My eldest son had a piggy bank that he dipped into frequently for candy purchases at the local corner store. With his money so accessible, it was too easy to break open that bank anytime he wanted a treat.
Once we opened a bank account for him, his savings improved immediately as it was that much harder for him to get at his money for spontaneous candy purchases.
As adults, sometimes we forget how simple things like making it just a bit harder to access our savings can make a big difference in our efforts to save. That is just one of the many reasons why a tax-free savings account (TFSA) is such a good idea.
Given that holiday shopping might be eating into all of your available funds this month, it can be tough to think about saving money.
Even if you don't have a lot of money to put away right now, a TFSA is an excellent way to help you make the most of what you do have.
Out of sight, out of mind
If you keep your savings in your everyday bank account, it is just too easy to use some extra funds for spontaneous purchases. Set up a pre-authorized transfer through your bank to save money every month in a TFSA.
It is still accessible if you need it, but keeping it separate from your regular chequing account can make it easier to let that money grow, untouched, until you really need it.
Every little bit counts
Even if you don't have a lot of money to save, be diligent about putting away a little bit with each paycheque and it will add up. Not only do you benefit from the power of compound interest accumulating interest on your growing interest but when your money is in a TFSA, it can be invested in potentially higher-interest options than a basic savings account.
This can help you to grow your savings faster, getting you closer to your savings goals, like a new car or dream trip.
A TFSA can help you to maximize your savings because the money you earn is not subject to tax, which is another advantage to this type of account.
You can put up to $5,5001 a year in a TFSA, but if you don't contribute the maximum amount, you carry that contribution room over to the next year when you might have some additional funds to save.
You'll thank yourself next holiday season.
Carrie Russell works for TD Canada Trust and has over 20 years experience in financial services.
1 The annual TFSA contribution limit for 2013 is $5,500. The annual limit from 2009 to 2012 was $5,000. Indexed to inflation and subject to change by the federal government.