When you are in your 20s, paying debts and the rent may not leave much money to invest. This is why an automatic transfer is recommended.

Automatic transfers contribute a set dollar amount into your investment from a designated account, so you are investing weekly or monthly, rather than trying to throw a lump sum at the RRSP before the contribution deadline.

Don’t worry if you’re not building up a large RRSP in the early years of your career. Instead, do what you can to increase your income, cut your expenses, and reduce any debt you may have. Remember that reducing debt and saving for retirement are not competing goals: both work together to construct long-term financial health.

Here is an example that explains why investing early is important and how doing so allows you to earn even more money when your interest is compounded and you earn interest on the interest. If you were to invest $4,000 a year starting at 20, and receive an 8% average annual return, by the time you were 60, you would have more than $1 million saved. If you waited until you were 32, you’d have to invest around $10,000 a year for the same result.

Tips:

• When you receive a bonus at work, take as much as you can and put it in your RRSP savings.
• Build your savings by increasing your automatic transfer amount every time you get a raise.
• Eliminate your debt. Start with student loans and other non-mortgage debt as the interest you pay on these loans is usually higher then the guaranteed interest you can earn on investments.
• If you have all your debt paid off, put aside some money in a high-interest Tax-Free Savings Account (TFSA) to cover any unforeseen emergency expenses.
• Save for a down payment on a home.
• Unused RRSP room is carried forward. This works out well since you will likely earn more money as you get older, and contributions made during higher-income years means more tax saving.
• Focus on good savings habits, the best way to do that is by setting up an automatic transfer.
• 10% is the ideal percentage of every paycheque that should be put toward your RRSP, but if you can’t fit that into your budget, don’t panic. Invest as much as you can, a little is better than nothing.
• Use any tax refunds you receive as a contribution to your RRSP. This will, in turn, generate a larger refund next year.