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Mortgage. Kids. Retirement savings. How do I balance my priorities?

Your working years can find you juggling lots of different financial priorities. You might be paying your mortgage, putting children through university and caring for your parents. It can be a lot to handle and it can sometimes seem overwhelming.

Here are three strategies that can help you balance your priorities and work towards multiple goals.

Create a budget

Your first step is to create a budget:

  • Determine your after-tax income.
  • Know where your money goes. Write down your monthly expenses and recurring annual expenses (such as membership fees and insurance payments). One way to do this is to keep track of what you spend for one month as you spend it – write it down and keep receipts even for small things like coffee or lunch.
  • Determine if you are spending more than you earn. The old wisdom to "spend less than you earn" still holds true and is one of the best ways to build retirement savings. If your expenses exceed your income, work with a BMO Financial Planner, Investment & Retirement Planning* to find ways to cut expenses – for example, by consolidating debt to reduce your interest costs.
  • Calculate your net worth. Your net worth is the total of everything you own (your assets) minus everything you owe (your liabilities). Calculating it annually provides you with an overview of how you are doing financially. Seeing how your debts stack up against your savings can help you set priorities for your finances.
  • Make savings a priority – adjust your expenses so that you can set aside even a small amount of money on a regular basis for savings. To build your savings over time, set realistic goals that fit your lifestyle. Automatic deposits into your Registered Retirement Savings Plan or a Tax-Free Savings Account can help you stay on target to reach your savings goals.

Take advantage of government incentives

Numerous government incentives can help you save more effectively:

  • CESG. If one of your goals is saving for your child's post-secondary education, you may want to use a Registered Education Savings Plan (RESP). Not only are earnings in the plan tax-deferred, but the Canada Education Savings Grant (CESG) can add up to $500 per year, $7,200 lifetime.
  • TFSA. The Tax-Free Savings Account allows you to earn tax-free investment income on contributions of up to $5,000 annually. Withdrawals are tax-free, too.
  • RSP. By maximizing your RSP contribution each year, you not only save more for your retirement, you also reduce your taxable income and the amount of tax you pay.

Use windfalls wisely

Throughout your working years, you may receive windfalls, such as employment bonuses, salary increases, tax refunds or inheritances. While it can be tempting to spend this "found money" right away, by investing it, increasing your RSP contribution, or paying down debt, it will work harder for you and produce a greater benefit down the road.

To learn more about how human nature affects how we save for retirement, download our free report, "Retirement planning: Can I get back to you on that?" from the BMO Retirement Institute. For individualized help on meeting your own priorities, contact a BMO Financial Planner.

More questions?

* BMO Financial Planners, Investment & Retirement Planning, are representatives of BMO Investments Inc., a financial services firm and separate legal entity from Bank of Montreal.

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