Financial spring cleaning
Written by Sarah Milton
Rearrange Your Goals
Given that research
suggests that most of us will have abandoned our new year’s resolutions
by mid-February, spring is a great time to revisit our financial goals and get
back on track. One of the key components of successful goal setting is having a
strong motivator; too often we set goals because we think we “should” do
something rather than because we actually want to. Without a definite reason to
save or to eliminate debt or to learn more about investing, it’s unlikely that
we’ll stick at working on our goal long enough to achieve it. If you find that
you keep setting the same goal over and over again and never making any
significant progress towards it, it might be time to either give up on it
completely or to find a solid reason to work towards it that actually motivates
and inspires you to keep going.
Declutter Your Payments
Often when I meet with
clients and we go through their statements, there’s at least one monthly
payment that they’ve been meaning to cancel and never got around to. It might
be a subscription to a magazine that you never have time to read, a monthly
membership fee for a gym that you aren’t taking full advantage of, or one of
those insurance policies that your financial institution persuaded you to take
on a 30 day free trial and you forgot to cancel. Whatever it is, taking 15
minutes to review your statements and another 30 minutes to make some phone
calls could save you a significant amount of money each month; money that could
be “repurposed” towards a financial goal or that could be used for something
that you’ll actually use and/or enjoy.
Tidy Up Your Spending
A spending clean up can be
a powerful way to channel more of your money towards the things that matter
most to you. Doing a clean-up of your spending means taking a look over your
statements and finding all the places where your money is “drifting”. This
drift might be the result of any number of things. For example: overspending at
the grocery store, picking up lunch or coffee on a too-regular basis, random
purchases of things you didn’t really need or too many cash withdrawals from
the ATM. David Bach coined the phrase, “latte factor” to describe these small
purchases that can add up to hundreds of dollars each month if we don’t pay
attention to them. It’s not that treating yourself or indulging in the odd
splurge is a terrible thing but the trick is to make sure that you’re using
your “fun money” to pay for those things and not money that you might have
intended to use for something else.
Try a Money Cleanse
If you find that you’ve got
too much money drifting away each month, why not try a 28 day financial
cleanse? Science suggests that it takes 28 days of consistent action to create
a habit (good or bad) so taking four weeks off from random spending and trying
really hard to develop (and stick to) a consistent spending/saving pattern can
be a really powerful tool when it comes to taking your finances to the next
level. The first few days are the hardest but if you can make it through the
first week there’s a good chance you’ll be able to see it through all 28 days.
Remember that the point isn’t to deprive yourself of everything that’s fun;
that’s a sure-fire recipe for disaster in my experience! Rather, it’s about
creating a balanced approach to spending and saving so that you can enjoy your
money without overspending and ensure there’s enough left over for the future.
Effective money management hinges on building your
understanding of basic money principles and creating simple systems that help
you live within your means and pay yourself first. Taking a few hours every few
months to check-in on those systems and make sure your spending habits aren’t
slowing you down is a time investment that’s definitely worth making. If making
some changes to your finances is something you’ve been meaning to do for a
while, then why not take some time this week to think about what you could do
to help spring clean your finances?
Here is the basic information
regarding withdrawals from a tax-free savings account:
will create additional contribution room equal to the amount of the
withdrawal, for deposits in future years
(not in the year of the withdrawal).
earned in and withdrawals from a TFSA will not affect eligibility for
federal income-tested benefits and credits such as
income supplement (GIS)
exemption tax credit
paid related to the TFSA will not be tax-deductible.
can be made, with the investments being transferred to a non-registered
account, or as a contribution to an RRSP, subject to available RRSP
contribution room. When in kind withdrawals are made, the value of
the transaction will be the current market value of the investment.
This will be the contribution amount if the investment is transferred to an
RRSP. If the investment is transferred to a non-registered account,
the current market value at time of withdrawal will be the cost basis for
the non-registered investment. Any subsequent capital gain or loss
when the investment is sold will use this value as the cost basis.
If the maximum has been
contributed to a TFSA, and then a withdrawal is made, no further amount can be
contributed (without penalty) until the following year. On January 1st of
the following year, the withdrawal amount from the previous year will be used
to increase your regular annual contribution room.
Family Tax Cuts Could Fatten December Coffers
It’s always a good idea to re-evaluate the requirement to make the December 15 quarterly tax instalment payment (December 31 in the case of farmers) but this year end it’s even more important because the introduction of the Family Tax Credit for 2014, which has the potential to reduce family taxes by up to $2000.
Who has to pay taxes by instalment? Those taxpayers whose net taxes owing is more than $3000 in 2014 and in either 2013 or 2012. Net taxes owing include personal income taxes plus CPP and EI premiums owing on self employment.
What’s different this year is that couples with children at home (under age 18) where one spouse is in a higher tax bracket than the other are likely to benefit from the Family Tax Cut of up to $2,000. The credit will be calculated on new form Schedule 1-A.
The New $2000 Family Tax Cut
This new federal non-refundable credit will provide up to a maximum of $2,000 in tax relief to benefit one-earner or two-earner couples where one spouse’s income is taxed at a higher rate.
The higher income spouse can transfer up to $50,000 to the lower- income spouse. To qualify for the Family Tax Cut the taxpayer must
• be a resident of Canada at the end of the taxation year;
• have a spouse or common-law partner;
• have a child who is under the age of 18 at the end of the year and who resided with the taxpayer or their spouse or common-law partner; and
• not be confined to prison or similar institution for 90 days or more during the taxation year.
To claim the Family Tax Cut credit, couples must file income tax returns. Either parent can claim the credit but not both. However, if the parents of a child are divorced or separated, and have remarried or have a new common-law partnership, one parent in each of the new family may claim the credit of up to $2,000. The child must reside with each couple during the year in that case. If the parents have joint or shared custody, there may be cases where it is the same child who resides with each parent.
The Family Tax credit cannot be claimed for a year in which the couple does not file an income tax return; elects to split pension income; or in cases where one of the spouses becomes bankrupt.
The Family Tax Credit will be calculated as the difference between
· the combined taxes payable (after all credits are claimed) by the couple, and
· the combined taxes that would be payable by the couple, if the higher income spouse could have notionally transferred taxable income to the lower income spouse.
If the difference exceeds $2,000, then the credit would be limited to $2,000.
Timeless investment wisdom from The Intelligent Investor
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” –The Intelligent Investor, Benjamin Graham
If you only read one investing book in your lifetime, it should be Benjamin Graham’s The Intelligent Investor. Perhaps the greatest investing book ever written, the book will make you a better investor, whether you’re a do-it-yourselfer or you use an advisor.
Graham was a mentor for none other than Warren Buffett, the greatest investor of all time, and his book is filled with the kind of folksy wisdom that Buffett has become known for. Here are some of my favourite quotes from The Intelligent Investor.
“The sillier the market’s behavior, the greater the opportunity for the business-like investor. The intelligent investor is a realist who sells to optimists and buys from pessimists.”
Most people are financially inept, making mistake after mistake, and it has dire consequences to their financial and retirement planning. When making investment decisions, they zig when they should zag. Buy low, sell high? If you can set your emotions aside and buy when things look bad, your returns should improve measurably. Good investors see opportunity amid the carnage. Buy low, not high as many do.
“How your investments behave is much less important than how you behave….The investor’s chief problem – and even his worst enemy – is likely to be himself. “
Our own behavior is, indeed, our greatest threat as investors. Investment markets don’t determine our success, but it’s how we react to them does. Make rational decisions, not emotional ones. Buy good companies and keep them as long as they remain good investments. Trade rarely, unless it’s to buy more of those good companies when their shares tumble. Buy and hold, the Warren Buffett way.
“It should be remembered that a decline of 50% fully offsets an advance of 100%.”
“Never buy a stock because it has gone up or sell one because it has gone down.”
I love good (emphasis on good) investments when they suck. The more they suck the more I like them. If Company A or ABC Growth Fund is a good opportunity at $10 a share, surely it’s a great opportunity at $5 a share as long as nothing has changed to its fundamentals.
Market declines are your greatest opportunity to buy into a rising tide at reduced prices.
“Even the intelligent investor is likely to need considerable will power to keep from following the crowd.”
The crowd is generally wrong. You’ll be more successful being a contrarian than a follower.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
It’s not the specific investments you buy that determine your financial success. Do you have a written, goal-based financial plan? Do you buy more of your good investments when times are bleak and your investments are under siege? These things will put you ahead of the guy who chases returns.
“Before you place your financial future in the hands of an adviser, it’s imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach.”
Do-it-yourself investors believe that they will be more successful by saving a little on their fees but having a pro guide your decisions can be far more important. I believe that most investors have neither the ability nor the interest in managing their own investments, and the mistakes they invariably make scuttle their retirement dreams.
“A defensive investor can always prosper by looking patiently and calmly through the wreckage of a bear market.”
As Sir John Templeton said, the best time to buy is when blood is running in the streets. We can’t predict the exact market bottom, but when markets are down 30 or 40 per cent, maybe it’s time to start buying. Or set up a systematic investment where money is directed monthly from your chequing account to your investment portfolio so you’re buying at all times – in up and down markets.
“Successful investing is about managing risk, not avoiding it.”
Market volatility is the friend of the intelligent, patient investor because it provides great opportunities to buy into a rising tide at sale prices.
Wishing you financial success.
Seniors, Retirement and Debt
“This idea that a mortgage is forever is a bad plan; this idea that debt is forever is a really bad plan. Debt will only steal your golden years away from you.” – Dave Ramsey
With the oldest of the baby boomers now in their late 60s, it’s hardly surprising that Canada has a higher proportion of seniors than ever before. Currently, more than 5 million Canadians are over 65 and that number will continue to increase as more “boomers” reach their senior years.
Throughout their lifetime, the sheer size of the boomer generation has transformed the world around them with every step: education, the workplace and society have all changed dramatically since the first boomer was born in 1946. Now, as they move into their 60s, it’s hardly surprising that the boomers are also transforming retirement. Many of these changes are positive but one change that is not so positive is the growing number of seniors entering their retirement years with debt.
Debt levels have been on the rise in Canada since the early 1980s when credit became more easily available. Living in a society which accepts and encourages debt as a means to acquiring everything our hearts desire has enabled many people to live their lives in a manner that past generations could never have dreamed of. The boomers were the first generation to take full advantage of the opportunities that credit provided and, consequently, they are also the generation entering retirement with more debt than any other generation before them.
According to a recent Canadian study:
· 12% of seniors entering retirement still owe money on mortgages
· 14% of retired seniors owe money on lines of credit
· 16% of retirees are making payments on car loans
· 21% of seniors entering retirement have credit card debt
It’s no coincidence that, while access to credit has increased over the last 30 years, the savings rate in Canada has decreased. Many seniors entering their retirement years with debts just haven’t enough in savings to cover their debt payments and their living expenses. They are also incredibly vulnerable to fluctuations in interest rates which might increase their payments. This may be the reason why bankruptcy rates among Canadians aged 65 and older are currently higher than for any other age group.
Entering retirement with large amounts of debt creates a number of challenges for retirees. Firstly, it increases the amount of money that is needed each month in order to cover the cost of living. Higher expenses mean that either you need a larger amount of savings to draw from or you need to cut expenses in other areas in order to be able to cover debt payments. Secondly, many seniors are also providing financial support to their aging parents as well as to their adult children and this often adds to their debt levels and/or hampers their ability to pay down debts. It’s not surprising that so many retirees caught in this “sandwich generation” identify finances as a major source of stress.
As with so many aspects of retirement planning, the seeds of success are sown long before your retirement date. Taking control of your financial health, focusing on building savings and reducing debts is always a good idea but it is especially important in the years leading up to retirement. Heading into your “golden years” with as little debt as possible gives you the freedom to build a lifestyle that focuses on your financial needs not the needs of your creditors.
|How receiving a partial OAS pension affects GIS amounts
As you may be aware, seniors who have limited income aside from their OAS pension may be eligible for the Guaranteed Income Supplement (GIS), which is part of the Old Age Security (OAS) program.
If you have ever looked at the GIS rate tables on Service Canada’s website
, you may have noticed that the rates shown apply only if you are receiving the “full OAS pension.” The rate tables don’t really explain how much GIS you will receive if you’re receiving only a partial OAS pension (due to having fewer than 40 years of residence in Canada after age 18).
Receiving a partial OAS pension affects the amount of GIS that a pensioner will receive in two ways:
1. A pensioner receiving partial OAS will receive more GIS than someone receiving a full OAS pension, to make up for their lesser amount of OAS.
2. A pensioner receiving partial OAS will receive GIS up to a higher income, compared to someone receiving a full OAS pension
Why does someone receiving a partial OAS pension receive more GIS?
The intent of the GIS program is to ensure that anyone who is eligible for OAS receives at least a minimum level of income on which to live. There are various minimum monthly income levels established, depending on a pensioner’s marital status
For example, as of October 2014, the minimum monthly income level for a single OAS pensioner has been set at $1,328.14. If someone is receiving a full OAS pension ($563.74 for October 2014) and they have no other source of income aside from their OAS pension, that means that they will be entitled to GIS in the amount of $764.40 ($1,328.14 – $563.74).
However, if they are receiving only a partial OAS pension, that means that they must receive more GIS in order to reach that same minimum income level of $1,328.14.
Let’s use the example of Peter to see how this works. If Peter has resided in Canada for only 25 years when he becomes eligible for OAS, he will receive a partial OAS pension of $352.34 (25/40ths of $563.74). If he has no other income aside from OAS, he will be entitled to GIS in the amount of $975.80 ($1,328.14 – $352.34).
Why can someone receiving a partial OAS pension have a higher income before losing eligibility for GIS?
For the most part, the amount of GIS that someone is entitled to is reduced by 50 cents for every dollar of income that the person has from other sources (excluding the OAS). (The GIS rate tables actually function by reducing GIS by $1.00 monthly for every $24.00 of annual income.) If someone receives more GIS because they’re receiving only a partial OAS, it therefore follows that it requires a higher threshold before they lose all of their GIS entitlement.
Let’s use the above example of Peter to demonstrate how this works.
If a single pensioner receiving a full OAS pension has income of more than $17,088 annually from other sources, they won’t be eligible for any GIS. However, they will still receive their full OAS pension of $563.74.
If Peter has income from other sources totaling $17,088, he will need to receive GIS in the amount of $211.40 ($563.74 – $352.34), in order to be at the same overall income level as someone receive a full OAS pension.
Since his GIS will continue to be reduced by 50 cents for every dollar of other income that he has, that means that his GIS entitlement won’t be fully eliminated until he has a further $5,064 of income from other sources ($211 x 24). This means that the threshold for Peter to receive GIS is $22,152 ($17.088 + $5,064).
Is this situation fair?
It seems that the GIS top-up and higher income threshold for pensioners who have had their GIS topped up may put people who have lived their whole lives in Canada at a disadvantage, particularly since OAS payments are taxed and the GIS is not.
I have my own thoughts about the fairness of this situation, but I’m interested in hearing what other Retire Happy readers think.
Money, Marriage & Divorce
“Some people think that it’s holding on that makes one strong; sometimes it’s letting go.” – Unknown
Summer is invariably the most popular season for weddings. When you’re caught up in the excitement that surrounds starting a life with the person you love, there’s a good chance that the only time finances comes up in conversation is when it comes to discussing the cost of the event itself or the honeymoon that follows. Sadly though, an increasing number of marriages end in divorce and the financial ramifications of a relationship ending can be just as painful and long-lasting as the emotional pain.
I know from personal experience how soul-destroying it can be to get sucked into the “he says, she says” bickering that goes along with trying to determine a solution that both people can agree is fair. Life isn’t measured in dollars and cents and it can be a hard rule to measure a marriage by. As with many things in life though, when it comes to divorce, hindsight is 20/20 so here are some financial life lessons I learned both from my own experience of divorce and also from the experiences of others:
Take a Snapshot
As much as I still believe in true love and marriages that last, it’s also a sad reality in Canada today that divorce has become a fact of marriage. When a marriage ends, assets are divided equally between spouses and this often means that one spouse will end up making an “equalization payment” to the other. The basic calculation for this is for each person to take their net worth (not including any equity in the marital home) at separation and subtract their net worth on marriage and then the higher net worth spouse pays the lower net worth spouse 50% of the difference to “equalize” the gain during the marriage.
The trouble with this “simple” process is, if you’ve been married for a while, it can be tricky to figure out exactly what your net worth was on your wedding day. Taking a snapshot of your financial health
on an annual basis is a great habit to develop and, if you don’t already do this, then getting married is a great reason to start that habit. Hopefully, for those of you just embarking on the marriage journey, this number will only ever serve to remind you how far you’ve come since your early days of marriage but just in case things don’t work out the way you anticipated it can be a good antidote for a hazy memory.
Keep a Balance
Marriage is a partnership but it is rarely equal, especially when it comes to finances. Chances are one partner earns more than the other or one partner is better at managing money than the other. Perhaps one partner will contribute more at certain times so that the other partner can stay home with the children, go back to school or start a business? Perhaps one partner will contribute a larger share to purchasing or renovating a home?
It almost feels wrong to keep track of these things because when you’re in a relationship the whole point is that you approach your life together as a team. When that team is divided though, each person’s perception of what was contributed, what was agreed and what is “fair” compensation can vary dramatically. It’s worth keeping track of any times where one partner is contributing more financially than the other, especially when the other spouse is contributing to the marriage in a non-financial manner (caring for children or retraining for a new career etc.).
Keep Track of Everything
Tracking your spending is a key habit when it comes to building wealth
and it’s a habit that can be worth its weight in gold when it comes to divorce. As much as you don’t want your divorce to get mired in the minute details of an excel spreadsheet, keeping track of expenses makes it really easy to document what is spent on accumulating assets and “stuff” and makes it a lot easier to agree on how things should be divided fairly. Divorce is grounded in dollars and cents and often the people who don’t feel the need to keep track of just how much they’re contributing because they’re simply investing in their family are those who stand to lose the most if things fall apart.
At the end of the day, logic is hardest to find when your brain is in emotional turmoil. Most of the people I’ve talked to, didn’t expect on their wedding day, that their marriage would end in divorce. Dividing assets, homes and determining custody and living arrangements can be a challenging and emotionally devastating process and the devastation is often amplified by financial issues and disagreements over money.
Good communication and good money management are key to a strong marriage and I believe they are also k
The differences between LIFs and RRIFs
What is a RRIF?
A Registered Retirement Income Fund (RRIF) is the most common income option for the RRSP. If a RRSP is a tax sheltered bucket of money, the RRIF is simply a tax sheltered bucket of money with a hole in it.
While the RRSP
is designed for accumulation of funds for retirement, the RRIF is really designed to create regular systematic income in retirement. Some people suggest that you can withdraw money from a RRSP whenever you want so why would you need the RRIF? The RRIF is really diesigned for regular income in retirement. If you wanted monthly income, you may not want to call up the bank or your financial advisor everytime you needed money. Instead, you would automate that income via a RRIF.
What are some of the differences between a RRSP and a RRIF? You can make contributions to a RRSP but not to a RRIF. Because the RRIF is designed for income, there is a minimum income amount that must be withdrawn every year from a RRIF
What is a LIF?
LIF stands for LIfe Income Fund and the key word is income. A LIF is very similar to RRIF. In fact, the LIF is to a LIRA what the RRIF is to the RRSP. A LIF is used to convert LIRA money to income just like a RRIF
is used to convert RRSPs to income.
A LIF is very important for those people that are retiring with a Defined Contribution Pension Plan
What are the differences between RRIFs and a LIFs?
Just like the LIRA has similarities to the RRSP, the LIF has a lot of similarities to the RRIF.
· A Life Income Fund is designed to create regular income. If we used the bucket analogy, the LIF and the RRIF are just buckets with holes in them.
· In both cases, there is a minimum income that must come out of then plan.
· Income is only taxed when you receive income.
· In both the RRIF and the LIF, you can invest in many different types of investments like GICs, bonds, mutual funds, stocks, etc.
The big difference between the LIF and a RRIF is that the LIF not only has a minimum income but also a maximum income that prevents you from spending the money too quickly.
Before you convert a LIRA to a LIF for income, you should research the pension unlocking rules in your province or territory. When it comes to pensions, every province has its own set of rules so the pension unlocking rules can vary across Canada.
Because the LIFs have a maximum income, it can be very restrictive to access funds. As a result unlocking rules can be very favourable because they create greater flexibility.
Because of the restrictive nature of pension funds, I usually suggest people draw from LIFs before RRIFs and to draw the maximum out of the LIFs (not the minimum). The theory is to use up as much restrictive money as possible before using less restrictive money. This is not always the case as personal planning is important instead of using general rules of thumb.
What do you think of the new Ontario Retirement Pension Plan (ORPP)
The Ontario Liberals’ recent majority victory means the Ontario Retirement Pension Plan (ORPP) will soon be a reality. The labour market in Ontario isn’t any different from the rest of Canada – there are the pension have’s and the pension have not’s.
Targeting The Pension Have Not’s
With each passing year, the number of workers covered by a workplace pension plan dwindles. Today only one-third of workers have a workplace pension plan, leaving two-thirds of workers on their own when it comes to retirement savings. The ORPP is designed to level the playing field, providing retirement income to those without a workplace pension plan.
What is the Ontario Retirement Pension Plan (ORPP)?
The ORPP is targeted at workers in the province of Ontario earnings up to $90,000 a year, who are not covered by a workplace pension plan. The ORPP would be a forced savings vehicle designed to help those struggling to keep up with the rising cost of living save for retirement. Similar to RRSPs
, the ORPP would provide employees with a tax efficient way to save for their golden years.
Not everyone is a fan of the ORPP. The Canadian Federation of Independent Business has been especially critical of the pension plan, calling it a tax on small business. In fact, the ORPP could lead to job loss, as employers may choose to set up shop in different provinces to avoid joining the mandatory plan. When introduced, employers without a workplace pension plan will have to contribute to the ORPP, on top of Canada Pension Plan (CPP) contributions.
How Costly Will the ORPP Be for Employers?
Under the ORPP, an employer would have to match an employee’s contributions of 1.9 per cent per year in earnings up to $90,000. Similar to CPP, the maximum earnings of $90,000 covered by the ORPP will increase each year based on the CPI.
For a worker earning $45,000 annually, the employer would have to match contributions of $66 per month ($788 annually). For a worker earning double that amount annually, $90,000, the employer and employee would each have to contribute $137 per month ($1,643 annually).
Similar to CPP, the ORPP isn’t designed to fund a worker’s entire lifestyle in retirement. Much like CPP, it’s aimed at replacing 15 per cent of an employee’s working income in retirement. The middle-class and Millennials without the benefit of a pension plan would benefit most under the plan.
Workplace Pension Plans as an Employee Retention Strategy
A job for life may no longer be a thing of the past. Job stability is near a record high – about 50 per cent of Canadian workers have been with a single employer for five years or more, according to a new report from CIBC World Markets
. In fact, the likelihood of workers remaining with their employer rises with each year of seniority, starting at 60 per cent for those on the job for a single year, rising to 95 per cent for those on the job for five years or more. This flies in the face of reports that say job hopping is the new norm.
Why are employees remaining with their employer longer than ever before? Although a mediocre job market might have something to do with it, group benefits like workplace pension plans clearly matter to workers. Over three-quarters of new hires at employers offering traditional defined benefit (DB) pension plans said the retirement program gives them a compelling reason to stay on the job, according to the Towers Watson Retirement Attitudes Survey
. This doesn’t just hold true for older workers – 63 per cent of workers under age 40 said their retirement program was an important factor in accepting their job.
The ORPP will help level the playing field by forcing employers to join if they currently don’t offer a workplace pension plan. However, there’s nothing to stop employers from going above and beyond the bare minimum by offering workplace pension plans. From traditional defined benefit plans to newer Target Benefit Plans (TBPs)
, there is no shortage of choices. Although offering these plans may be an expensive right now, they’re likely to pay off in the long-run, as employers will have a better chance of retaining their most talented employees.
Employers Have Plenty of Time to Prepare
Although the ORPP will be an added expense for employers in Ontario, the good news is employers have plenty of time to prepare. The Liberals don’t plan to introduce the ORPP until 2017, when federal Employment Insurance premiums are expected to be reduced. The ORPP won’t be introduced in one fell swoop – contribution rates will be phased in over two years. Enrollment will be staggered, with the largest employers enrolling first, allowing small businesses plenty of time to budget. The ORPP will be mandatory for any employer who does not offer a registered pension plan.
Three keys to Developing Financial Accountability
“Surround yourself with those who are on the same mission as you.” – Unknown
I believe that accountability is a critical factor in successful goal setting
and that this is especially true when it comes to financial goals. A couple of months ago, I was asked to write a testimonial for a man who has helped me a great deal over the past 18 months with my personal goals and it forced me to think about what specifically it is about him and his approach that has had such a strong impact on my success. What I realized is that it wasn’t so much his natural coaching ability or his compassion that made him successful as a coach, it was the fact that he led by example and he never let me off the hook when it came to doing what needed to be done in order to reach my goals. He wouldn’t let me set the bar lower than it needed to be and he held me accountable for taking the steps necessary to reach my goals. Knowing that failure (and laziness) was not an option forced me to step up even when I was fearful or unmotivated.
Surround yourself with the right people
When it comes to managing money and building wealth, being held accountable dramatically increases our chances of success. I’ve written before about the theory that we are the sum of the people we spend the most time with.
If you spend most of your time with people who will allow you to make excuses when you get off track and who will lead you into temptation with their own spending habits it makes sense that it’s going to be much harder to achieve your goals. Conversely, if you’re surrounded by people who are committed to achieving their own goals and who won’t hesitate to let you know what they think when you don’t do what you need to in order to succeed you are more likely to be successful.
As I was writing my testimonial it occurred to me that a good accountability partner has three main characteristics:
They Don’t Let You Off the Hook
As I thought about my mentor and then back to high school and university I realized that the teachers who had impacted me the most (in a positive way!), and in whose classes I had made the most progress, all shared common traits. Each one of them was strict but fair and each one of them was known for not being willing to extend deadlines on homework or essays under any circumstances. Many students disliked them because they were so strict but I found that I thrived in their classes because I was too afraid of the consequences to risk not doing what I was required to in order to do well! An accountability partner needs to be strong enough to call you out when you’re doing less than you’re capable of and they need to be able to do it in a way that’s not confrontational or demoralizing. Putting someone down by pointing out their flaws and non-successes is not the same as holding them accountable to a standard that they’ve set for themselves. An accountability partner is someone who gives you feedback in order to build you up, not tear you down.
They Walk the Walk
If you’re relying on someone to hold you accountable for your goals then it’s important that you can see and respect the effort that they dedicate to achieving their own. Our goal group meetings are focused on the progress and challenges of the individual members and the leader’s role is to facilitate the discussion and solicit feedback rather than share his own goals. However, just knowing that he is working on his own goals and seeing his progress inspires us to dig deeper and keep working on ours. An accountability partner functions like a pacesetter, they set a standard that encourages you to push a little harder in order to keep up and their progress motivates you to keep moving towards your goal. This is especially important when it comes to financial goals because in trying to eliminate debt
, manage your money more effectively and build wealth
you’re aspiring to achieve goals that are in direct opposition to the materialistic, debt-laden norm of our consumer driven society. Working to achieve your goal alongside someone who is on the same path makes it a lot easier to stay motivated when it feels as though you’re paddling upstream..
They Celebrate Successes
An accountability partner should be genuinely happy for you when you reach a goal and not threatened at all by your success. They should also remind you to celebrate every step of the way. Sometimes we get so caught up in focusing on how far we still have to go to reach our goal that we need reminding of how far we’ve already come. Celebrating success with an accountability partner is powerful because their unique understanding of your journey gives them a totally different appreciation of how significant each step really is.
As human beings we have an innate need to be seen; to be recognized and validated for our progress and accomplishments. When you’re working to achieve a goal, you tend to be driven by something that is personal to you and that motivator is not always understood or supported by those around you. Having an accountability partner is more than just having someone on your side who understands your journey. It’s about having someone in your corner who believes in and supports your reason for starting that journey in the first place, who will remind you of it when you get off track and who will hold you accountable for finishing what you set out to achieve.
2014 tax season: 12 tips to get the biggest refund
1. Claim medical expenses
This is my personal favorite, only because everyone has a question about their medical expenses. People miss claiming common expenses like Blue Cross, and fees paid to medical practitioners like speech-language pathologists, occupational therapists and acupuncturists. Ambulance fees are expensive and claimable; so is the cost of tutoring services for the learning disabled. You can also claim the lesser of $5,000 and 20 per cent of the costs of a van adapted to transport the wheelchair bound and moving expenses incurred to a more suitable dwelling to a maximum of $2,000. When in doubt, check it out.
2. Moving expenses
If you have moved at least 40 kilometers closer to a new work location, you can claim the costs of selling your home, including real estate commissions and penalties for paying off a mortgage. Even the costs of a vacant old residence, to a maximum of $5,000 is allowed. The costs of moving to the new location and temporary living accommodations for up to 15 days can be claimed too. But, as this is often a five-figure number, expect to be audited.
3. Maximize babysitting deductions
Claiming the child-care deduction can be complicated. Should it be the higher or lower earner who claims it? It depends, actually. Usually it’s the lower earner, but if there is a separation during the year, or the lower earner is going to school, or hospitalized, it’s possible the higher earner may make the claim. The maximum dollar amounts claimable have not changed this year, still $4,000, $7,000 or $10,000, which depend on the child’s age and health. Claim the lesser of what was actually spent, your earned income (sorry, EI benefits won’t qualify) and the weekly and monthly dollar limits specific to higher earners and students. Keep receipts handy, too, in case of audit.
4. Don’t miss employment deductions
If you get a T4 slip and are required to pay out-of-pocket expenses as part of your employment contract, a deduction may be possible on your tax return. Here’s the catch: you must be required to pay your own expenses under your contract of employment and the employer must certify this on Form T2200 Declaration of Conditions of Employment. Lots of taxpayers forget to claim back the GST/HST paid on tax deductible amounts using the GST/HST 370 Form. Expenses can include accounting and legal fees, motor vehicle expenses, travel costs, parking, supplies used up directly in your work, office rent or certain home office expenses as well as amounts paid to an assistant, which could be a family member.
5. Your principal residence is tax exempt
The increase in value of a property designated as a principal residence is tax exempt. It’s easy to qualify your properties if you own more than one —just live in each for a couple of days each year. You can have more than one residence that qualifies, but only one can be designated as your principal residence for any given year. The choice of which is made on t2091 when you dispose of a residence. But if you’ve been flipping residences for profit, you could be assessed as being in the business of buying and selling homes. Be ready to defend this by showing your intention in acquiring the properties and the circumstances around the reasons for the dispositions.
6. Disabled? Use your RRSP Home Buyer’s Plan
The Home Buyers’ Plan is an RRSP feature that allows first time home buyers to withdraw up to $25,000 from their RRSP tax-free, for the purpose of buying or building a home. Note that you qualify as a first time home owner if you move to accommodate a disabled person. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed the $25,000 maximum.
7. Minimize tax on severance
If you’ve lost your job, your severance package can help but it can also put you into a high tax bracket because it’s usually paid in a lump sum. One way to reduce your taxes is to maximize your RRSP contribution room. Another is to write off your legal fees if you fought a wrongful dismissal. In some disputes, you qualify for lump sum averaging to reduce taxes. Better yet, ask the HR department to annualize the bonus to average down taxes payable for the period. Best to see your tax advisor first, to ensure you keep as much as possible, after-tax.
8. Control credit crunches: write off interest
Is your investment portfolio still in the red zone? You can still write off the interest on your full investment loan, even if your portfolio has diminished in value, providing there was a reasonable expectation of income from property: interest and dividends for example. Also, be sure to take advantage of capital losses to reduce capital gains of the current year. Unabsorbed losses may be carried back or forward to offset capital gains in the carry-over year. Don’t cash in RRSPs if you can help it—this will cause a tax problem next year.
9. Optimize pension income splitting
If you received a pension from your company plan or started periodic withdrawals from your RRSP or RRIF this year, you may elect to transfer up to 50 per cent of your pension benefits to your spouse. This can be very lucrative. Those receiving periodic pension benefits from employer-sponsored plans can take advantage of pension income splitting at any age; if periodic income comes from RRSPs, RRIFs or other annuities, you’ll have to wait to age 65 to income split.
10. Reduce tax installment payments
Take control of the first dollar you earn—keep more by paying only the correct amount of tax throughout the year. If you pay income taxes by making quarterly payments, review your payment requirements. If your income has dropped since you last filed a tax return, you can reduce your payments. Simply write a letter to let CRA know you will estimate installments payable on current year. This is a much better way to manage your cash flow and stay invested during market turmoil.
11. Claim the new tax credits for children’s activities
There are new amounts to be claimed on the tax return for enrolling your children in the arts or sports activities. You can claim public transit charges for them to get there too. Because the Children’s Arts Amount is new, you’ll need to remind yourself to dig out the receipts.
12. Adult artists and writers can claim deductions, too.
Employed artists and musicians can claim expenses for composing dramas, musicals or literary works, performing and creating works of art. Expenses can include things like ballet shows, art supplies, computer supplies and home office costs. The maximum claim is 20 per cent of net income or $1,000. Musicians can also make claims for the maintenance, rental, insurance and capital cost allowance for musical instruments.
Schedule 88 Internet Business Activities - New requirement for 2013 tax returns
Schedule 88 must be filed by a corporation which earns income from one or more web pages or websites. The schedule must also be filed if the corporation doesn't have a website but has created a profile or other page describing its business on blogs, auction, market place or any other portal or directory websites from which it earns income.The information above is from Schedule 88 on the Canada Revenue Agency (CRA) website, and seems to describe most corporations. If a corporation doesn't have its own website, but has a web page on someone else's website from which it earns income, this form is required. Includes income from:goods and/or services sold via a web pageorders received via a form on a web pageemails received to make a purchase, order, booking, etc.advertising, income programs, or traffic your site generates - for instance this would include income from Google Adsense, Microsoft adCentre, or other affiliate programs.If the website or web page does not directly generate income, then it would not be reported on Schedule 88. The type of website or web page that would fall into this category includes:telephone directory websites that list your website or web pageinformation-only websites or web pages, which give basic contact information for the business, and general information about the type of goods or services provided by the business.Many businesses will have an internet presence, but will not know how much of their income can be attributed to their website. In such cases, a best estimate will suffice.This form is not yet included in many T2 tax software packages, but may be available soon. If you are required to file Schedule 88 and are using software which doesn't yet include it, download it from the CRA website (link above). CRA information indicates that if your 2013 tax return was filed before April 4, 2014, then you are not required to file Schedule 88 this year, but it should be filed with your 2014 return.The form asks how many internet web pages or websites your corporation earns income from. If the corporation has 2 websites with 100 pages each, the response would be 2. If the corporation doesn't have it's own website, but has 1 web page on a website owned by someone else, the response would be 1. The url address of the web page or website must be provided. Up to 5 urls can be entered. If the corporation has more than 5 websites, the addresses of those that earn the most income should be provided.CRA Resources:Internet Business Activities - updated to provide more information May 21, 2014Schedule 88 Internet Business ActivitiesTax Tip: Unless a person has been trained in preparing corporate tax returns and is up to date on current tax laws, the return should be prepared, or at least reviewed, by a professional accountant.
Changing your tax return once you have already filed itIncome Tax Act S. 142(4.2)
If you have filed your return and then determine that you need to make a change, either because you have received another T-slip, or because you didn't claim an expense and later learned it was deductible, you can request an adjustment to your tax return.If you've just discovered that pension splitting with your spouse would save you some tax, this is also a good reason to adjust your prior return. However, make sure that combined taxes payable are reduced by doing this, and keep in mind that the taxes payable of one spouse will probably increase, resulting in interest on the tax amount payable.The time limit for filing adjustments to your tax returns by mail is ten (10) years. An adjustment request may be made in 2013 for the 2003 or subsequent taxation years.You can request the changeonline for your most recent return, or your returns for the previous two tax years, orby mail, for tax returns for the past ten years.Requesting a change onlineRequesting a change online is very simple, and is done by logging into your account at the CRA My Account page. A separate request has to be filed for each tax year.You can also use the online request if you forgot to apply for the GST/HST tax credit when you filed your tax return.Requesting a change by mailYou can obtain a form T1Adj from the CRA web site, complete it and mail it in, along with documents supporting your change request.See also the CRA web page How to change your return.
Are You taking charge of your finances?
“You haven’t failed until you stop trying.” – Jon Gordon
Taking charge of a situation puts you in the most powerful position; it puts you in control. Being in control means that, not only do you get to determine the direction you’re moving in, you also get to chart the course, build the team and manage the progress towards the goal. It’s a powerful position but, for many people, that’s a deterrent rather than an incentive to take the role on. Being a passenger is much easier than being the driver but the rewards of stepping up to the plate and taking control are infinitely greater. This week I needed an energy boost and so I re-read “The Energy Bus” by Jon Gordon. Although the 10 rules laid out in the book aren’t technically related to managing money, I believe they can just as easily be applied to building financial success
as they can to building a positive life. Here are the first five rules; I’ll share the other five in next week’s post:
You’re the Driver of the Bus.
Simply put, you’re in control of your life and you’re also in control of your financial future. Whether it’s because of fear, apathy or limiting beliefs, too many people are content to sit on their bus, lamenting the fact that it’s not moving as fast as they’d like or in the direction they want while completely ignoring the fact that they’re sitting in the driver’s seat, with a full tank of gas and the keys in the ignition. The only person that should be driving you towards your goals is you; in fact the only person who can drive you to your goals is you. Whether we like it or not, we are each in control of our own actions and our own future. If you want to get ahead, you have to drive yourself there. A chauffeur driven bus is not an option!
Desire, Vision and Focus Move Your Bus in the Right Direction
You can’t get anywhere you want to go without a S.M.A.R.T. goal, a clear vision of what achieving it will look and feel like and a keen understanding of what’s motivating you to achieve it.
If you’ve ever used a GPS to get somewhere you’ll know that every journey starts with keying in your destination and the GPS never loses sight of that goal during the journey. Any time you get off track, it guides you back to the path. Giving up on your goal isn’t part of the GPS’s programming. It shouldn’t be part of yours either.
Fuel Your Ride With Positive Energy
My mandate for this year is to be “relentlessly positive”, it’s not always easy but it’s a much happier way to live each day. No matter how frustrating your day, finding something to feel good about will lift your energy levels. Your journey to financial success won’t always be sunshine and easy roads; there will be challenges and obstacles along the way.
How you deal with those is not only directly related to the speed at which you’ll achieve your goals but also to how much you’ll enjoy the journey. The other benefit of approaching your journey with a positive energy is that you’ll attract other positive people to you which will help lift your energy levels even higher.
Invite People on Your Bus and Share Your Vision for the Road Ahead
Humans weren’t designed to thrive in isolation. Regardless of whether we sit closer to the introvert or extrovert end of the spectrum, our strengths and talents are valuable in teams and for community and each of us thrives more easily in an environment where we are seen and appreciated for who we are and what we’re working to achieve. Even though each one of us charts our own path, we don’t have to navigate it alone.
Surrounding ourselves with people who not only understand and support our goals but who are excited to share in the journey and the success amplifies our efforts, makes the obstacles seem smaller and the detours less distressing. Inviting money mentors and a tribe of people who support your financial goals on to the bus is critical to success; it’s important to only fill your bus with positive people.
Don’t Waste Energy on Those Who Don’t Get on Your Bus
Even though we have complete control over our own lives, we don’t have any control over other people’s journeys or choices. The hard fact is, not everyone you invite on to your wealth building bus tour will want to get on board. It can be tough not to take their decision personally and to resist the temptation to beg, persuade, cajole, manipulate or threaten them into joining you but the cold reality is, if they don’t want to get on, you’re better off leaving them behind. Their negative feelings about being on your journey will only slow you down. This can be hard to accept when the people we’re moving away from are people we truly care about but not all friendships and relationships last a lifetime; sometimes they’re only for a season or a reason. As Jim Rohn pointed out, we are the sum of the five people we spend the most time with, so it’s important to focus our energy on spending time with the people who are excited about where we’re going and not those who would rather we stay where we are.
When it comes to money, the only way to inspire a change in entrenched habits and attitudes is through conversation and action. Too many money conversations focus on a lack of money, an abundance of debt and outright apathy when it comes to our ability to impact and change our situation. This willingness to accept the status quo, to comfort ourselves with the notion that everyone else is in the same boat or the belief that it’s too hard to change things needs to change. We need more people charting the journey for their own wealth building tour and stepping up to drive their own bus.