in this case if you put $10,000 into your RSP the savings the tax savings that you realize would only be approximately 10,000 times that 20% so $2,000 so in both cases you saw that the RSB contribution was $10,000 but in the case of a higher income you would save much more on taxes is compared to the scenario where someone only earns $40,000 so the cut off year is $50,000 but don't misunderstand even though you earn below $50,000 and you contribute to your RSB it doesn't mean that you do not benefit the money you contribute to your RSP will still reduce your taxable income and you will save some taxes it would just not save you as much money compared to if you had a higher income and that is why in many cases Financial experts block bloggers recommend that if you earn less than $50,000 you should just put it into your tfsa first because the tfsa also offers some great benefits which I already explained earlier that the money that you invest which is after tax money can grow taxfree inside that account now once you've maxed out your tfsa because yes there is a contribution limit each year it's not unlimited once you've maxed that out and then if you have any additional money to spare then you can put it into your RSB now back to this decision nod what if the answer is yes do you earn more than $50,000 yes the next question would be do you earn more than $110,000 per year or not let's say that the answer is no so your income is let's say $80,000 right now the next question is do you anticipate that your annual income will be more than $11,000 per year within the next 3 years in case the answer is no so you expect that even within 3 years your income will only increase slightly let's say from $80,000 to $95,000 then the next very important question to ask yourself is regarding the withdrawal of your money imagine when you want to withdraw your money from your account let's say at the age of 60 when the time comes to withdraw your funds do you expect your income to be higher today or lower than today if at the time that you plan to withdraw your money you think your income will be lower than today so right now it's 80,00 ,000 in 3 years perhaps $95,000 but when you're 60 you think that by that time maybe I'll just earn uh $30,000 from a part-time job in that case the recommendation is to contribute your money to an RSB and this is how you'll benefit by contributing to an RSB now you save money on your taxes and later on when you withdraw the money you will pay lower taxes the reason is that if according to your assumption you earn a lower income later when you with draw it that means that you will fall into a lower tax bracket and you will pay lower taxes which is great but what if you expect that at that time when you're 60 and want to withdraw the money your income will be higher than today so it's 80,000 today and then 95,000 in 3 years and when you're 60 you think that for some reason you'll be earning $200,000 in that case the recommendation is instead to contribute to a tfsa and the reason again is simple if in the future at 60 you earn $200,000 that means that you're going to be in a much much higher tax bracket than you are now with an income of 80 or $95,000 so even if you put it into an RSB yes you save taxes now but by the time you're 60 and you want to withdraw the money then you will need to pay taxes according to that tax bracket which is the tax bracket of $200,000 which will definitely be much higher so let's scroll back here oh where were we okay okay okay we started here so even though now you don't earn $110,000 yet you earn let's say $70,000 but you anticipate that within the three next three years because of promotions that you will be getting that yes your income will be more than $110,000 in 3 years then it also leads you to the decision to contribute to a tfsa and here one of the reasons that I can see is that when you contribute to your RSB you will benefit more if you are in a higher tax bracket in general so you will benefit more from your RSP contributions when you are earning let's say $150,000 compared to when you are earning only $75,000 so instead of contributing to your RSB now and only getting that tax savings benefit based on your $75,000 tax bracket you could just as well wait a couple more years till your income is higher if you project that to be so and then at that time benefit from even higher tax savings because you are in a higher tax bracket and yes in the meantime you can just stash your money away because you can accumulate your RSB contribution room so let's just say that this year I don't remember the numbers let's just say this year you have a $110,000 contribution room for RSB but you do not use it next year also $115,000 and so on that contribution room will not be lost that will just add up so by the time you get to year three or four and your income is higher and you have let's say $50,000 stashed away whether in cash but don't do that or in your tfsa and then you can just move it to your RSB and benefit from that larger tax savings okay have I missed out anything okay so do you earn more than 110,000 no let's say you earn $775,000 and the question is do you anticipate your annual income to be more than 110,000 in the next 3 years and let's say that in this scenario now the answer is no so you think that no even in 3 years you will still be earning what did I say just now $75,000 so basically your income Remains the Same but then ask yourself again when the time comes to withdraw your funds and by the way you do not need to wait until retirement to withdraw your funds many people do that but you can also withdraw it earlier let's say that you've achieved Financial Freedom and you're retiring early so you're still retiring but not at the typical age let's say that you want those funds at age 50 to travel the world so at that time when you're 50 again ask yourself do you expect that your income is higher or lower and and same reasoning here if you expect your income to be higher later then it makes more sense to put your money into a tfsa first max that out first and then contribute to an RSB but if you think that your income will be lower later when you're 50 let's just say you plan not to work anymore when you're 50 you earn zero money or you just earn let's say a couple hundred from dog walking that you do then in that case yes contribute to RSB because now you can benefit from the tax savings but later on when you withdraw the money you will be in much much lower tax bracket and you will need to pay lower taxes so note again when looking at this chart it is not really an either or decision I mean if you look at a single point in time yes it is you can prioritize tfsa or RSB if you look at the whole Global picture the question is which one first which do I prioritize first so for example maximize fhsa first and then maximize RSB and then uh tfsa or the other way around depending on your situation and depending on your expectations in the future and again Guys these are just general recommendations I would say that I don't follow this 100% but maybe close to 90% if you really want to make sure that you make the best financial decisions possible for you and there are a lot of details to your circumstances then I would highly recommend to you to talk to a financial adviser who can look at your personal situation and give you tailor made decisions so I hope this was useful to you guys and just in case you want to try out wealth simple you can use my referral Link in the descriptions below as always thank you so much for watching guys and I'll see you very soon in the next video [Music] bye
