Financial Glossary

A personal finance guideline suggesting 10% of income be invested for long-term wealth, up to 35% spent on housing costs, and the remaining 55% used for everyday living expenses to maintain financial balance.

A simple budgeting guideline: allocate 50% of after-tax income to needs (housing, food, utilities), 30% to wants (entertainment, dining out), and 20% to savings and debt repayment. A good starting framework for financial planning.

A retirement planning guideline stating you can safely withdraw 4% of your investment portfolio annually without running out of money over a 30-year retirement. Based on the Trinity Study. To calculate your "FI number": Annual Expenses × 25. Example: $50,000/year expenses = $1.25M needed.

A simple budgeting guideline: allocate 50% of after-tax income to needs (housing, food, utilities), 30% to wants (entertainment, dining out), and 20% to savings and debt repayment. A good starting framework for financial planning.

Your total tax paid divided by your total income, expressed as a percentage. Unlike marginal rate (applied to last dollar), this represents what you actually pay overall. Always lower than your marginal rate due to Canada's progressive tax system. Example: $100,000 income with $25,000 in tax = 25% average rate.

The amount of income you can earn tax-free each year. For 2026, the federal BPA is approximately $16,129. Each province also has its own BPA. The BPA is a non-refundable tax credit—it reduces your federal tax by 15% of the BPA amount (about $2,419 federally). Higher-income earners (over ~$173,000) receive a reduced federal BPA.

A monthly tax-free payment to eligible families with children under 18. For 2026, maximum annual benefits are approximately $7,787 per child under 6 and $6,570 per child aged 6-17. Benefits are reduced based on family net income starting at ~$36,502. Payments are recalculated each July based on the previous year's tax return.

A quarterly federal payment to residents of provinces where the federal carbon pricing applies (Ontario, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, PEI, Newfoundland). Amounts vary by province—for example, in Ontario (2026): $244/year for singles, plus $122 for a spouse and $61 per child. Designed to offset carbon tax costs.

A mandatory government pension program funded by employee and employer contributions. Benefits based on contributions over your working life. Standard retirement age is 65, but you can take reduced benefits at 60 or enhanced benefits up to 70. Maximum 2026 benefit at 65: ~$1,433/month.

A debt payoff strategy where you pay minimums on all debts while putting extra money toward the highest interest rate debt first. Mathematically optimal—saves the most money in interest over time, but may take longer to see progress.

A debt payoff strategy where you pay minimums on all debts while putting extra money toward the smallest balance first. When that's paid off, you "roll" that payment to the next smallest. Provides psychological wins to maintain motivation.

A financial measure comparing your monthly debt payments to your gross monthly income. Expressed as a percentage. Lenders use this to assess your ability to manage monthly payments. Generally, a DTI below 36% is considered healthy, while above 43% may limit mortgage options.

To open and contribute to an FHSA, you must: (1) Be a Canadian resident, (2) Be at least 18 years old (19 in some provinces), (3) Be a first-time home buyer (not owned a home you lived in during the current or previous 4 calendar years), (4) Have a valid SIN. The account can remain open for up to 15 years, until December 31 of the year you turn 71, or until the year following your first qualifying withdrawal—whichever comes first.

A movement focused on aggressive saving and investing to achieve financial independence decades before traditional retirement age. Key principles: high savings rate (50%+), low-cost index investing, and the 4% withdrawal rule. Variations include Lean FIRE (minimal spending), Regular FIRE, Fat FIRE (luxury lifestyle), and Coast FIRE (stop saving, let investments grow).

A quarterly tax-free payment from the federal government to help low and modest-income individuals and families offset the GST/HST they pay. For 2026, the maximum annual credit is approximately $519 for single individuals, $680 for couples, plus $179 per child. The credit is reduced as family income exceeds ~$44,324.

The tax rate you pay on your next dollar of income—your highest tax bracket. In Ontario (2026), combined federal and provincial rates range from about 20.05% (under $52,886) to 53.53% (over $253,414). Critical for deciding between RRSP (best when marginal rate is high) and TFSA (best when marginal rate is low). Use our RRSP vs TFSA Optimizer to find your optimal allocation.

Your total assets minus your total liabilities. Assets include savings, investments, property, and valuables. Liabilities include mortgages, loans, and credit card debt. A positive and growing net worth indicates improving financial health.

A tax credit that reduces your tax payable, but only down to zero—you cannot receive a refund from excess credits. These are calculated as a percentage (15% federal) of eligible amounts. Common non-refundable credits include the Basic Personal Amount (BPA), CPP/QPP contributions, EI premiums, tuition, medical expenses, charitable donations, and age amount for seniors. If your credits exceed your tax owing, the excess is lost (not refunded).

A monthly government pension available to Canadians 65+ who meet residency requirements. Not based on contributions—funded by general tax revenue. Maximum 2026 benefit: ~$727/month. Subject to clawback (recovery tax) if income exceeds ~$90,997.

A tax credit paid to you even if you owe no tax—essentially a cash payment from the government. Unlike non-refundable credits, refundable credits can result in a payment to you. Examples include the GST/HST Credit, Climate Action Incentive (CAIP), Canada Child Benefit (CCB), Canada Workers Benefit (CWB), and various provincial credits. These benefits are typically income-tested and phase out as income increases.

A tax-sheltered account primarily for retirement savings with special provisions for first-time home buyers. CONTRIBUTION LIMITS: 18% of previous year's earned income, up to $32,490 (2026). Unused room carries forward indefinitely. WITHDRAWALS: Normally taxed as income when withdrawn. Special exception: Home Buyers' Plan allows tax-free withdrawal for home purchase. TAX BENEFITS: Contributions are tax-deductible, reducing current taxable income. Investment growth is tax-deferred until withdrawal. Best strategy: Contribute when in high tax bracket, withdraw in lower bracket (retirement).

The maximum amount you can contribute to your RRSP in a given year. Calculated as 18% of your previous year's earned income, up to the annual limit ($32,490 for 2026). Unused room accumulates indefinitely. Check your Notice of Assessment or CRA My Account for your exact room. Over-contributing by more than $2,000 results in 1% monthly penalty tax.

The percentage of your income that you save or invest each month. Calculated as (Monthly Savings ÷ Monthly Income) × 100. A 15-20% savings rate is recommended for retirement. FIRE (Financial Independence) strategies typically require 50%+ savings rates to retire early.

Expenses that reduce your taxable income before your tax is calculated. The tax savings from a deduction equals the deduction amount multiplied by your marginal tax rate. Common deductions include RRSP contributions, FHSA contributions, union dues, childcare expenses, moving expenses for work, and certain professional fees. Deductions are different from credits—they reduce income, not the tax itself.

A flexible registered account with complete tax-free investment growth and withdrawals. CONTRIBUTION LIMITS: $7,000 annually (2024-2026). Cumulative limit since 2009: $102,000 (if 18+ since 2009). Unused room carries forward. Withdrawals restore contribution room the following year. WITHDRAWALS: Completely tax-free for any purpose, anytime, with no repayment required. No impact on government benefits (OAS, GIS). TAX BENEFITS: No tax deduction on contributions, but ALL growth and withdrawals are 100% tax-free forever. BEST FOR: Down payment savings when FHSA/RRSP are maxed, emergency funds, or when you need flexible access without repayment obligations.

The cumulative amount you can contribute to your TFSA. Annual limits have varied: $5,000 (2009-2012), $5,500 (2013-2014, 2016-2018), $10,000 (2015), $6,000 (2019-2022), $6,500 (2023), $7,000 (2024-2026). Total since 2009: $102,000 if age 18+ throughout. Room accumulates from age 18 (or when you become a Canadian resident). Withdrawals restore room the following calendar year. Over-contributions face 1% monthly tax.