Canadians Paid over $188 Billion dollars in personal income taxes in 2011. Income splitting is a great way to reduce a families overall tax bill and leave more money for investment purposes or living expenses.
Someone with a taxable income of $100,000 a year, like Homer as you will read below, pays $7,000 to $10,000 more in personal income tax than two individuals who earn $50,000 each.
The Canadian Revenue Agency have had policies in place for years to dismember any attempts to shift ones income to someone else. Income earned by that one person is generally claimed by that person. But, there are exceptions to those rules and taking advantage of them can result in thousands of dollars in tax savings.
Basically, you have to Loan the money instead of Give the money. And the perfect way to do this is by Income Splitting.
Income Splitting:
The strategy of shifting income from the higher-income earner to a lower-income earner, whether it be a spouse or child, in order to reduce the overall taxes paid by the family.
How it works:
The higher-income earning spouse lends a sum of money to the lower-income spouse or child under a written loan agreement. Under the agreement the lower-income earner agrees to pay interest at the current prescribed rate of one percent to the higher-income earner in the family to make this strategy as tax effective as possible.
Example:
Homer and Marge's tax rates are at 45% and 20% respectively. If homer loaned Marge $100,000 at a prescribed rate of 1% to invest, and Marge earned 5% Return On Investment (ROI) or $5000 on the $100,000, Marge would be left with $4000 of taxable income after deducting 1% ($1000) paid to homer.
Taxes Payable by Marge are subject to $800 ($4000 investment taxed at 20%), Homer would pay $450 ($1000 investment gain taxed at 45%). Totaling $1250 of tax paid.
Monday, November 19, 2012
Monday, November 5, 2012
Are you prepared for rising inflation costs?
Forget the published numbers on inflation. If you really want to know what’s
going to happen to your own standard of living, simply look around you
Cost of living, it can be stressful for most of us but do we understand how much the cost of living will cost once the economy and inflation begin to rise. Talking to individuals from different industries such as construction, automotive, sales, and real estate; these individuals all understood that the economy has taken a hit in the last decade. I then asked if they had an idea when the economy and inflation will begin to rise and they didn't, but, they understood that inflation will rise and that the cost of living will increase.
This situation is something that a lot of us don't think about, especially those aged 20-34. Gen Y and X have grown-up in a world of low interest rates and a falling economy, but history has proven that the economy, interest rates, and inflation has always rebounded.
Although Canada's inflation rate recently slid to its lowest level in almost two years, nobody really thinks it's going to stay there. Job outsourcing has dampened inflation here in North America, thanks largely to low wage rates in newly industrialized countries. As wages rise there, however, these increases will filter through to goods and services consumed here.While higher inflation won't strike overnight - it may even be a couple of years away — some analysts believe it could be significant when it does hit.
"We expect global inflation over the next three to five years — or even the next five to 10 years — to be higher than it has been over the last 20 years," says Mihir Worah, head of real-return strategies at bond-investing giant PIMCO.
"While we don't expect double-digit inflation, we do see inflation gradually climbing higher than the close-to-two per cent core numbers that we have gotten used to in much of the developed world," he adds.
Should you be concerned? I'd say yes. Everyone feels the pinch of rising prices. And the older you are, the higher the level of apprehension. Sure, retirees' indexed government retirement benefits and — for some at least — pension plans will help keep their purchasing power intact over time.
However, inflation is a real worry for an increasing number of Canadians. As a result, some advisor's are beginning to employ higher rates of inflation in their projections for clients' future income and expenditures, particularly since the Consumer Price Index, the most common measure used for changes in inflation, simply doesn't reflect day-to-day reality for many people. The CPI measures price changes for a basket of goods and services, based on average spending by Canadians in a particular year. But there can be large differences in the price increases for these expenditures.
In fact, you could say that every person has his or her own individual inflation rate.
For instance, about one-third of the typical family budget is dedicated to keeping a roof over your head, but whether you rent or own makes a huge difference in where inflation hits you most.
It's all about spending patterns. Younger people tend to spend more on electronics, kids' toys or school costs, for example, while older people will normally use up a greater percentage of their income on essentials like food, utilities and — as they age — medical care.
And people of any age who drive a lot will clearly be more worried about changes in the price of gas. But not if they can take the subway instead, an option that's unavailable to those outside major urban centres.
It all adds up. The costs of operating a car, for instance, have increased at a much faster pace than the CPI over the past decade — including increases of about 80 per cent for gas and something like 60 per cent for insurance premiums. The good news is that serious inflation, and the rising interest rates that will accompany it, is still far enough away that you have some time to do something about it.
It's always a good idea to pay off your debts as soon as possible anyway, but if you're holding any kind of credit card debt, this would be a good time to get serious. The same goes for a home equity loan that "floats" with the prime rate. If and when inflation rises, these costs will quickly go up. If you do have to borrow, and that means a mortgage for most people, go long and stretch things out.
For instance, if you think inflation is accelerating and mortgage rates are going to be higher than about 4.5 per cent in five years, then you should at least consider locking in for the 10-year term.
On the portfolio side, the easiest way for investors to set up an inflation hedge is to buy a real estate investment trust (REIT) or a fund holding a basket of these securities that generate much of their income from rents that are likely to rise with inflation. The prices of many REITs have risen sharply, though they could pull back a bit if the economy slows and interest rates rise. Ideally, you want these inflation-fighting assets to be widely diversified, so it's best to invest through mutual funds like Sentry REIT Fund (I own units of this fund) and exchange traded offerings, such as BMO Equal Weight REITs Index ETF. PIMCO also recommends looking closely at inflation-linked bonds, such as Treasury inflation-protected securities (TIPS) in the U.S. or real-return bonds here in Canada.
The rate of return on these securities, while modest right now, is adjusted for inflation, effectively removing that risk at least.
Cost of living, it can be stressful for most of us but do we understand how much the cost of living will cost once the economy and inflation begin to rise. Talking to individuals from different industries such as construction, automotive, sales, and real estate; these individuals all understood that the economy has taken a hit in the last decade. I then asked if they had an idea when the economy and inflation will begin to rise and they didn't, but, they understood that inflation will rise and that the cost of living will increase.
This situation is something that a lot of us don't think about, especially those aged 20-34. Gen Y and X have grown-up in a world of low interest rates and a falling economy, but history has proven that the economy, interest rates, and inflation has always rebounded.
Although Canada's inflation rate recently slid to its lowest level in almost two years, nobody really thinks it's going to stay there. Job outsourcing has dampened inflation here in North America, thanks largely to low wage rates in newly industrialized countries. As wages rise there, however, these increases will filter through to goods and services consumed here.While higher inflation won't strike overnight - it may even be a couple of years away — some analysts believe it could be significant when it does hit.
"We expect global inflation over the next three to five years — or even the next five to 10 years — to be higher than it has been over the last 20 years," says Mihir Worah, head of real-return strategies at bond-investing giant PIMCO.
"While we don't expect double-digit inflation, we do see inflation gradually climbing higher than the close-to-two per cent core numbers that we have gotten used to in much of the developed world," he adds.
Should you be concerned? I'd say yes. Everyone feels the pinch of rising prices. And the older you are, the higher the level of apprehension. Sure, retirees' indexed government retirement benefits and — for some at least — pension plans will help keep their purchasing power intact over time.
However, inflation is a real worry for an increasing number of Canadians. As a result, some advisor's are beginning to employ higher rates of inflation in their projections for clients' future income and expenditures, particularly since the Consumer Price Index, the most common measure used for changes in inflation, simply doesn't reflect day-to-day reality for many people. The CPI measures price changes for a basket of goods and services, based on average spending by Canadians in a particular year. But there can be large differences in the price increases for these expenditures.
In fact, you could say that every person has his or her own individual inflation rate.
For instance, about one-third of the typical family budget is dedicated to keeping a roof over your head, but whether you rent or own makes a huge difference in where inflation hits you most.
It's all about spending patterns. Younger people tend to spend more on electronics, kids' toys or school costs, for example, while older people will normally use up a greater percentage of their income on essentials like food, utilities and — as they age — medical care.
And people of any age who drive a lot will clearly be more worried about changes in the price of gas. But not if they can take the subway instead, an option that's unavailable to those outside major urban centres.
It all adds up. The costs of operating a car, for instance, have increased at a much faster pace than the CPI over the past decade — including increases of about 80 per cent for gas and something like 60 per cent for insurance premiums. The good news is that serious inflation, and the rising interest rates that will accompany it, is still far enough away that you have some time to do something about it.
It's always a good idea to pay off your debts as soon as possible anyway, but if you're holding any kind of credit card debt, this would be a good time to get serious. The same goes for a home equity loan that "floats" with the prime rate. If and when inflation rises, these costs will quickly go up. If you do have to borrow, and that means a mortgage for most people, go long and stretch things out.
For instance, if you think inflation is accelerating and mortgage rates are going to be higher than about 4.5 per cent in five years, then you should at least consider locking in for the 10-year term.
On the portfolio side, the easiest way for investors to set up an inflation hedge is to buy a real estate investment trust (REIT) or a fund holding a basket of these securities that generate much of their income from rents that are likely to rise with inflation. The prices of many REITs have risen sharply, though they could pull back a bit if the economy slows and interest rates rise. Ideally, you want these inflation-fighting assets to be widely diversified, so it's best to invest through mutual funds like Sentry REIT Fund (I own units of this fund) and exchange traded offerings, such as BMO Equal Weight REITs Index ETF. PIMCO also recommends looking closely at inflation-linked bonds, such as Treasury inflation-protected securities (TIPS) in the U.S. or real-return bonds here in Canada.
The rate of return on these securities, while modest right now, is adjusted for inflation, effectively removing that risk at least.
Tuesday, September 25, 2012
Impulse shopping cost Canadians $3,720 a year.
A majority of Canadians surveyed by the Bank of Montreal say they shop to cheer themselves up and mood-lifting impulse purchases cost Canadians $3,720 annually.
The Bank of Montreal poll found that 59 per cent of those surveyed did impulse shopping and bought items like clothes and shoes and also treated themselves to eating out.
“We’re really struggling to save money on a monthly basis,” said Janet Peddigrew, district vice-president of midwestern Ontario at BMO.
Consumers have been spending more than they’ve been saving over the last 10 years, which is cause for concern, Ms. Peddigrew said. “Those who answered the survey, the majority, said they would do it to cheer themselves up.”
The survey found that 60 per cent of Canadians did this kind of emotional shopping and 55 per cent bought something they might not need because it was on sale.
On average, that amounts to $310 a month being spent on items that are wanted but not needed, according to the survey released on Tuesday.
Those surveyed believed they could save two-thirds of that amount if they made an effort to limit impulse spending, the bank said.
Ms. Peddigrew said setting a budget and using online tools to track spending can help keep impulse spending in check.
Ms. Peddigrew said not having enough savings can leave consumers caught short when an emergency arises, when they need to do a major home repair or when they lose their job.
The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise.
There’s also an element of regret that comes with impulse shopping and in some cases, financial difficulties.
The survey found that more than half of respondents regretted their purchases and 43 per cent sometimes spent more than they earned in a month. Another third of those surveyed had to borrow money or take out a loan to cover their impulse spending.
The consequences of impulse spending were more common among Canadians under 30 with one in three unable to afford something they needed because of spending on “wants,” the survey said.
Men said they spent more than women on average, $414 versus $207 dollars but men tended to spend more on technology items, Ms. Peddigrew said.
BMO said its psychology of spending report is the first in a series that will examine personal finance and investing behaviours among Canadians.
The Bank of Montreal poll found that 59 per cent of those surveyed did impulse shopping and bought items like clothes and shoes and also treated themselves to eating out.
“We’re really struggling to save money on a monthly basis,” said Janet Peddigrew, district vice-president of midwestern Ontario at BMO.
Consumers have been spending more than they’ve been saving over the last 10 years, which is cause for concern, Ms. Peddigrew said. “Those who answered the survey, the majority, said they would do it to cheer themselves up.”
The survey found that 60 per cent of Canadians did this kind of emotional shopping and 55 per cent bought something they might not need because it was on sale.
On average, that amounts to $310 a month being spent on items that are wanted but not needed, according to the survey released on Tuesday.
Those surveyed believed they could save two-thirds of that amount if they made an effort to limit impulse spending, the bank said.
Ms. Peddigrew said setting a budget and using online tools to track spending can help keep impulse spending in check.
Ms. Peddigrew said not having enough savings can leave consumers caught short when an emergency arises, when they need to do a major home repair or when they lose their job.
The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise.
There’s also an element of regret that comes with impulse shopping and in some cases, financial difficulties.
The survey found that more than half of respondents regretted their purchases and 43 per cent sometimes spent more than they earned in a month. Another third of those surveyed had to borrow money or take out a loan to cover their impulse spending.
The consequences of impulse spending were more common among Canadians under 30 with one in three unable to afford something they needed because of spending on “wants,” the survey said.
Men said they spent more than women on average, $414 versus $207 dollars but men tended to spend more on technology items, Ms. Peddigrew said.
BMO said its psychology of spending report is the first in a series that will examine personal finance and investing behaviours among Canadians.
LuAnn LaSalle- The Canadian Press
Monday, September 24, 2012
Canadians may be too blase about debt: poll
Saving money...We all want to do it, but, do we know what we're doing it for?
Some of us would like to be filthy rich, while some would like to live a comfortable lifestyle.
What we all can agree on is that staying out of debt is a must and a priority so we can live a financially healthy lifestyle. What would you do if an unexpected event occurred where a lump sum of money is needed? Savings? Ask family? Take out a loan?
TORONTO - A new poll suggests that most Canadians are quite comfortable with using debt as a financial strategy — at a time when debt loads have risen to alarming new highs. The survey, done for bankruptcy trustees Hoyes, Michalos & Associates, finds nine out of ten respondents would consider borrowing money to cover an unexpected cost.
The poll by Harris/Decima asked respondents how confident they were about being able to raise $2,000 within a month if an unexpected need arose. While 55 per cent said they were extremely or very confident they could raise the cash, 92 per cent said they'd consider borrowing to come up with some of the cash.
Less than half — 45 per cent — said they'd never faced a debt problem.
The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise. The findings suggest consumers have been unmoved by warnings that rates will inevitably rise and that the resulting financial burden could sink some households.
"It's frightening to see that Canadians have become totally blase about debt — it's becoming their new 'normal' and they're numb to this dangerous trend," says Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc.
"For many, the use of debt to not only pay for big ticket items like cars, but also to cover day-to-day living expenses, has become commonplace."
Consumers have taken advantage of ultra low interest rates since the 2008-9 recession to heap on low-cost debt.
The Bank of Canada's key interest rate — which affects banks' prime rates for loans — remains on hold at one per cent, where it has been since September 2010. Coming out of the recession, the central bank set the rate as low as 0.25 per cent in an effort to stimulate borrowing and therefore the domestic economy.
However, with rates still low as the central bank tries to buffer against a globally depressed economic backdrop, the Bank of Canada has declared household debt the number one risk to Canada's economy.
The Hoyes, Michalos & Associates poll results suggest the trend toward debt accumulation is continuing as 26 per cent of respondents said their debt level is higher than a year ago. The survey also found that 70 per cent of respondents said they need immediate help with daily financial matters, including paying down debt (20%), increasing savings (16%), and improving cash flow (13%).
Ted Michalos, a bankruptcy trustee with Hoyes, Michalos & Associates said it appears that Canadians are replacing saving for a rainy day with accessing debt to deal with financial problems.
"Canadians are carrying record levels of debt and yet, surprisingly, 62 per cent of those surveyed are comfortable with their financial situation," Michalos said.
"That is quite a disjoint. It's concerning to see that access to credit and taking on more debt has become an accepted part of financial planning," he added.
One-in-five Canadians surveyed said they believe it would take them two months or longer to come up with $2,000, even if they could borrow. Among those who said they couldn't raise the money within a month, 26 per cent said they couldn't raise the money no matter how much time they were given.
"That's a lot of people who are already at their maximum borrowing capacity," Hoyes said.
The Harris/Decima survey interviewed 1,010 Canadians between Aug. 15 and 23. The survey has a margin of error of plus or minus 3.1 per cent, 19 times out of 20.
Last month, a report on Canadian debt trends by TransUnion found the average consumer's non-mortgage debt load rose another $192 to $26,221 in the second quarter — the highest average debt per person it has seen since it began tracking the variable in 2004. The quarter also marks something of a turning point as the second consecutive quarter in which debt accelerated following more than a year of quarterly declines.
In July, another consumer credit reporting agency, Equifax Canada reported that consumer indebtedness, excluding mortgage debt, grew 3.1 per cent year-over-year in the second quarter, down from 4.4 per cent in the same period of 2011.
The Equifax study also found that high-interest credit card debt fell by 3.8 in the quarter and consumer bankruptcies were down 4.5 per cent from a year earlier. Meanwhile, bank loans and lines of credit showed very moderate growth compared to a year ago.
Some of us would like to be filthy rich, while some would like to live a comfortable lifestyle.
What we all can agree on is that staying out of debt is a must and a priority so we can live a financially healthy lifestyle. What would you do if an unexpected event occurred where a lump sum of money is needed? Savings? Ask family? Take out a loan?
TORONTO - A new poll suggests that most Canadians are quite comfortable with using debt as a financial strategy — at a time when debt loads have risen to alarming new highs. The survey, done for bankruptcy trustees Hoyes, Michalos & Associates, finds nine out of ten respondents would consider borrowing money to cover an unexpected cost.
The poll by Harris/Decima asked respondents how confident they were about being able to raise $2,000 within a month if an unexpected need arose. While 55 per cent said they were extremely or very confident they could raise the cash, 92 per cent said they'd consider borrowing to come up with some of the cash.
Less than half — 45 per cent — said they'd never faced a debt problem.
The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise. The findings suggest consumers have been unmoved by warnings that rates will inevitably rise and that the resulting financial burden could sink some households.
"It's frightening to see that Canadians have become totally blase about debt — it's becoming their new 'normal' and they're numb to this dangerous trend," says Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc.
"For many, the use of debt to not only pay for big ticket items like cars, but also to cover day-to-day living expenses, has become commonplace."
Consumers have taken advantage of ultra low interest rates since the 2008-9 recession to heap on low-cost debt.
The Bank of Canada's key interest rate — which affects banks' prime rates for loans — remains on hold at one per cent, where it has been since September 2010. Coming out of the recession, the central bank set the rate as low as 0.25 per cent in an effort to stimulate borrowing and therefore the domestic economy.
However, with rates still low as the central bank tries to buffer against a globally depressed economic backdrop, the Bank of Canada has declared household debt the number one risk to Canada's economy.
The Hoyes, Michalos & Associates poll results suggest the trend toward debt accumulation is continuing as 26 per cent of respondents said their debt level is higher than a year ago. The survey also found that 70 per cent of respondents said they need immediate help with daily financial matters, including paying down debt (20%), increasing savings (16%), and improving cash flow (13%).
Ted Michalos, a bankruptcy trustee with Hoyes, Michalos & Associates said it appears that Canadians are replacing saving for a rainy day with accessing debt to deal with financial problems.
"Canadians are carrying record levels of debt and yet, surprisingly, 62 per cent of those surveyed are comfortable with their financial situation," Michalos said.
"That is quite a disjoint. It's concerning to see that access to credit and taking on more debt has become an accepted part of financial planning," he added.
One-in-five Canadians surveyed said they believe it would take them two months or longer to come up with $2,000, even if they could borrow. Among those who said they couldn't raise the money within a month, 26 per cent said they couldn't raise the money no matter how much time they were given.
"That's a lot of people who are already at their maximum borrowing capacity," Hoyes said.
The Harris/Decima survey interviewed 1,010 Canadians between Aug. 15 and 23. The survey has a margin of error of plus or minus 3.1 per cent, 19 times out of 20.
Last month, a report on Canadian debt trends by TransUnion found the average consumer's non-mortgage debt load rose another $192 to $26,221 in the second quarter — the highest average debt per person it has seen since it began tracking the variable in 2004. The quarter also marks something of a turning point as the second consecutive quarter in which debt accelerated following more than a year of quarterly declines.
In July, another consumer credit reporting agency, Equifax Canada reported that consumer indebtedness, excluding mortgage debt, grew 3.1 per cent year-over-year in the second quarter, down from 4.4 per cent in the same period of 2011.
The Equifax study also found that high-interest credit card debt fell by 3.8 in the quarter and consumer bankruptcies were down 4.5 per cent from a year earlier. Meanwhile, bank loans and lines of credit showed very moderate growth compared to a year ago.
Updated: September-24-12
3:00 AM
Tuesday, September 11, 2012
Can't find a job? Consider moving back home
When job opportunities are not presenting themselves,
moving back in with your parents is an option to help ease any financial burden
you may be facing.
The lack of jobs coupled with high student debt is
a common reason for youth to move back home, but other crises like ending a
romantic relationship or living with bad roommates can also influence a return
to the nest.
Rob Carrick, an Ottawa-based personal finance columnist for the Globe and Mail newspaper and author of a financial guide for young adults, How Not to Move Back in With Your Parents, says it's the most sensible solution for someone who doesn't have a job.
Rob Carrick, an Ottawa-based personal finance columnist for the Globe and Mail newspaper and author of a financial guide for young adults, How Not to Move Back in With Your Parents, says it's the most sensible solution for someone who doesn't have a job.
"Ideally, you won't have to pay rent and you can live pretty much cost free," he says. "It means you don't have to go into debt to pay your day-to-day living costs... It gives you a chance to plot a strategy for moving forward without digging yourself into a worse hole of debt."
Before the move
Christina Newberry, a Vancouver-based author and founder of The Hands-On Guide to Surviving Adult Children Living at Home, says before the move happens, both sides need to sit down and discuss:
Christina Newberry, a Vancouver-based author and founder of The Hands-On Guide to Surviving Adult Children Living at Home, says before the move happens, both sides need to sit down and discuss:
- Why you're moving back home
- What you plan on doing during your time living at home
- How long you plan on moving back for
- Other details about your stay such as rent, computer, car, and TV privileges, curfew, and your significant other
There's a huge sacrifice made when both sides agree to live together again. She suggests putting together a contract that serves as a reference whenever there's a problem.
If you move back home again, it is up to the child to renegotiate the terms, says Carl Pickhardts, a psychologist in Austin, Tex., who specializes in parenting consultation about adolescence.
"There's no fixed schedule for the achievement of full independence, it varies for young person to young person and that is OK," he says.
Should you pay rent?
Newberry moved back home twice, once for eight months after she graduated from university and again for two months after a romantic relationship ended. When Newberry moved back the first time, the family decided she didn't need to pay rent, unless she stayed past a year. But she thinks other young adults should.
"It helps maintain that pattern of having that monthly expense to consider," says Newberry who covered her personal expenses during both times. "It also helps the adult child feel less like they're mooching off of their parents — they're making some contribution to the household."
Carrick says the young adult should offer to pay rent and let their parents decide.
How much is enough for rent? It's impossible to suggest a figure, says Newberry, but the family should put together a budget and calculate the financial impact of the adult child moving back. If the child can't cover the cost, then rent could be a percentage of their income.
If your parents won't let you pay rent, lend a hand with household chores, pay for groceries or utilities and treat your parents to dinner to show your appreciation. Use the money you would have used for rent to pay your debts or put it towards the down payment on a house, Carrick adds.
Plan an exit strategy
Avoid becoming a kidult and use your time wisely, says Newberry.
"Some people get into the mindset that they're going to live with their parents until they land the perfect job," she says. "[Instead] focus on the opportunity to really develop your skills because you don't have the obligation of a huge monthly rent or mortgage payment."
Before moving back home, estimate and negotiate the length of your stay and what you plan to do while living there.
Moving back out
If you just landed a job, congratulations, but don't move out right away, says Carrick. To move out, you'll need first and last months' rent, enough money to cover food, the move and any other expenses. Also, if your workplace has a probation period it's safer to stay at your parents' place until that period is over, he adds.
"When you're moving out, you want it to be a one-way trip. You don't want to put yourself in the position of going back a second time," he says.
June-14-12
Monday, August 27, 2012
How Do I start Saving?
How do I start saving my money?… I get asked this question a lot from young Canadians. Saving money can be very hard for some people who have accumulated debt such as student loans, car loans, credit cards, and other consumer debt. The average Post-Secondary school graduate will end up graduating with roughly $30,000 to $40,000 worth of debt.
From my experience most recent grads are excited about entering the real world, the stress of school is gone and it’s time to start making some real money, the only unfortunate thing is for recent grads is the pressures to find a job in the field that they have studied for the past 4 years.
Most recent grads are resulting too find part-time or full-time jobs outside of their field of study until job openings appear in the industry where they intend to begin their career. The average post secondary school graduate will make anywhere from $24,000 to $35,000 their first year in the work force, as mentioned above most of the money that you make will go towards paying off any outstanding loans, lines of credit, or credit card debt.
Now we go back to the original question….How do I start saving my money?
One of the most important parts of your budget is saving for your future. It doesn't matter how much, the important thing is to get started, even a few dollars saved each month can add up over time.
The standard guidelines to saving is to save at least 10% of your pay.
Example: If you make $2,000 per month you should try and save $200 per month
If your income changes each month, adjust your savings accordingly
Build Savings into your monthly budget, it can help you stick to your plan.
Each year challenge yourself to reach a higher savings goal
Save more if your pay goes up or you get a bonus at work
If you have a lot of debt try saving a smaller amount until you’re debt-free.
Where can we start saving?
Most Canadians have a standard checking and savings account, the checking account is where we put our paychecks and any other earned income aside, our savings account is typically where we put our money aside and expect it to grow which we can use for a rainy day or emergency. When we put money into our savings account we expect that money to grow, but little do we realize the banks are only giving us 0.25% on every dollar that we have inside out savings account. Not the typical return most Canadians are looking for.
My Suggestions
Open a TFSA (Tax Free Savings Account) where you can choose a high interest savings account that is earning you 1.35% to 2.00% interest on every dollar OR choose a fund that will invest you’re your money into markets/industries specific to your risk tolerance with a higher growth potential then a high interest savings account.
Start a PAC agreement (Pre-authorized check) which allows the financial company to transfer a specified lump sum of money of your choice each week into your TFSA from your checking account, this way your money is working for you and each week you wont have to worry about setting aside money because it is automatically set aside through the PAC agreement. Setting aside at least $20 per week with accrued interest can help you become financially stable even if debts are still outstanding.
Finally, When RRSP season comes around typically from January until Midnight March 1st, if there is any unused income inside your TFSA, open an RSP (Registered Savings Plan) which will allow you to save for your retirement and put any unused capital from your TFSA into the RSP tax free. While you can contribute to your RRSP at any time during the year, many Canadians wait until January and February to take advantage of this tax break.
In closing, don't forget: saving is something you do for your future. How much you save depends on your situation. It's a question of finding the right balance for you.
Tuesday, August 21, 2012
How will getting married change the way we handle money?
The biggest concerns for many life partners have to do with money. Who will spend what? How will you share the bills? How much will you save? You should discuss these questions even before you say 'I do' or move in together.
Four big money questions for couples
1. Will we combine our finances? If so, how? Some couples share everything. They have one joint account and share all the bills. Others share a few things or keep everything apart.
Example: Morris and Sam each have their own bank account. Plus, they each contribute $1,000 each month to a joint account to pay bills or save for shared goals.
2. How will we spend our money? Now is the time to set up a budget with clear spending limits. For example, agree on how much you each can spend without checking with the other, such as $100 or $200. For bigger purchases, you'll talk about it first.
If you keep your money separate, make sure you plan who will pay which bills. Also discuss how you will handle your debts, including credit cards and student loans. Sometimes, one partner has more debt than the other. Sometimes, there are children from a previous marriage to raise. How will you share those costs?
3. How much will we save? The experts say you should always pay yourself first, even if it's just $10 each week from each pay cheque. Some day, you'll be able to use this money for big purchases like buying a car or a new home.
4. How will we take care of each other if life changes? Discuss what will happen to your money if one or both of you gets sick or dies. If you don't have insurance at work, you may want to buy life insurance and disability insurance. If only one of you is working, it's even more important.
Also, as soon as you marry, any will you made before is no longer valid. If you have children from a previous marriage, you'll want to make sure you have a good plan for their future as well.
Remember: There's more than one way to handle money as a couple
You need to find what works for you and your life partner. Sometimes one person is more of a saver while the other person may be more of a spender. Make sure you talk about those differences. Then, work out a common approach you can both accept. If you find it hard to agree, a visit to a financial adviser may help.
Friday, August 17, 2012
Life Insurance replaces Mortgage Insurance?
Home is not only where the heart is, it's also the largest single debt for most Canadians. But that's OK, because your home is the centre of your family's life. That's why you should consider mortgage insurance.
Traditional mortgage insurance can be obtained from your lender as part of your overall mortgage package. The premium is added to your monthly mortgage payment.
Your home is your family's protective nest. It makes sense to protect it (and your family) with the right type of mortgage insurance. As a professional adviser I help you get the right protection that blends with your overall financial life.
Traditional mortgage insurance can be obtained from your lender as part of your overall mortgage package. The premium is added to your monthly mortgage payment.
- The policy has no cash value and the benefits are paid directly to the lender.
- Your lender owns the policy. If you decide to change your lending institution to get a better mortgage rate or move to a new home, you have to re-qualify medically for new protection, potentially at higher premiums.
- Your coverage ends when the mortgage is paid off.
- Although it is unlikely, the fact remains that the insurance company that underwrites the policy could change the rate structure or cancel coverage as a whole.
- Your coverage isn't reduced by a declining mortgage balance, so your beneficiaries stay protected. Any benefit payout in excess of the amount owing on the mortgage is available for use by your beneficiary.
- If you choose term insurance, you can convert it to permanent insurance at a time suitable to you.
- Your coverage goes everywhere with you -- from home to home, mortgage to mortgage -- and you can reduce the amount of coverage any time you want.
- It's your plan, with the options, features and premiums that fit your needs and budget. And you can add disability and critical illness insurance that can include the benefit of waiving your premiums should you become disabled, providing the money to continue making mortgage payments or paying your medical expenses.
Your home is your family's protective nest. It makes sense to protect it (and your family) with the right type of mortgage insurance. As a professional adviser I help you get the right protection that blends with your overall financial life.
Wednesday, July 25, 2012
Young Adults Worried About Retirement: Don't Get Mad, Get Saving
When William Lem, 24, thinks about the recent bump up in Old Age Security age eligibility, he feels angry, frustrated and discouraged.
“With this cutback, I know I will need to put away that much more – and I still need to pay off all of my debt. It just makes me want to give up.”
The main source of his financial frustration is a $20,000 debt load. Half of that is from student loans and the rest of it from what he calls “stupid” consumer debt, including four maxed-out credit cards.
“With this cutback, I know I will need to put away that much more – and I still need to pay off all of my debt. It just makes me want to give up.”
The main source of his financial frustration is a $20,000 debt load. Half of that is from student loans and the rest of it from what he calls “stupid” consumer debt, including four maxed-out credit cards.
The debt has forced Mr. Lem, who runs a small business as a videographer, to move back into his parents’ Bolton, Ont., home. Looking ahead, he knows he won’t be in the same boat as his father, who he says has worked at the same company for 25 years and can retire at the age of 58.
“I don’t have a pension plan,” Mr. Lem says. “And I would love to put $100 a month into an account that I won’t touch until I am 60, but that $100 is paying off the interest rates on four credit cards and my student loan.”
Young Canadians, a generation saddled with record high student debt and facing an expensive housing market, tight job prospects and stalled earnings, are still absorbing news that they might need to work two years longer than their parents.
The latest Conservative federal budget calls for the eligibility age of OAS and the closely tied Guaranteed Income Supplement to rise from 65 to 67, over a span of six years starting in April, 2023.
What that means is that if you are 54 or younger and decide to retire at 65, you’ll be getting $13,000 less. Not everyone qualifies for the OAS benefit: If you earn more than $69,562, you must repay some of it. If you make more than $112,772, the full amount is clawed back.
So what steps can low-to-middle-income earners, like Mr. Lem, take to adjust their financial plans?
Caring for Clients financial planner Rona Birenbaum has stopped incorporating OAS into the retirement projections of anyone under the age of 40 – in part because she believes it could be clawed back further.
“As a conservative approach, we are now taking it out entirely,” Ms. Birenbaum says.
The maximum amount Canadians can receive in OAS is $540.12 a month, which works out to more than $6,000 a year. “That can make a big difference in a retired person’s life. So taking this out of retirement projections, it is no joke,” she says.
The solution to the OAS cutback is simple: Young Canadians need to save more. “It means reviewing your cash flow and finding ways to allocate more of your income toward reducing debt and saving for retirement,” she says.
The challenge, Ms. Birenbaum says, is that younger Canadians are “a demographic that loves to live well, that will live longer and will be more responsible than ever for funding their retirement lifestyle,” she says. “I don’t think it is a panic situation, but it requires some focus on planning.”
Today’s twenty- and thirtysomethings don’t believe the government is going to take care of them in their old age, Ms. Birenbaum says.
“I have had more young people approach me for financial plans than ever in my 20-year career. These are people in their late 20s and early 30s who want to make good decisions now and are not willing to wait until they are 55 and hope for the best.”
Malcolm Hamilton, an actuary at Mercer Human Resource Consulting and an expert on Canadian retirement saving, says that for most people, the changes are not crushing. “As retirement events go, this is more a tremor than an earthquake.”
What it means, is that anyone under the age of 54 who wants to retire at 65 and replace the missing OAS benefit, will need to save an additional $13,000, he says. For someone who earns $50,000 a year, for instance, that translates into an extra three months on the job.
Low-income earners, those who do not make enough during their working lives to save for retirement and rely on government benefits like OAS, will be most affected.
“People in this category, it means their lives will not become pleasant until 67 instead of at 65,” Mr. Hamilton says.
Tina Di Vito, the head of BMO’s Retirement Institute, says the best thing young Canadians can do is to get informed, start thinking about where their retirement income will come from and if possible, set aside even small amounts at an early age.
Ashley Winsor, a 32-year-old Labrador native who now calls Fort McMurray, Alta., home, is not expecting the government to prop him up in his golden years. “I feel that I will need to actively save if I want to retire at a decent age,” he says.
Mr. Winsor, a shuttle-bus driver, and his wife are almost debt-free and want to get their retirement plan on track before they start a family. “I want to make sure that when we do decide we want to retire, we can live comfortably without having to rely on the government system, because who knows if that will be around when I am in my 60s.”
What young people can do right now to get their retirement on track
Tina Di Vito, the head of BMO’s Retirement Institute and the author of52 Ways to Wreck Your Retirement, has these six suggestions for young people wondering how to set themselves up for their golden years:
1. Contribute early Contributing $5,000 every year – growing at 5 per cent a year over a 30-year period – will build to nearly $350,000. Total contributions of $150,000. (The same annual contribution of $5,000 and return of 5 per cent over only 20 years grows to approximately $174,000 with $100,000 of contributions.)
2. Set up automatic payments The change in OAS means Canadians will receive about $13,000 less. So a 25-year-old will need to save an additional $325 annually. The sensible way to save is through smaller, regular contributions (rather than a lump sum). Set up monthly payments of approximately $30 a month.
3. Educate yourself about your employee pension plan It is more important than ever to understand and take advantage of employee retirement plans. Many workplace pension plans offer various options, such as employee matching programs, or features like automatic enrolment and auto-escalation of contributions.
4. Balance debt repayments with savings plans If you have a lot of high-interest debt like student loans or credit cards, it’s best to pay those off first. If debt is manageable and low-interest, like on a mortgage, balance your budget between saving for retirement and debt repayment. Paying down your debts should be the priority because once you are debt-free you can allocate the extra funds to retirement savings.
5. Remember tax-savings strategies OAS is a taxable pension benefit. As an alternative, contribute the maximum amount of $5,000 a year to a Tax Free Savings Account. According to a BMO study, the average TFSA contribution is $3,700. Upping the amount over a 10-year period gets you another $13,000, equal to that $13,000 OAS loss.
6. Keep in mind where you live To be eligible for OAS, you must be a Canadian resident for a minimum of 40 years after 18 years of age. A few exemptions apply. If you have an opportunity to travel or work abroad, keep in mind how many years you will have been a Canadian resident before retiring if you plan on receiving OAS benefits.
Protecting Your Business
If you own and operate a small business, you need to think about what would happen if you were suddenly unable to perform your responsibilities.
Like a lot of small businesses, your business is probably incredibly dependent on you. Your top- to- bottom knowledge and above-average time commitment would make it very difficult to replace you. In the extreme, your business might need to find a successor or be sold.
In the meantime, the company might not be able to conduct itself in its usual fashion, missing opportunities and potentially creating losses that would need to be financed.
Having a life or disability insurance policy to protect your spouse or family in the event you could not contribute in the usual fashion is commonplace. You should give that same consideration to your business.
One way to do that is through key-person insurance.
Key-person insurance (commonly referred to as key-man Insurance) is a life or disability policy placed on the owner, director or employee of a company who is crucial to the business, where the business or a related party (such as a shareholder or lender) is the beneficiary. Such a policy would provide funds to your business to give it time to react to your absence. It could be used to pay off debts (as a lender might insist on) or finance losses.
While it seems fairly practical, it’s not free. Policy costs will likely mirror similar coverage on the personal side but who, how and when it would pay out out is a little more complicated. Why? Taxes. Not surprising, is it?
The deductibility of insurance premiums and taxability of benefits is highly dependent on the type of coverage and the type of payout and beneficiary. It’s not a foregone conclusion that the business would pay the premium. It might be more efficient to pay it personally – again, depending on who the beneficiaries are and how the benefits are paid.
If you have a simple small business, you probably just need a simple key-person policy. Insurance agents who specialize in such policies would be a good bet to turn to, as they likely know the ins and outs and standard structures. A quick call to your accountant never hurts. Your lawyer can probably sit this one out.
Where possible, insure and pay for your personal life policies personally and insure and pay for your key person insurance corporately, and keep it as simple as your business structure allows.
More important, don’t put it off. Think of how hard you have worked and what resources your business would need to deal with your unexpected departure. You wouldn’t want it to fail due to lack of planning, nor burden your estate or employees with an overwhelming challenge.
I wish this advice would add to your bottom line in the short term. It won’t. But it’s the right thing to do when considering the long-term value of a business you have worked so hard to build.
Like a lot of small businesses, your business is probably incredibly dependent on you. Your top- to- bottom knowledge and above-average time commitment would make it very difficult to replace you. In the extreme, your business might need to find a successor or be sold.
In the meantime, the company might not be able to conduct itself in its usual fashion, missing opportunities and potentially creating losses that would need to be financed.
Having a life or disability insurance policy to protect your spouse or family in the event you could not contribute in the usual fashion is commonplace. You should give that same consideration to your business.
One way to do that is through key-person insurance.
Key-person insurance (commonly referred to as key-man Insurance) is a life or disability policy placed on the owner, director or employee of a company who is crucial to the business, where the business or a related party (such as a shareholder or lender) is the beneficiary. Such a policy would provide funds to your business to give it time to react to your absence. It could be used to pay off debts (as a lender might insist on) or finance losses.
While it seems fairly practical, it’s not free. Policy costs will likely mirror similar coverage on the personal side but who, how and when it would pay out out is a little more complicated. Why? Taxes. Not surprising, is it?
The deductibility of insurance premiums and taxability of benefits is highly dependent on the type of coverage and the type of payout and beneficiary. It’s not a foregone conclusion that the business would pay the premium. It might be more efficient to pay it personally – again, depending on who the beneficiaries are and how the benefits are paid.
If you have a simple small business, you probably just need a simple key-person policy. Insurance agents who specialize in such policies would be a good bet to turn to, as they likely know the ins and outs and standard structures. A quick call to your accountant never hurts. Your lawyer can probably sit this one out.
Where possible, insure and pay for your personal life policies personally and insure and pay for your key person insurance corporately, and keep it as simple as your business structure allows.
More important, don’t put it off. Think of how hard you have worked and what resources your business would need to deal with your unexpected departure. You wouldn’t want it to fail due to lack of planning, nor burden your estate or employees with an overwhelming challenge.
I wish this advice would add to your bottom line in the short term. It won’t. But it’s the right thing to do when considering the long-term value of a business you have worked so hard to build.
60% of Canadian Retirees are in Debt
More than half of retired Canadians hold some form of debt which may cut into their retirement plans and cash flow, a new poll suggests.
According to the survey conducted by Harris Decima, 59 per cent of retired Canadians are currently in debt, compared to 76 per cent of non-retirees.
The CIBC, which funded the survey, says the results highlight the need for Canadians to have a good debt repayment strategy, especially as they approach retirement. That's because fixed incomes make it more difficult for retirees to pay down their debt.
“While retired Canadians carry less debt than the national average, their debt could be stagnant and may end up costing them more in interest costs over a longer period of time,” said Christina Kramer, executive vice president of retail distribution and channel strategy at the CIBC.
“You really have to think about the debt you are retiring with because the regular repayments you make will directly affect the discretionary income you have.”
That's because for retirees, who have fixed incomes, all monthly payments must come from retirement savings or pension earnings. This can affect how much money they have left to cover their day-to-day expenses.
Only 27 per cent of the retired Canadians surveyed say they have made an extra payment towards their debt in the last 12 months, compared to 42 per cent of non-retired Canadians.
On average, retired Canadians carry 1.65 debt products with a balance, such as mortgages, lines of credit, loans and credit cards. In contrast, non-retired Canadians carry 2.64 products with a balance.
The percentage of retired Canadians with debt was highest in Atlantic Canada, at 76 per cent. All other regions hovered just below 60 per cent.
The telephone poll of more than 2,000 Canadians is considered accurate to within 2.2 percentage points, 19 times out of 20.
A survey released in the spring suggests that being debt-free is key to the idea of a successful retirement for nearly nine in 10 Canadian homeowners.
The dream of being debt-free was more important to the roughly 2,000 respondents than living near family, keeping busy with a hobby or volunteer work or having a broad group of friends.
Only having good health was listed by more people, according to the survey conducted for Manulife Bank.
Kramer recommends working with a financial advisor to plan out how to best repay your debt. She also suggests setting your debt payment slightly higher than the required payment to reduce overall interest costs.
According to the survey conducted by Harris Decima, 59 per cent of retired Canadians are currently in debt, compared to 76 per cent of non-retirees.
The CIBC, which funded the survey, says the results highlight the need for Canadians to have a good debt repayment strategy, especially as they approach retirement. That's because fixed incomes make it more difficult for retirees to pay down their debt.
“While retired Canadians carry less debt than the national average, their debt could be stagnant and may end up costing them more in interest costs over a longer period of time,” said Christina Kramer, executive vice president of retail distribution and channel strategy at the CIBC.
“You really have to think about the debt you are retiring with because the regular repayments you make will directly affect the discretionary income you have.”
That's because for retirees, who have fixed incomes, all monthly payments must come from retirement savings or pension earnings. This can affect how much money they have left to cover their day-to-day expenses.
Only 27 per cent of the retired Canadians surveyed say they have made an extra payment towards their debt in the last 12 months, compared to 42 per cent of non-retired Canadians.
On average, retired Canadians carry 1.65 debt products with a balance, such as mortgages, lines of credit, loans and credit cards. In contrast, non-retired Canadians carry 2.64 products with a balance.
The percentage of retired Canadians with debt was highest in Atlantic Canada, at 76 per cent. All other regions hovered just below 60 per cent.
The telephone poll of more than 2,000 Canadians is considered accurate to within 2.2 percentage points, 19 times out of 20.
A survey released in the spring suggests that being debt-free is key to the idea of a successful retirement for nearly nine in 10 Canadian homeowners.
The dream of being debt-free was more important to the roughly 2,000 respondents than living near family, keeping busy with a hobby or volunteer work or having a broad group of friends.
Only having good health was listed by more people, according to the survey conducted for Manulife Bank.
Kramer recommends working with a financial advisor to plan out how to best repay your debt. She also suggests setting your debt payment slightly higher than the required payment to reduce overall interest costs.
Wednesday, May 9, 2012
How Saving at 25 can earn you $1 Million Dollars
Being a young adult fresh out of graduate school trying to find our place in the real world and ultimately finding out who we are and who we ultimately want to become is very intimidating for some of us. The pressures of our parents asking "When are you going to get a job?" or "What was the point in going to school?" or my favorite "What time did you get up today?" can be very irritating.
I can sympathize with young people because I fall into that category and have been there as so many more other people have at some point in their life.
So what is our easiest solution? APPLY!! APPLY!! APPLY!! too as many employers that fit the criteria of the field of study that we graduated from. As we kill time on Facebook, get a few games of angry birds in, or maybe a little FreeCell if you're the sophisticated type, we then begin to search for a professionalized template that we can copy and paste and use for our resume. After taking another two hours trying to remember where you've worked you have finally completed the resume and you quickly attach it in an email and send it to as many employers as possible. Then we wait.
In the mean time we pick up some more shifts at "Part timers" and hope that we hear back from someone at a company that we just applied for. Ultimately whats great is that these extra hours that we're working are starting to look better and better by the paycheck, now this makes us do one of two things and most of the time both: 1) Spend more money at the bar 2) Shop. And before you know it the extra income you were making is gone each week just as quick as if you never had it.
My family is full of successful entrepreneurs and one thing that I was always told was to "Save your money while you can" and what I got from that little quote was that the earlier you can accumulate savings the more money you will have when it's needed.
"How do you expect me to save money when I only work 30 hours a week?"
I love getting this question because I ask "How much money do you wish to have when you retire?"
They quickly respond with "I don't know" or "$1,000,000 plus"
If they give me a number I'll proceed to ask "How do you plan to achieve this financial goal" and again the response goes back to "I don't know".
You see most young people have no idea how much they need to save each year for their retirement, most don't know when to start saving, and the rest choose to wait until they have a higher income to invest. The answer to these questions is quite simple: 1) $20-$50k annually 2) Early 3) Bad idea.
People make retirement savings TOO complex when it's easy and simple.
Those extra hours that you picked up at the "Part timer" that have been going to the T-shirt Jean combo, the Mani/pedi, new dress, the 2-6 instead of the micky, and the extra few drinks for that special lady...or man each week could easily be turned into RETIREMENT SAVINGS. And once Monday comes along you think..."DAMN!! that was a lot of money I spend this weekend, this $60 better last me the rest of the week". When you keep playing this game each week with yourself you begin to realize that all the money you spent could have gone to something that you may have actually benefited from.
Its easy to spend $150 - $200 on STUFF each week because that's what we're used to. Being a student and not having to pay many bills, we tend too get to comfortable spending most of our disposable income that we are now accounted to live off of. While all of this is going on, in the back of your head all you can hear is your parents say "When are you getting a job?" even though you already have a job. Parents are smart, they say that because they can tell by your spending habits that you need to make more money for the type of lifestyle that you are living.
I proceed to ask people "What is $25 to you?" some respond with lunch or dinner, booze, cover charge and a drink, 1 movie ticket etc. As much as all of those answers are correct, $25 can mean a lot more. $25 can be the difference between a retirement income of $700,000 and $2,000,000 and when most wonder how? I say its simple, its about saving early, consistently, and making deposits when there is extra money. The earlier someone can save for retirement, the less they need to invest throughout their primary working years giving them a greater retirement income.
Example:
Someone who is 25 years old investing $25/week will have substantially more retirement income then someone who is 35 investing $50/week.
There are many Financial Calculators available on the internet that will help you calculate how much you need to save for retirement.
Parents want to know that their child/ children will be able to fend for themselves when the time comes. Knowing that you are saving for your financial future gives parents the peace of mind knowing that you will be ok.
Wednesday, April 11, 2012
10 Easy steps for Canadians to reduce their taxes
It’s that
time of year again when we ask ourselves "how can I reduce my income
taxes?" especially with the upcoming April 30th deadline to file your tax
returns. Here are some quick and easy tips for Canadians to reduce the amount
they owe on their taxes and hopefully at the end of the day get some money
back.
The home renovation tax credit applies to renovations made to your home after January 2009. The HRTC is equal to 15% of the renovation cost to a maximum of $10,000.
2. Child Care Expenses
Child care expenses include, fees paid to a babysitter or nanny, daycare fees, costs for an after school program, PLASP fees, etc. They are deductible by the lower income spouse, even if the higher income spouse paid for the child care costs. The maximum amount of child care expenses that can be claimed is $7,000 for each child born in 2003 or later and $4,000 for each child born in 1993 to 2002.
3. Accounting Fees
4. Sales Person Expenses
5. Car Expenses
Only the business use portion of your car expenses can be deducted on your personal income tax return, which includes:
6. RRSP Contribution
9. Children fitness Amount
1. Home Renovation Tax Credit
The home renovation tax credit applies to renovations made to your home after January 2009. The HRTC is equal to 15% of the renovation cost to a maximum of $10,000.
2. Child Care Expenses
Child care expenses include, fees paid to a babysitter or nanny, daycare fees, costs for an after school program, PLASP fees, etc. They are deductible by the lower income spouse, even if the higher income spouse paid for the child care costs. The maximum amount of child care expenses that can be claimed is $7,000 for each child born in 2003 or later and $4,000 for each child born in 1993 to 2002.
3. Accounting Fees
You can
reduce your taxes, by deducting fees paid to your accountant for preparing your
individual income tax return. The accounting fees paid may be deducted from
investment income, rental income, or business income reported on your tax
return. In all other cases, accounting fees are non-deductible.
4. Sales Person Expenses
As a salesperson,
you can deduct any reasonable expense that you incurred for the purpose of
earning commission income. To support your expense deductions, you must
complete form T2200, Declaration of Conditions of
Employment, and be required to pay for expenses related to your sales
activities, as a condition of your employment.
5. Car Expenses
If you
are required to use your personal car to carry out your employment duties, you
can deduct expenses related to your car or vehicle. However, you must have a
completed form T2200, Declaration of Conditions of
Employment, and be required by your employment contract to use your personal
automobile.
Only the business use portion of your car expenses can be deducted on your personal income tax return, which includes:
· Insurance
· Repairs and maintenance
· Lease costs (to a maximum of $800
+ taxes)
· Capital cost allowance (i.e. tax
depreciation, at a rate of 30% per year)
· 407 charges
· Parking fees
6. RRSP Contribution
Contributions
made to an RRSP are deductible from your income. The maximum amount that you
can contribute to an RRSP for 2011 is $22,450. However, if you did not use your
entire RRSP deduction limit for the years 1991-2011, you can carry forward unused contributions to 2012. Therefore, your
RRSP deduction limit for 2011 may be more than $22,450. For 2012 the maximum
RRSP contribution will increase to $22,970.
7. TFSA
Consider
contributing to a tax free savings account (TFSA). A TFSA is an account in
which any investment income earned is not subject to income tax. Unlike an
RRSP, withdrawals from a TFSA are not taxable. Stocks, bonds, mutual funds, and
high interest savings accounts can all be held inside a TFSA. In addition, the
maximum annual contribution limit to a TFSA is $5,000 plus any unused
contributions since 2009.
Another
way to reduce your tax bill is by making a loan to your spouse at the Canada
Revenue Agency’s prescribed rate of interest, which is currently 1%. Your
spouse could invest the loan proceeds in a business, high interest bearing
investments, stocks, real estate, etc., and any income generated from those
investments would be included in your spouse’s taxable income. The optimal
amount of a spousal loan is equal to the amount that would equalize you and
your spouse’s taxable incomes, after taking into account the investment income
expected to be generated on the investments made from the loan proceeds. Making
a spousal loan to a spouse who is in a lower income tax bracket is an excellent
income splitting strategy, and is a perfect answer to your question of “How can
I reduce my income taxes?”
9. Children fitness Amount
The
children’s fitness tax credit, a.k.a. children’s fitness amount, is a tax
credit available to Canadian taxpayers who enrol their children in a physical
activity program. The tax credit is calculated as 15% of the amount paid for a
physical activity program. The maximum credit that can be claimed is $500. The
receipt for your child’s physical activity program should say whether the
program qualifies for the children’s fitness tax credit.
10. Public Transit Amount
As a
Canadian taxpayer, you can claim a tax credit, known as the public transit tax
credit, for amounts spent on monthly or yearly public transit passes. Eligible
passes must be for one of the following:
· Busses
· Streetcars
· Subways
· Trains
· Ferries
Thursday, April 5, 2012
Is Your Retirement Affordable?
Vacation once a year $3000, Golf membership $2500 a year,
Insurance (Home, Auto, Life, Health) $4000 a year, Bills Payable $3000 a year,
New car $4000 a year (Lease/Financing), Knowing that you will be able to afford
YOUR retirement, PRICELESS!!! For all your
Retirement needs contact a qualified Financial Advisor.
Many Canadians realise that saving for retirement is very
important, if we don’t save for retirement then how can we as Canadians afford
to maintain our standard of living that we have been accustom to during our
working years? In 2011 nearly six million Canadians contributed to their RRSPs (Registered Retirement Savings Plan), this number may seem like a lot but this means that 66% of Canadians did not contribute a single penny to their retirement plan. This is what I call the first mistake to 2011. It's easy to find excuses to not contribute to your retirement: no cash, paying for school, buying a home, family, or just simple procrastination.
But do we Canadians even have a clue about how we start to save for retirement? All we know is that we need a substantial amount of money to fund our everyday needs after our working years. But what is that amount?
Every year Canadians can contribute up to 18% of their previous years earning up to a maximum of $22,000. Of course if we all had $22,000 just lying around we would all max out our RRSP contribution and we would all be filthy rich by the time we're ready to retire. But the harsh reality is that we all have bills and other expenses to pay for which makes it harder for Canadians to supplement a retirement plan.
Is it REALLY that hard to contribute to your retirement
plan?
Example:John is 25 years old, a graduate from the University of Western Ontario who currently still lives at home, owns his own car, and has recently began his REAL WORLD career. After a few months of working John has been able to save $2000. Being a financially independent individual John realizes that it’s easier to save for retirement earlier in life then it is when family and other financial obligations take priority. So John decided to consult a financial advisor. The financial advisor suggests that John opens an RRSP with his $2000 as an initial investment, as well as make a $25 a week Pre Authorized Contribution with an expected Rate of Return of 5%. The Financial advisor also asks John if he would be able to make another $2000 contribution at the end of the year during RRSP season (Jan 1-Mar 1) and John agrees.
At the end of the year John will contribute $3300 to his
RRSPs. If John consistently makes contributions of $3300 to his RRSP for 40
years, based on compounding and interest rates John will expect to have over
$460,000 when he is set to retire.
Once John is in a better financial situation where he is
able to contribute more too his retirement, not only will he better his
financial situation for the future but he will increase the amount that he will
have when he is able to retire.
I must ask one more time. Is Your Retirement Affordable?
Tuesday, April 3, 2012
I don't want to say it's funny, because it's not funny at all
There are too many homeowners who upon approval of their Mortgage from the bank agree to purchase Mortgage Insurance in the event of their death. Now I’m not saying that purchasing Mortgage Insurance is wrong, homeownership is the BIGGEST investment of your life and protecting yourself and your loved ones in the event that something were to happen to you is the smartest thing you can do for your loved ones.
The problem is that most homeowners only know one thing about Mortgage Insurance and that it’s included in their monthly mortgage payment, and that’s it. Most homeowners also believe that upon their death that their beneficiary will receive the balance of their Mortgage from the Mortgage Insurance that they signed up for upon re/approval of their mortgage. In some cases this is true, but in most cases this isn’t true at all it’s more further from the truth then you know.
Here is the truth: You do not own your Mortgage Insurance Policy, the Bank does. Your loved ones will not receive the balance of your Mortgage in the event of your death, the Bank does. The person you may have assigned as your beneficiary for the policy is not, the Bank is. You DON’T have control over your policy, the Bank does. The Bank CAN terminate your insurance at ANYTIME.
Probably the most astonishing truth that I found out about the banks Mortgage Insurance is something called POST-CLAIM UNDERWRITING. Now many people don’t understand what POST-CLAIM UNDERWRITING is or what it even means unless you are a Life Licence Advisor or knowledgeable in the insurance industry.
Now, when we hear the word “Post” in the context of “The POST GAME show” or “The POST SEASON” we immediately think of “After” the game, or show or whatever it is. The context of “Post” also applies to your Mortgage Insurance. Post-Claim Underwriting is the process of: In the event of the homeowners’ death, the beneficiary will contact the Bank to claim the Mortgage Insurance on the remaining balance of the Mortgage too pay it down. Now, the Mortgage Insurance application that you signed up for however long ago that you renewed or purchased your Mortgage will NOW be sent to the underwriting department once the claim has been filed or made (POST-CLAIM UNDERWRITING).
This is what you may not know. Underwriting is the process of analysing medical questions that you were asked by a Life Licenced advisor which then gets analysed along with your medical records to detect if you are in fact insurable or uninsurable. Like I previously stated, once the beneficiary of the estate goes to claim the Mortgage Insurance the application that you signed will NOW be sent to the underwriting department, this is called: Post-Claim Underwriting. Now the underwriting department will analyse your medical records and make sure they match up with the mortgage insurance application.
The underwriter will open your Mortgage Insurance Application and will read the first question “Has the Proposed insured smoked cigarettes, cigars, marijuana or used any tobacco products in the last 12 months?” your answer “No” then they will check your medical records and notice that you are telling the truth and that question is passed.
Next Question: “Have you had an x-ray in the past 2 years?” and you answer “No”. Again the underwriter will check your medical records and check if that statement is true. But in fact your medical records show that you had an x-ray 8 months ago for taking a hockey puck off the ankle and you went to the hospital to see if it was broken or not. Then underwriter will notice that you DID in fact have an X-ray 8 months prior to your death and since the claim is made POST-death the underwriter will mark the application VOID in the event of misrepresentation of the insured, and the beneficiary of the estate will no longer be eligible to receive the insurance benefit to pay down the remaining balance of the mortgage.So all in all, this whole time you have been paying for your Mortgage Insurance no matter if it’s 1 year, 20 years, or 30 years it will never be underwritten unless you die, and depending on your health at the time you signed up and the time you die, will be the determining factor on whether your Mortgage Insurance will be approved or not.
Now, the easiest way to go about getting Mortgage Insurance is by finding a qualified independent Life Licenced broker such as myself. The benefit by applying with an independent advisor is that YOU own your policy, YOU can assign a beneficiary of your choice, and YOU have full control of the Policy. What is also great about an Independent Broker is that we sit with you and go over all the necessary health questions that are required for underwriting to process your policy. We send all completed health applications to our underwriting department following the completiong of the medical form, which they again go over the necessary health questions and medical records and within 2-3 weeks you will be notified if you are insured or not, which is much simpler, faster, and benefits all parties involved.
To conclude, we never know what is going to happen tomorrow, tonight, or 2 minutes from now. What we do know is that our families are the most important things in life and that we will do whatever it takes to protect them from anything.
Do the right thing, and protect your family from financial crisis.
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