When to Put Money in RRSP

I have developed a relatively straightforward heuristic for figuring out your RRSP.

heu·ris·tic adjective
enabling a person to discover or learn something for themselves.”a “hands-on” or interactive heuristic approach to learning”

Google Dictionary description

It is a simple trickle-down or waterfall decision tree. I often get asked this question or see it float by on other sites.

Where to Put Money Heuristic (not just RRSP)

1. Pay off debt , it has the highest guaranteed payback today.
   
   I mean all debt except perhaps your mortgage. A mortgage is your most considerable debt, so my view is investing elsewhere and not paying down your mortgage is a mistake. I have been told my opinion is very “old fashioned”.
   • This lowers your risk in life and gives you choices.
     
2. Put money in your TFSA.
   
   My opinion is that this is a good place to put your money. How you invest it, is up to you. It should be within your Risk tolerances. Whether you want to buy stocks, Index Funds, ETFs or mutual funds is up to you. Do this in a trading account. In a trading account you can buy all those savings vehicles. In a Mutual Fund account, you usually can only buy Bank or Insurance company (read high MER) funds.
   
   TFSA until you reach your limit. You find that in your My CRA Account (limit as of the start of the current year).
   
3. Do you have Kids? If you do, maybe it is time to think about an RESP? This could be, before (2). The Registered Education Savings Plan will help your child’s future. You may decide you don’t want to do this, so you could skip this step.
   
4. Do you have a disabled loved one? Before step (1) you might want to think about an RDSP. A Registered Disability Savings Plan will help their future a great deal.
   
5. Time to use your RRSP. It will lower your tax levels, so you should reinvest the money you get back into the RRSP, until you have no RRSP limit left.
   
   Sometimes you can’t use your RRSP, if you are lucky enough to have a Pension. This is a tragedy of riches, so don’t complain to your friends about it, or they might kick you in the shins.
   
6. You have reached savings nirvana. If you are at this point where:
   • All your debt is paid off
   • Your TFSA limit is reached
   • Your RRSP is full
     You are now at the Zen level of life.

You have choices that most folks don’t have at this point in your life. Your Risk level should be pretty low. Your stress level (due to money) should be non-existent.

This is your goal. Being out of debt with money in the bank means you are financially in the right place. You can do what you want.

Am I Done ?

If you somehow get back into debt, restart the process. You did it once. You can do it again. Maybe create (say after step (1)) an Emergency Fund if something terrible happens.

Is this easy? No, however, it is a good heuristic.

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