Let’s say you socked away $7,500 in your TFSA so far. Your roof caves in, your car goes bump, your employer decides to chop back your hours through the dog days of summer, so now you’ve got a cash flow problem. Not with your emergency fund in your TFSA you don’t. You can pull as much or as little as you need to keep your budget balanced. Then next year, not only will you be able to put in the normal contribution, you can put back any or all of the money you took out to make ends meet.

The TFSA is a great way for lower-income Canadians to set something extra aside for retirement without having to worry about how it’ll impact on their government benefits. Especially since neither the income earned nor withdrawals from a TFSA affect a person’s eligibility for federal income-tested benefits and credits.

People saving to buy a home will also love the TFSA since there’s no specified repayment plan or tax hit if you miss a repayment, and you can reuse the contribution room for something else once you’ve accomplished your home-buying dream.

Couples who want to income split will love the TFSA because a higher-income spouse can contribute to the TFSA of a lower-income or stay-at-home spouse, without the income earned being attributable to the higher-income spouse.

The TFSA is also the perfect place to park that money you’re eventually going to use to buy a new car, repaint your house, or go on a splendid vacation… any kind of planned spending for a big ticket item.

You can hold any investment you can buy for your RRSP inside your TFSA, including stocks, bonds, GIC, and mutual funds. But you should probably stick with interest-bearing investments. Why? Well since all the capital gains inside a TFSA is tax free, it also means any capital loss can’t be claimed to offset your other capital gains.

The big thing to watch for is the fees levied by the FI’s offering the new TFSA. Don’t be so blinded by the tax-free income that you buy your account from some provider who then gouges you with admin and withdrawal fees. They’ll try. It’s up to you to make sure they don’t succeed on your back.

Prepaid Visa or Mastercard

These can be purchased in various convenience or big-box stores. It’s pretty much a debit card with a Visa or Mastercard logo on it. Your “credit limit” is based on how much money you deposit onto it and how you use it doesn’t influence your credit score. There is no interest or minimum payments involved. The only difference between this and a debit card is that it allows you to shop anywhere where a Visa or Mastercard is accepted, except when it comes to hotels or car rentals.

Secured credit cards

This is a common suggestion for new immigrants who are looking to quickly establish their credit score or anyone who’s had credit problems in the past. It’s easy to mistake this with a prepaid credit card because sometimes they’re also called that. They work very similarly, your “credit limit” is based on how much money you deposit onto the card to serve as collateral in case you default, but the main difference is that this card is given by a financial institution such as your bank and how you use the card affects your credit score. Some cards do offer you credit, while others work like a debit card. The card lets you shop anywhere a Visa or Mastercard is accepted. This is a good option for any parent still worried about how their child will handle their first credit card, says Ruth Kewin, president and CEO of four quarter$, a business that focuses on teaching children about personal finance.

Authorized user on a credit card

I started as an authorized user myself a few years ago and that’s because I needed to rent a car for my then job in Grande Prairie, Alberta. This is in every way a normal credit card, there’s interest on balances, a credit limit and your purchase history affects your credit score. Parents need to give their approval for children to become authorized users on their credit card. One key difference is that if the authorized user racks up a hefty debt load, then it’s ultimately the primary cardholder’s responsibility to pay it off. Kewin stresses that parents need to know their credit card details before authorizing the child to use their card. Michele Cacdac-Jones, senior director of communications and public relations with Equifax, suggests parents let their children be authorized users so they can keep track of the child’s spending.

Co-signed user on a credit card

This is like a normal credit card, but in this case both the co-signer and the cardholder are equally responsible for any debt incurred. If one person defaults on their debt, the other person will be expected to pay it back and it will affect both their credit scores. If you think your child is responsible enough and you trust them to handle their own money and credit then maybe give them a co-signed card, but just be aware of the possible consequences, Kewin adds.

When teaching children about credit Kewin stresses that people shouldn’t be afraid of those pieces of plastic. “I think there’s also this fear factor that people have,” she says. “It’s to learn as in anything, learning is a graduated step-by-step process and it’s OK to make mistakes. What we want our children and young people to do is to make mistakes where the cost of that mistake is not so high.”

1. You’re in the highest tax bracket AND

2. You can pay off the loan within one year AND

3. You’ll still be able to make the current’s year RRSP contribution from your cash flow.

This isn’t a case of meeting any one of the conditions; all THREE have to be in place before borrowing makes sense for you. Sure, lenders will push you to max out your RRSP for future growth and they’ll waive the tax refund under your nose as a way to pay off the loan faster. But don’t do it. Here’s why:

1. Unless you’re in the highest tax bracket, those magical refunds you’re being promised won’t show up. Lenders don’t calculate your refund on your declining marginal tax rate when doing a refund projection. They know you’re a sucker for a positive story, so they give you one. They’re banking on the fact that you won’t have considered how a big deduction will reduce your marginal tax rate, which also reduces the refund you’ll get. So you may be expecting a huge refund cheque and be disappointed when it comes in smaller than expected. Less to pay off the loan you took out and more interest to pay in the long run.

2. If you can’t pay the loan off in one year, the interest rate—which isn’t tax deductible—won’t stay the same. Sure, lenders use a constant interest rate in their projections, but with rates as low as they are right now, that’s not going to last. Each time rates go up, so do the interest costs on that RRSP loan. Since you’re paying for that interest with after-tax dollars, your investments’ returns will have to be really great to make up for the interest cost on the loan.

3. If the loan straps your cash flow to the point that you can’t make your current RRSP contribution monthly, next year you’ll be back in the borrowing game. Nice for lenders, but a hamster’s wheel for you. Skip it.

If you’re determined to max out your RRSP for the future, double up your monthly contributions this year. You’ll be catching up on your unused deduction from last year. And you’ll be making this year’s contribution too. Interest cost? None. Hamster wheel? Nope. Smart consumer? You betcha!

What’s with the relentless marketing of RRSP season? It makes Walmart’s Christmas advertising look like a poster for a vegan bake sale. Enough already. What can I do to make it stop?

Answer:

Didn’t you hear? RRSP season has been named an official holiday by Hallmark. Products in development include greeting cards, decorations and battery-operated financial adviser dolls singing inspiring tunes like ‘Don’t spend your 70s selling pencils in the street’ You can’t beat ‘em, so here’s how to join ‘em. Answer this hugely important question: How do you want to spend your retirement?

What? THAT is the single most important question? Yep. It is the one key question that drives everything when it comes to retirement planning. And yet most people don’t have an answer for it.

You don’t need to have tee times in your calendar, but it does make a big difference to have some sense of what you want to be doing when you’re no longer drawing a paycheque.

Why? Because this question will help you figure out how much you’re going to need to save now to do what you want to do then. Playing “Angry Birds” (2032 version) with the grandkids is going to cost way less than travelling the world in search of real birds to watch.

Second reason? Having a sense of what you want your retirement to look like gives you some motivation to work on it. That is one of the reasons the marketing is bloody loud every winter. Way too few people are planning for retirement. Part of the problem is that the topic itself is more boring than Mitt Romney, and part of it is because retirement seems so unreal and so far away.

So ask yourself, how do you want to spend your retirement? Where will you live, city or country, house or condo. What will you do, volunteer locally or tour the seven wonders of the world. And at what age do you want this silliness to start?

Don’t worry if you can’t figure it out, or if it changes completely in a month or a year. The point is that you’ve started thinking about retirement in a real way. And when something is real, it is way easier to plan for it. Oh, and if you’re looking for something to get your spouse to celebrate RRSP season…forget fancy. A simple lump sum payment into his or her RRSP is always a winner.

• Looking to save more money this year? Check out these free activities to help you save money.

• It’s RRSP season as you probably know. Here are some portfolio picks for your RRSP.

One of the most important points to understand about a spousal RRSP is that the plan belongs to the plan’s owner—the person in whose name the plan is registered to —not to the person who made the contributions.  Only the plan owner can make investment decisions or withdrawals from the plan, but only the contributor gets the deduction.

You can contribute as much as you want to a spousal RRSP for your mate, as long as you don’t go over your own contribution limit for the year. If you had a contribution limit of $10,000, you could put the whole $10K in a spousal RRSP. Or you could put $4,000 in a Spousal plan and keep the other $6,000 for your own RRSP. You can divvy up the money in any way that works best for you and your mate.

Just because you make a contribution to a spousal RRSP for your mate, doesn’t mean your partner can’t make a contribution to his or her own plan. Since your spouse’s contribution would be based on your spouse’s income, the spousal RRSP doesn’t affect the individual RRSP contribution limit in any way.

However, it does matter when you make the spousal RRSP contribution.  Spousal RRSP withdrawal rules are based on “calendar” years. Make a contribution for 2012 by December 2012 and then no further contributions, and you’ll be able to withdraw money attributed only to the plan holder as soon as January 2015. Make that contribution within the first 60 days of 2013, and you’ll have to wait until January 2016 before withdrawals are taxed solely in the plan holder’s hands.

While it’s pretty typical for higher income earners to contribute to spousal RRSPs for lower income partners, that’s not always the case. If you have an excellent pension plan and your better half doesn’t, it may make sense to give your entitled RRSP contribution to your partner’s spousal RRSP.

Also, think about using a spousal RRSP if your partner earns more, but your RRSP is much larger because you started investing earlier or made larger contributions. Ditto if your partner earns more now, but plans to take time off to raise kids or return to school.

Whatever you do, DON’T mix individual RRSPs with spousal plans. The taxman hates that and will treat the whole plan as a spousal one.

Both the TFSA and the RRSP help shelter your investment returns from taxes, so both can help you grow your wealth faster. But there is a crucial difference, and it’s the key to deciding which account to use: With an RRSP, taxes are deferred on the money you contribute, which is why you usually receive a tax refund. However many people don’t realize that RRSP withdrawals are considered income, and you have to pay taxes on them. On the other hand, with a TFSA you do pay taxes on the money you -contribute (so you don’t get a tax refund), but you do not have to pay taxes on the money you withdraw.

Because of that difference, a TFSA generally works best in situations where you expect your income to be higher in the year you withdraw the money than in the year you put it in. Conversely, an RRSP works best if your income is high when you contribute, and lower when you make a withdrawal.

When should you use a TFSA?

TFSAs are more flexible than RRSPs, so they tend to be better for younger Canadians and short-term saving, such as when you’re saving up to buy a house, or a car. But in some cases, they can also be a better choice for retirement savings too.

For instance, many advisers recommend TFSAs as a retirement savings vehicle for savers who have a lower marginal tax rate. As a general rule, says Marc Lamontagne, a fee-only adviser with Ryan Lamontagne in Ottawa, if you’re making less than $41,000 a year, you’ll likely come out ahead over the long run with a TFSA. The best part is that when you take the money out in retirement, it doesn’t count as income, so you don’t have to worry about clawbacks to government retirement benefits, such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).

Let’s look at the fictional example of Molly Reynolds, a 30-year-old child care worker in Ontario, to illustrate. In order to build up a nest egg for retirement, Reynolds wants to save $5,000 a year until she reaches age 65. She makes $35,000 a year, so she is in the 20% tax bracket while contributing.

Should she use a TFSA or an RRSP? Because she’s in a lower tax bracket during the years she contributes, she would come out ahead with a TFSA. If we assume a 6% annual return on her investments, her nest egg would be worth $395,290 after taxes if she uses a TFSA versus $383,270 in an RRSP (if she reinvests her RRSP tax refund each year). So she’ll be $12,000 ahead with a TFSA.

TFSAs also make great sense for those who have a good defined benefit pension plan at work, no matter how much they make. “In this case, it’s almost always best to contribute to a TFSA instead of an RRSP,” says Al Feth, a fee-only adviser in Waterloo, Ont. “Mandatory withdrawals required by RRSPs at age 72 could boost you into a higher tax bracket and result in clawbacks to your Canada Pension Plan (CPP) and OAS -payments in retirement. You won’t have that problem with TFSAs because when you take money out during retirement, you will never be taxed.”

Finally, if you’re a high-income earner and you expect to max out your RRSP contribution limits, a TFSA makes a great second savings vehicle.

When should you use an RRSP?

Despite the flexibility in TFSAs, RRSPs are still the best long-term retirement savings vehicle for many Canadians earning an income of $50,000 or more, especially as they reach their peak earning years in their 40s and 50s.

But keep in mind that one of the key advantages of using an RRSP is that you don’t pay taxes on the contribution—and that only works if you reinvest the refund. Talbot Stevens, a financial educator in London, Ont., notes that sadly, many Canadians mentally spend the refund even before receiving it. “That’s a negative, especially if it’s spent on non-productive expenses, such as travel and electronics,” says Stevens. “You have to reinvest the refund every year back into RRSPs to get the full benefit of these plans.”

Another benefit to using an RRSP for retirement savings is mainly psychological: Because you have to pay taxes on RRSP withdrawals, you’re less likely to take the money out unless you really need it. “For a lot of people TFSAs don’t feel like retirement savings,” says Stevens. “They’re more liquid and more vulnerable. So you have to be disciplined to really make TFSAs work as a retirement savings vehicle.”

Keep in mind that while these rules usually work, there are always exceptions. A good adviser can help by taking you through the options to ensure you make the right decision for your particular situation.

To figure out the right mix for your retirement needs, start with a few simple questions. How long will the money stay invested? How much risk are you willing to take with your savings? How much growth do you need? “The only way to properly answer those questions is to put together a comprehensive financial plan that sets out your short- and long-term financial goals,” says Marc Lamontagne, a fee-only adviser with Ryan Lamontagne in Ottawa.

The biggest and most important question you’ll likely face is how to balance your risk with the amount of growth you need. Generally speaking, the longer your money is invested the more risk you can afford to take on. But how do you determine your tolerance for risk? “I like to use a questionnaire with my clients,” says Lamontagne. “It allows us to open up a discussion that allows us to gauge their risk tolerance. If they’re a couple and they each have a very different tolerance for risk, then I generally help them reach a compromise, keeping in mind that the compromise will allow both of them to reach their financial goals.”

To get the maximum return while taking the minimum amount of risk, it helps to think of your portfolio as being split into two parts: an equity portion comprised of stocks, and fixed income portion made up of bonds, GICs and savings accounts. Generally speaking, the higher the percentage in equities, the higher the risk.

Keep in mind that while stocks will earn you a higher return over the long run, their short-term performance is harder to predict. If you’re 30 and retirement is a long way away, you can take a few market crashes in stride and still come out ahead, so you can take on more risk. But if you’re getting close to retirement, you should probably decrease your stock holdings and go heavier on bonds, as they’re more predictable so you’ll suffer less damage from a market slump.

A good rule of thumb is to put a percentage in fixed income that is equal to your age. If you’re 40, for instance, you could put 40% in fixed income and 60% in stocks. If you’re 60, you could put 60% in fixed income and 40% in stocks. The exact proportions depend on your risk tolerance. You can also help insulate yourself from market declines by building up a pool of cash and GICs, or a short-term bond ladder. If you build up enough to fund three years’ worth of expenses, you won’t have to sell off stocks when the market is down.

Still, you don’t want to get too conservative: “If a retirement portfolio is to last you to age 90, it should not be invested only in cash and GICs,” says Norm Rothery, a chartered financial analyst and founder of StingyInvestor.com. “There should be a minimum 25% holding of equity—regardless of age. Such a portfolio actually has less risk than one invested 100% in fixed-income investments because it will protect you from the risk of inflation.”

Once you’ve established the right mix of equities and fixed income, then it’s time to choose your individual -investments. The -investment vehicles you pick depend on several factors, including the amount of time you want to spend on your portfolio. You can buy individual stocks and bonds, but this is best left to more experienced investors. Mutual funds and index funds are likely more convenient and practical.

If you’re a new investor, then a simple balanced mutual fund can be a great place to start. “They usually contain a conservative 60% equity and 40% fixed income mix all in one product,” says Rothery. Experienced investors who want a more hands-on -approach may also want to look at exchange traded funds (ETFs) or index mutual funds.

For a more detailed analysis of the right mix for you, consult a knowledgeable -adviser, who can help you pick the perfect investments for your particular situation and goals. Check back with your adviser regularly to ensure that your overall mix and risk level stay on track as your financial situation and time horizon changes.