How to spring clean your finances in 4 easy steps
Most of us take the opportunity to give our homes and garages a good clear out come springtime – so why not do the same with your finances and give them an annual healthcheck to make sure that they are still fit for purpose? The tax season provides you with the perfect chance to evaluate and possibly rethink your financial goals and actions and get you on the right track for the year ahead. Here are our top tips for an effective financial spring clean:
Before you can work out where your finances are at and subsequently where you want them to be, you need to have all of your financial information, such as receipts, bills, tax returns etc, in one, easily accessible place. These days, paperless bank and credit card statements are often the norm, therefore it is often worth printing out a years’ worth of them for your own records.
Conversely, however, don’t hang onto old financial information for too long or when it is no longer useful for you. As a general rule of thumb, it is advised that you keep documents relating to historical tax returns for seven years, but other financial information can generally be disposed of once you have confidently verified their accuracy.
Draw up a realistic budget
A clear and realistic budget is the cornerstone of your financial success and, for it to work for you in the best possible way, it has to be updated regularly to reflect your changing circumstances. Big life changes such as a new job, marriage or the purchase of a property can inevitably have knock on effects on your personal finances and it is crucial to anticipate such changes as far as possible and plan for them in advance in your budget.
There are plenty of online calculators to help you to track your spending and your outgoings and give you great tips on how to maximise your savings and plan your finances effectively. As I always say to my clients, start treating your life as a business and see how you can get a good profit at the end of the month. Whatever is left, reinvest it in experiences, in yourself, or others.
Find creative ways to save and earn
Saving for both the future and for any financial emergencies that may arise is key to good financial planning. From your budget, work out a realistic amount to save per month and stick to it – remember that your savings fund will grow with time and provide you with flexibility and stability if things go wrong. As part of this, you need to carefully consider your retirement plan and make sure that your contributions are appropriate, from RRSP’s, TFSA’s and non-registered investments.
There are plenty of other ways to save money if you have the time to go through your financial records. Your life, homeowner or car insurance policies should be regularly reviewed to make sure that you are getting the best coverage at the best price. And be sure to make sure that you are getting the best out of any rewards offered by your lifestyle choices, be they air miles or credit card points as such rewards can really add up, at no additional cost to you.
Deal with your debts
Tackling your debts, be they mortgages, credit cards or others, is one of the best ways of improving your finances for the better. The first step is to face the music – work out how much you owe and how much you are paying in interest charges. Once you are clear on your debt position, shop around to make sure that you are getting the best possible deals from lenders and paying the least amount of interest possible. Consolidating your debts could be an option here.
Once you have readjusted your debts to the lowest possible costs to you, it’s time to make a realistic plan to chip away at them. Paying of the highest interest debts first will obviously save you the most in interest charges in the long term, though you may want to consider the fact that paying off whole, smaller debts in full can sometimes offer you greater satisfaction and more motivation to continue.
2018 Federal Budget Highlights for Business
The government’s 2018 federal budget focuses on a number of tax tightening measures for business owners. It introduces a new regime for holding passive investments inside a Canadian Controlled Private Corporation (CCPC). (Previously proposed in July 2017.)
Here are the highlights:
Small Business Tax Rate Reduction Confirmed
Lower small business tax rate from 10% (from 10.5%), effective January 1, 2018 and to 9% effective January 1, 2019.
Limiting Access to the Small Business Tax Rate
A key objective of the budget is to decrease the small business limit for CCPCs with a set threshold of income generated from passive investments. This will apply to CCPCS with between $50,000 and $150,000 of investment income. It reduces the small business deduction by $5 for each $1 of investment income which falls over the threshold of $50,000. This new regulation will go hand in hand with the current business limit reduction for taxable capital.
Limiting access to refundable taxes
Another important feature of the budget is to reduce the tax advantages that CCPCs can gain to access refundable taxes on the distribution of dividends. Currently, a corporation can receive a refundable dividend tax on hand (known as a RDTOH) when they pay a particular dividend, whereas the new proposals aim to permit such a refund only where a private corporation pays non-eligible dividends, though exceptions apply regarding RDTOH deriving from eligible portfolio dividends.
The new RDTOH account referred to “eligible RDTOH” will be tracked under Part IV of the Income Tax Act while the current RDTOH account will be redefined as “non-eligible RDTOH” and will be tracked under Part I of the Income Tax Act. This means when a corporation pays non-eligible dividends, it’s required to obtain a refund from its non-eligible RDTOH account before it obtains a refund from its eligible RDTOH account.
Health and welfare trusts
The budget states that it will end the Health and Welfare Trust tax regime and transition it to Employee Life and Health Trusts. The current tax position of Health and Welfare Trusts are linked to the administrative rules as stated by the CRA, but the income Tax Act includes specific rules relating to the Employee Life and Heath Trusts which are similar. The budget will simplify this arrangement to have one set of rules across both arrangements.
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My kids love presents. You see their eyes light up every time Christmas comes or it’s another birthday. They are even happiest when they get something new from the store! Funny thing is, over time, if you ask me what Joshua or Lukas got for their birthdays a few years ago, I couldn’t tell you (Not sure if they can either).
We all want to make sure our kids get a head start in life. Especially this day and age, is saving for part of their future education enough? There is one gift however that I know your kids will cherish for the rest of their lives and allow them the freedom of choice and a solid foundation to start with.
It is something many people don’t think of but the investment of a whole life insurance policy is something that can benefit our children immensely. When I first discuss this with friends and clients, the initial reaction is usually one of surprise and they wonder why I would even talk about doing such a thing. I explain that I am aware that initially, a conversation about a life insurance policy for a child can feel morbid at the least, however once someone has the opportunity to hear about how they work, they quickly see that the power of this product is tremendous.
Among the many benefits this strategy has to offer, it…
- Helps protects those we love – our children, and their future families.
- It shows the power of compounding and patience of consistent investing.
- It allows a parent or grandparent to give a financial present that is about caring and responsibility for others.
- At a time when parents wonder about how to ensure their wealth is a constructive and not destructive force in their children’s or grandchildren’s lives, this financial gift is one to consider.
It’s the only financial vehicle available that allows parents to build up funds for any future use on a tax-sheltered basis where they can retain complete control of the plan until they decide (if ever) to transfer ownership to the next generation (or multiple generations, which I will explain on another post). When parents or grandparents are ready, they can do so without triggering any negative tax consequences. It may not be wrapped up and they may not see it until they grow up, but I when we explain this to them, they are in for the surprise of their lives!
5 Reasons for an RRSP
There are some great reasons to open a Registered Retirement Savings Plan (RRSP) to save for your retirement. Here are the top 5 reasons to open an RRSP:
Contributions are tax deductible
You can claim your RRSP contribution as a deduction on your tax return and even carry forward unused space to a future year where you may have a higher income. All of this combined means that your retirement savings pot can grow even faster.
Savings grow tax free
You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster.
Convert RRSP to receive regular payments
You are able to convert the money saved in your RRSP into a RRIF or annuity when your time comes to retire. You’ll pay tax on the regular payments you receive each year- but if you’re in a lower tax bracket in retirement, you’ll pay less tax.
Spousal RRSP can reduce your combined tax
Reduce your combined tax burden. If you are married and you earn more money that your spouse, a spousal RRSP may benefit you as you can add to their tax-free savings to build a joint retirement income which is likely to mean that you pay less tax in the long run.
Borrow from RRSP to buy your first home or pay for your education
You can borrow money from your RRSP under certain conditions
If you want to buy your first home (Home Buyer’s Plan) or pay for your education (Lifelong Learning Plan), you can take out up to $25,000 (HBP) or $20,000 (LLP) respectively from your RRSP to fund it without paying tax on the withdrawals (providing that the money is paid back within the specified time).
Deadline is coming up at the end of February 2018. Make sure your getting your contributions in AND looking at your options. There could be other strategies using RRSP that can help you. Get a complementary second opinion today.
In our lastest video, we talk about the best way to purchase mortgage insurance, outlining the difference between purchasing this from the bank and an advisor.