Parent Time

How do I set up an RRSP? Many banks let you do it over the phone, or even online. The more difficult question is how to invest the money. You can put it into a savings account, guaranteed investment certificates (GICs), mutual funds, stocks or bonds.

Your bank will likely suggest mutual funds, which are baskets of stocks or bonds (or both) managed for you by a professional. Trouble is they often carry high fees. If you’re new to investing, consider a high-interest savings account or GIC. You won’t get big returns but, unlike mutual funds, you won’t be risking a drop in your investment.

Where do I find the money? Coming up with a few thousand bucks is tough, especially after the holidays. Try setting up an automatic withdrawal from your chequing account each month, says Lise Andreana, a certified financial planner in Burlington, Ont.

What about my mortgage? If your mortgage rate is only four or five percent, you may be better off putting extra money into an RRSP. On the other hand, if your rate is high, chip away at your home loan first.

Or do both at the same time, suggests Jim Yih, a financial expert and speaker in Edmonton. Say you put $3,000 into your RRSP and get a tax refund of $1,000. You can put that extra money toward your mortgage and meet two financial goals at once. The trick, Yih says, is not to spend your refund on something frivolous. “For most people, that’s the hard part.”

Originally published in Today's Parent, Feburary 2010