As we enter 2025, it’s time to set or refine good habits, leverage the latest tax incentives, and position yourself for long-term financial success. Below, you’ll find a comprehensive overview that combines our key strategies—from the “two-year review” approach to Budgeting to mortgage renewal tips to maximizing your registered accounts.
1. Comprehensive Review Every Two Years
We recommend conducting a full financial review every two years to:
- Optimize Tax Efficiency (e.g., utilizing RRSP deductions, TFSAs, and more sophisticated strategies)
- Accelerate Debt Repayment (minimizing interest costs)
- Track Progress toward short-term and long-term financial goals
Now is the perfect time to ensure each part of your financial plan is aligned with your priorities.
2. “3rd Approach” to Budgeting
When you receive a salary increase or free up cash flow (e.g., paying off a loan), split the extra amount into three equal parts:
- Debt Repayment
- Investments
- Lifestyle
This balanced approach helps you reduce liabilities, build wealth, and simultaneously maintain your quality of life.
3. Mortgage Planning & Interest Rate Insights
- Faster Mortgage Paydown
- Adding $50 to your monthly mortgage payment can pay off your loan about 3.5 years earlier, saving on interest costs.
- Assuming a mortgage of $100,000 at 4.4% and 25-year amortization.
- Plan for Renewal
- If you had locked in your fixed rate before the 2022 rate increases, anticipate a higher renewal rate when your term expires.
- If you have a variable rate, monitor interest rate trends. While rates have eased since June 2024, they may stay above the historically low levels we saw a few years ago.
- Multiple Mortgage Providers
- We work with mortgage providers—one guaranteeing the lowest fixed rate—to find an optimal solution for your situation.
- You can request a quote, please use this link: https://www.nesto.ca/ia/vahan
4. Renting vs. Owning & the LATYO Strategy
- LATYO (Live As Though You Own): Compare your actual rent + utilities to hypothetical ownership costs (mortgage, property tax, maintenance at *1% of the home’s value, and insurance). If you’re renting, consider investing the difference in a balanced or growth-oriented portfolio—potentially outperforming the equity gained from homeownership.
- *1% Rule: If you’re a homeowner, set aside approximately 1% of your property’s value yearly for maintenance. This is a helpful way to gauge whether the costs of ownership align with your other financial goals.
5. Maximizing Registered & Non-Registered Accounts
- RRSP
- Reduces your taxable income and grows investments tax-deferred.
- TFSA
- The 2025 limit is $7,000 (plus any unused room). Investments grow tax-free, and withdrawals are penalty-free.
- RESP
- It’s ideal if you have children—you can contribute $2,500 per year, plus one missed year if you haven’t maximized.
- RDSP (Underused Savings Tool)
- Excellent for individuals with disabilities. Grants and bonds can significantly boost savings (up to $1,500 a year, plus potential catch-ups).
- FHSA
- Contribute $8,000 annually if you’re a first-time homebuyer, benefiting from RRSP-like deductions and TFSA-like tax-free withdrawals. You may have a carry-forward room if it opened your FHSA in 2023 or after, but it is not maximized.
- Once You Max Out
- Move on to a tax-efficient, non-registered account. Remember that dividends, interest, and capital gains are all taxed differently.
6. Target 15–20% Savings & Investments
Aim to invest 15–20% of your income across these various accounts. This “accumulation phase” sets the foundation for:
- Retirement & Transition: Gradually build a cash wedge for immediate needs while staying invested in balanced or growth portfolios for long-term growth.
7. Debt Strategies & investing
- Converting non-taxable loans
- Consider converting non-deductible mortgage interest into potentially tax-deductible investment interest if you have both a mortgage and taxable investments.
- The GOOD Approach
- Focus on an in-house strategy to Grow Out Of Debt where you reborrow the capital paid on your mortgage, reborrow from a HELOC, and invest in an income-distributing portfolio to repay the interest on the loan and eventually the principal.
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8. Car-Buying Guidance
- 50% Rule: Avoid exceeding 50% of your annual salary when purchasing a vehicle. Ref. How Much Car Can I Realistically Afford?
- Leasing = Debt: Even when leasing, you commit to monthly payments. Paying off your car or buying a used one can free up more investment resources.
- Apply the 20/4/10 rule: see Ref.: How To Use The 20/4/10 Rule To Finance a Great Car
- 9. Charitable Donations & Tax Deadlines
- Extended Deadline: You can still make charitable donations for the 2024 tax year until February 28, 2025. This is a great opportunity to give back and maximize your tax credits.
10. Market Outlook & Implied Volatility
- Long-Term Perspective: Equity markets can be volatile, but historically, they tend to grow over time.
- Implied Volatility: Periods of heightened fluctuation will come and go, yet diversification and sticking to a balanced or growth strategy typically help manage risks.
- Stay Invested: Bond yields often shift before the stock market follows suit. Timing the market can be challenging, so staying invested for the long haul is key.
11. BAIE: Budgeting for Annual and Infrenquent Expenses
- Remember to enjoy life along the way. Whether booking a stress-free vacation or carving out more family time, a sound financial plan should support your broader life goals. Implement the VSF Services Why my budget never works? – BAIE – VSF Services
If you’d like to review or adjust any part of your financial plan, we’re here to guide you.
Empowering your goals, protecting your future & securing your legacy with expert financial guidance.
P.S. Don’t forget to make any charitable donations before February 28, 2024, for the 2024 tax year—and consider topping up your TFSA, FHSA, or other registered accounts to begin 2025 on solid footing.