kids and money -set your children up for financial success
Steps To Calculating 2015 TFSA Contribution Room
A new version
of form RC343 has been released by the CRA to calculate TFSA contribution room
for 2015, taking into account the new 2015 contribution limit of $10,000.
with your TFSA contribution room as of January 1, 2014
Subtract any TFSA contributions made in 2014
any TFSA withdrawals made in 2014
$10,000 (your new TFSA contribution limit for 2015)
you’ve already made TFSA contributions for 2015, subtract those
Here’s an example:
had TFSA contribution room of $12,000 as of January 1, 2014, including
the $5,500 of new contribution room for 2014. She made a $10,000 TFSA
contribution in 2014 and withdrew $15,000 that same year. She has not made any
contributions in 2015 yet. Following the steps outlined above, her 2015
TFSA contribution room is:
5. - $0
Beware of TFSA Traps: The biggest trap, other than holding non-registered investments outside a
TFSA when there is contribution room available, is recontributing to the TFSA
in the same year as the withdrawal is made. Withdrawals do increase TFSA
contribution room, but not until the beginning of the following year.
example above, after her $10,000 contribution, Joni’s TFSA contribution room
for 2014 was reduced to $2,000. Her $15,000 withdrawal did not open up
contribution room until January 1, 2015. If Joni had re-deposited the $15,000
in 2014, she would have had a $13,000 excess contribution. All excess
contributions are subject to a 1% penalty tax for each month they remain in the
these reasons, it’s important for wealth advisors to encourage their clients to
seek their assistance or consult with A Tax Services Specialist before
withdrawing money or recontributing it to a TFSA.
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.
UCCB Lucrative, But Complex
Effective January 1, 2015, the Universal Child Care Benefit will be increased from $100 per month to $160 per month for each child under the age of 6.
In 2006, the federal government implemented the Universal Child Care Benefit that provides all families for each child under the age of 6 with $100.00 per month. Effective January 1, 2015, the Universal Child Care Benefit will be increased from $100 per month to $160 per month for each child under the age of 6. The Universal Child Care Benefit has also been expanded to include children aged 6 to 17. The amount to be paid for each such child will be $60 per month. Remember, however, the UCCB is taxable.
However, in conjunction with this enhanced family payment, the Child Tax Credit, a non-refundable tax credit on Schedule 1 of the tax return will be replaced effective for 2015 and subsequent years. Now all families – no matter the income level - will benefit from the new UCCB, including families whose taxable incomes were too low to benefit from the Child Tax Credit. The Child Tax credit was introduced in 2007 based on a fixed amount per child under the age of 18 years. For 2014 the fixed amount is $2,255, which provides tax relief of up to $338 per child. However, this amount helps only those families that pay taxes. It won’t help those who didn’t.
As per the Department of Finance details released with the announcements, the net cost of enhancing the Universal Child Care Benefit and replacing the Child Tax Credit should be $0.7 billion in 2014-15 and $2.6 billion in 2015-16 (this is calculated as the increase in cost for the UCCB enhancement of $1.1 billion for 2014-15 and $4.4 billion 2015-16, less the savings the government reaps by replacing the CTC. That amounts to $0.4 billion 2014-2015 and $1.8 billion 2015-16).
But, there is a third wrinkle. With the elimination of the Child Tax Credit, the Family Caregiver Tax Credit for infirm children would also no longer be claimable effective January 1, 2015. This is not the intention of government and so amendments to the Income Tax Act will be made as required to ensure that a Family Caregiver Tax Credit for infirm minor children will be available.
Astute tax advisors will likely be in high demand, as a result of the multiplicity of changes coming to Canadian taxpayers and their families. Scheduling early appointments might be a good defence in 2015.
Are You a Financially Intelligent Parent?
Teaching kids about money is a topic that is near and dear to my heart as a father of 4 young boys. A while back I got to reading a book,
It was published in 2005 but the book is still very relevant to current times.
The book includes an interesting questionnaire to figure out if you a financially intelligent parent. Here’s the questions:
1. Do you have unresolved issues around money? Are you a spend thrift, a miser, a chaotic manager of money?
2. Do you have goals and a plan to educate your children about financial matters?
3. Do you ever consider the values that you are communicating through your money behaviours?
4. Are you uncomfortable talking about financial subjects with your children?
5. Do you have difficulty saying no when your children ask for money?
6. Do you use money as a bribe to get your children to do what you tell them?
7. If you feel like you’ve been neglecting your kids, do you try to make it up to them by buying them things?
8. Do you frequently fight with your spouse about financial subjects in front of your children?
9. Do you harbour extreme money beliefs; such as money is the root of all evil, or money is what makes people happy?
10. Are you neurotically fearful of going to the poorhouse even though you make a good living and there is no basis for this fear?
11. Do you ever talk to your children about the importance of giving money to those less fortunate than your family, or make them involved in charitable activity?
12. Do you give your kids a constant allowance?
13. Do you understand the emotional meaning of money in your life?
14. Do you frequently make disparaging remarks about people who are poor or are less successful than you are?
15. If your child raises a money issue, do you usually make the effort to take advantage of this teachable moment?
According to this questionnaire, I am happy to know that I am considered a financially intelligent parent. How did you do? Here are the answers:
According to the Gallo’s, “Few parents receive perfect scores on this questionnaire. If you’ve never given much thought to these issues, the odds are that you had a number of “wrong” answers. Financially intelligent parenting isn’t an inherent skill. Our own parents’ money issues combined with social attitudes have shaped our money beliefs and behaviours, and they have not always shaped them in to ways that benefit our children.”
If you think about it, being a financially intelligent parent is not always easy. It’s take conscious awareness, ongoing effort and some degree of consistent behaviour.
Based on the research in their book
, the Gallo’s summarize financially intelligent parents as people who:
· Are optimistic about their ability to change money behaviours;
· Value the difference between financial savvy and financial intelligence;
· Think long and hard about the meaning of money in their lives;
· Consider the financial education of their children a primary parent responsibility;
· Recognize their unconscious money deeds have as much impact on their children as their conscious money words;
· Feel that no and enough are words that children need to hear as part of their money education;
· Want their children to work more for a sense of satisfaction than for money;
It’s Important to Teach Your Children About Money
There is a lack of financial education
in Canada and for some reason, parents avoid talking to their children about money. In one study more than 1/3 of parents do not discuss money with their kids. When did we decide that money talk was a taboo in the household?
Why don’t parents talk to their children about money?
Who really knows, but here are some different thoughts on the question. Do you fit into any of these categories?
1. Parents don’t know how to manage money very well themselves.
As a result, they can’t get a handle on what to tell their kids. If parents are living paycheck-to-paycheck, building debt on charge cards and home equity loans, and not saving for the long term, how can they help their children structure a financial plan
2. Parents aren’t practicing what they ought to be preaching.
If parents are not using self-discipline by setting a good example for their kids, how can they hold their kids to a higher standard than they hold themselves? Modeling behavior takes a serious commitment. The fact is, savings rates are decreasing in Canada and personal debt levels are rising
. It’s tough to teach our kids if we can’t be models of our own lessons.
3. Their parents didn’t talk to them about money. It’s the ongoing cycle. If we as parents never learned it from our parents, how can we talk to our own kids about money? Money skills are not taught in school and maybe they should be. After all, it’s a skill we all need. If we don’t learn it at school and our parents never taught us, then where do we learn how to manage money?
How do we teach our children about money?
Being a parent of, I often sit at the dinner table talking to my boys about money issues. It’s kind of funny that I teach adults about money but when it comes to my own kids, I find it difficult to know the best way to teach them about personal finance.
I’ve done a lot of reading on this area and there are lots of interesting ideas out there. I suggest asking other parents that have had some successes at teaching their kids about money. Here are some of my thoughts and philosophies:
· Start young. By the age of three, most kids start to become curious about money and how it works. This makes it an ideal time to model good spending habits. I was surprised to hear that many older preschoolers will want to start saving money. Get kids to open bank accounts as early as possible so they can watch and track the value of their money. We have lots of great discussions about their bank accounts.
· Teach through allowance. Provide an allowance so that they can have an income of their own in order to learn their own real-life money management lessons. Encourage them to save and spend. Even as adults, we need incentives to save like matching plans from employers, tax breaks for RRSPs. Factor in an incentive program to save with their allowance. Here are some articles I’ve written on allowance
· Get them thinking about budgets.
As they get older, kids become full-fledged consumers and are ready to start learning how to make good spending choices
. If you think your child is ready, put budget constraints on their choices. Help them to understand compromise and limited spending. Teach them to look for deals. If they buy that $10 toy now, it might take them longer to save up for that ipod. Let them make mistakes on their own.
· Get them investing early. It’s never too early to invest. In fact, the sooner, the better. Studies have shown it matters less what you invest in and more on the fact that you are investing on a regular disciplined basis. Pick a stock that they might understand like NIKE or DISNEY. Pick a balanced mutual fund or for the really conservative person, use a basic money market account. Let them track these investments and get them into habits early.
· Help them understand the consequences of debt.
Our society today is a society that has abused debts
. It is so easy to borrow to spend these days and this concept of immediate gratification and delayed consequence is a dangerous one. As they get older make sure they understand how to avoid and manage debt
effectively. Remember, you have to practice what you preach to be effective at this lesson.
The bottom line
Kids learn about money in two different ways: though their own experience and from watching their parents. Set your children up for financial success
by grounding them in positive experiences and by being the good model they need. The best thing you can do is lead by example.
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.
Student Filing 101: Understanding Student Tax Deductions
No matter the degree or diploma, as a post-secondary student, you and your family can benefit from student-based tax breaks available to Canadian taxpayers.
You can use a combination of these deductions and credits to save money toward your higher education costs.Tuition Tax Credit
Tuition paid for post-secondary education in Canada may qualify for a tax credit. Tuition paid outside of Canada also may be eligible, provided that you attend a university full time and enroll in a course of study leading to a degree.
If you're a low-income student, you may not need to use the entire tax credit in a particular year if you don't owe taxes. Instead, transfer up to $5,000 in education credits to a spouse or partner, a parent or a grandparent to help reduce their taxes.
Doug Cumpson, a tax specialist and partner at GB Taxes & Accounting in Dundas, Ontario, says that it's important for you to give consent before transferring the credits.
“Since the tax credit belongs to the student, it is incumbent to get the student’s agreement to transfer (it) to a third party by signing the back of the tuition slip,” he says; signing the tuition slip authorizes the transfer.
“Failing to obtain the consent will negate the transfer of the tuition credit,” Cumpson adds. Instead of transferring the credit, you may prefer to carry it forward to use in future years. “Sometimes these tax credits are large enough for a student to rescind their personal income taxes,” says Cumpson.
“In other words, (you could) obtain a huge personal tax refund after filing (your) first income taxes” when employed.Education and Textbook Tax Credits
You may claim an education amount of $400 for each whole or partial month in the year you attended a qualifying educational program full time; part-time students may claim $120 per month.
This non-refundable tax credit can't generate a tax refund, but like the tuition and textbook credits, all or part of it may reduce taxes owed or be carried forward to use in a future tax year. Alternatively, if you don't owe taxes, the credit may be transferred to a spouse, common law partner or even a parent or grandparent.
Students who qualify for the education credit also may claim a textbook tax credit.
A $65 textbook credit is available for each month that a full-time student qualifies for the $400 education credit. Part-time students who qualify for the $120 monthly education credit may claim $20 for each month of part-time study.Student Loan Interest Write-Off
You may carry forward interest from the last five years on loans under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial government laws. However, this amount is non-transferable, and there are several restrictions.
The amount is only eligible if it hasn't been claimed previously. And, it only includes student loan interest, not interest on other loans, including consolidation loans. This deduction also excludes interest paid as a result of a judgement against you for failure to pay back your student loan.Moving Expense Deduction
If you move more than 40 kilometres to attend a post-secondary institution full time, you may qualify for the moving expense tax deduction.
Look at the tax slip from the educational institution. If Box C -- full-time enrollment -- includes an amount, you are considered eligible.
However, there's a catch. These expenses are only deducted from the taxable part of scholarships, fellowships, bursaries, certain prizes and research grants.
You may claim multiple moving expenses in one tax year, including the eligible expenses incurred at the beginning of each academic period and those incurred when returning to school after summer break.Child Care Deduction
Students, who are also parents, may qualify to deduct child care expenses. Those who attended school and pay for care for a child younger than age 16 -- or a child who is physically or mentally impaired -- may qualify for the child care expenses deduction.
Married or common-law students may transfer this deduction. Usually, the lower income spouse claims child care expenses.
But, the higher net income spouse may claim the child care expenses if his spouse or common-law partner attended an educational program, lowering the family's overall income tax burden.Mass Transit Breaks
Students or their spouses may claim eligible public transit costs if they haven't already been claimed by another person in the family, or if they haven't been reimbursed for some or all of the cost.
This includes transit costs for the student and her spouse and children under 19 years old. Eligible transit passes may include unlimited weekly passes, monthly or annual unlimited cross Canada or local passes and electronic payment cards.
Teaching financial responsibility to kids
One of the ways to teach kids about financial responsibility
is to model the finances in the home to what it looks like in the real world. In the real world, very little comes for free. I also believe that hard work gets rewarded and the harder you are willing to work, the more opportunities that get created. The hardest thing to teach kids about the real world is the idea of delayed gratification
. In fact, this concept is so hard that even many adults do get the concept.
As a result of these beliefs, I am always thinking about how to instill these thoughts into my kids who constantly want to buy this that and the other thing without really understanding consequences to spending money.
No money tree
I don’t know about you but I do not have a money tree in my backyard growing endless amounts of money. We are constantly trying to prioritize our spending because we can’t have it all without going into serious debt
. Here are some of my thoughts on teaching my kids financial responsibility.
1. The secret to financial success is to understand where money comes from.
Whenever I talk to kids about money, I always ask them to tell me all the things you can do with money. Many kids come up with concepts around SPENDING
and SHARING. It’s important for kids to understand that you can’t spend, save, invest or share money until you earn it first. For me, it’s important that we give our kids opportunities to earn money at home. This is a very valuable real world lesson.
2. Money that is earned is taxed. Tax
is an economic reality for adults earning income. We can’t spend all the money we make. Just look at your paychecues. When you make a dollar, you don’t get to spend a dollar. You have to pay taxes, benefits and other mandatory deductions. As a parent, I’ve decided to teach this to my kids by taking half of all the money they make as a tax (25% to savings and 25% to a community pot for the good of our family). This continues to be a work in progress. The reality is we have put this money into a separate account and we are not 100% sure what we will do with it. Maybe it will be used for a family holiday or a new iPAD for the kids. What I do know is it’s a way to force my kids to save 50% of everything they make and a way to teach them about taxes and how they work. It’s kind of like running the house like a government. Mom and dad are the government and the boys are citizens.
3. Let them control the other 50%. My kids get to use the other 50% to do what they want as a way to learn on their own. They get to make mistakes on their own. It’s important to have them see the outcome of their decisions and their siblings’ decisions. Responsibility comes from making decisions and being accountable for those decisions.
4. Be sure to give them lessons along the way. As someone who teaches adults about money, I think it is crucially important to help my kids make financial decisions along the way. Kids are curious and it’s important for me to answer their questions when asked. It’s also important to lead by example and use our own spending as a way to teach the kids.
5. Keep lines of communication open. We recently went on a holiday to Sandpoint Idaho for 5 days before school started. At the end of the trip, I went into the hotel to check out and my third son, Jason, asked why I went to the hotel desk. I used that opportunity to talk to my kids about how much the holiday cost and whether they thought it was worth the money. The trip cost about $2000 not including meals and we tried to think about what else we could have done with the $2000 instead of going on the holiday. In the end, we all agreed that it was money well spent. I am really happy about the conversation we had because they have a better understanding that holidays are not free and they have some sense of what that holiday was worth.
Responsibility comes when you make people accountable for their actions.
I’m not sure about you, but I think teaching kids about financial responsibility is far from easy. It’s one of those things you never know what the outcomes will be. It’s a dynamic process that evolves and changes.
With four boys, I also realize that kids don’t learn the same way. Sometimes a strategy that works with one does not work with another because they have different motivations and personalities. That makes teaching kids about money even more difficult.
Scoring High with Credit
Student life -----------
If you have a credit card or a student loan, you have started to create a credit rating. Since establishing a good credit rating is vital to your financial future, it's important to know how to best manage the money you've borrowed.A (credit) history lesson
Your credit history begins when you start to borrow money and continues throughout your life. Any time you need to borrow, a lender (e.g. your bank or the government) needs to check how responsible you are.
To evaluate your reliability as a borrower, the lender checks with the credit bureau, an agency that tracks the creditworthiness of individuals. These agencies look for information on your credit rating and credit history.
Just as your resumé describes your work history, your credit history is a record of your financial decisions. And your credit rating is like a mark on a report card - it indicates how well you follow the rules of borrowing.Advantages of a good credit rating
A good credit rating will help you get car loans, student lines of credit, mortgages and maybe lower interest rates. Having a bad credit rating can hurt your chances of obtaining any of these.
You can start building a good credit history now - by applying for credit sparingly, paying your bills on time and trying not to get stuck with a balance you can't afford to pay back.How to build good credit
§ Pay on time - Late payments can seriously damage your credit rating.
§ Keep your outstanding credit card balance low - Leave lots of space between your outstanding balance and credit limit. And never exceed your limit! If you do make large purchases on your card or need to keep a higher balance, try to keep a revolving balance (meaning the balance doesn't stay locked in one place for too long). That way, the lender won't get the impression you're stuck in a bad position.
§ Pay more than the minimum - This will bring your balance down more quickly. You'll also save interest charges by paying off as much as you can.
§ Avoid cash advances - Using a credit card for quick cash is an expensive trap, since interest is charged on the money from the day you borrow it. But do keep in mind that cash advances are available - and a handy way to get out of an emergency situation.
It also pays to cultivate some good credit habits. Remember, credit mistakes can remain on your credit report for a long time! Try these additional tips:
When you make a large purchase, pay it off before you buy something else.
If you see your outstanding balance growing, leave your credit card at home until you shrink it.
Make your payments a few days before the due date. If you're forgetful or put things off, find a way to get your payments in on time. Set an alarm on your phone, do whatever you have to do to pay on time.
RESP Investment Planning
There are many points around RESP that you will need to get familiar with but the main RESP facts to get you started are the following.
- Maximum of $2,500 contribution annually per child for the 20% grant. If you put more than $2,500, you won’t get extra money from the government.
- Somewhat limited investing horizon with 18 years. You basically assume that you will have to start withdrawing money once your child finish high school and enrols into a university or post-secondary education.
- Your portfolio grows tax free!
Your goals are to maximize the government’s contribution and make the account grow to cover at least 4 years of university. How much do you need? It all depends on your choice of post-secondary education and where the student is going to live.
Just like retirement, you want to know how much you are going to need. A ballpark figure is fine and if you can generate a larger portfolio obviously. I have written a post on determining how much retirement might cost you along with how much you may need. In case you have a pension plan and your payments are all figured out, planning your RESP will require some work.
Below are the 2 scenarios for a post-secondary student you need to consider above and beyond having food and clothes.Live @ Home
Live Out of Town
- Tuition Fees
Estimating Tuition Fees
- Tuition Fees
To estimate tuition fees, you need to take an average of a few post secondary institutions around you. Make sure you take all the spending into account. If you want to estimate down the road, throw an inflation value on it and adjust the numbers as your child grows up. If that’s too much work, do it every 5 years to start with.
Tuittion fees at UBC for one year cost around $6000 (rounded up) for the year plus $1,500 in books (average). See the UBC site for tutions details. Some programs cost more and up to $10,000 for one year and often times fees go up after the first year.
Transportation is location dependent but a student transit pass in BC for post secondary student is $40 (rounded up) per month. Assuming you do 2 terms per year, you spend $320 for commuting. A vehicle is a very different story as you need to include insurance, gas, and maintenance.RESP Risk Roadmap
Unlike a RRSP where you would never want to use it all up unless you had other source of income, the RESP can be completely depleted by the end of school. If you have more than one child on a family plan, you need to account for the other child as well Managing risks is managing the type of investments you hold. The higher risks, the higher the potential for return and vice versa. Side note: The Investor’s Manifesto is a great book to educate on the risks of the stock markets.
I like to start by dividing the roadmap in 4 since it makes it easy to get started.
- First 4.5 years : You want to maximize growth
- Second 4.5 years : You want to start shifting a percentage to fixed income
- Third 4.5 years : You want to adjust the percentage to more fixed income
- Fourth 4.5 years : You want most of it in fixed income
That’s the premiss of capital preservation. The type of investment to use is where it all gets complicated. My RESP account never really performed early on as I had poor investments (and lacklustre advice). Once I switched my RESP over to my dividend portfolio, I did not want to add risk and I wanted to focus on income. My RESP account is set now and aside from the REITS having lost some value, it’s all DRIPing monthly 1 or 2 shares for each investment.
It’s important you define the risk roadmap you want as it will inform you of the type of investments to look for.RESP Investment Roadmap
The initial challenge is that you are not adding a lot of money to buy equities and you cannot diversify much. In the first year, you could have 3 investments at $1,000 each. It’s possible if equities are what you want and you can still make monthly contributions by just leaving them in cash until you have $1,000 for example. Your trading cost if your fees are $9.95 per trade amounts to 1%.
Buying ETFs allow you to diversify faster across markets. You can look at applying an index investing strategy early on. ETFs trade like stocks though, so you would have the same trading cost unless your discount broker offer free ETFs. Questrade has free ETFs so if you have taken benefit of the Questrade promotions, you are in luck. You can buy your ETFs with every contributions and benefit from dollar cost averaging.
You can also buy mutual funds but you need to be very selective of what you buy and understand the fees you may potentially pay (front-end or back-end). I am not a big fan of mutual funds.
Now comes the hard work of actually deciding on what to buy. What I suggested my brother do was to do a mix of index investing for US investments and then buy equities for CDN investments in companies he wishes to buy. For the fixed income portion, he can add bonds. Do your own research and define a plan according to your risk appetite. As it happens, he knows how to buy bonds and it’s part of my goal this year to add bonds. I am just unsure if I buy a bond or a bond index. The case for buying an US index is to make sure you have exposure to the biggest market in the world without the tax complication of owning a dividend stock in this account since dividends are taxed.
When it comes to my RESP, I have two goals over the coming years:
RESP Planning Summary
- Add bonds to it in the form of an index or just a bond (which needs a minimum of $5K)
- Add a US index ETF
Like any new parents, a new and exciting chapter is about to start. You are ready to put money aside for the future of your child and benefit from the government contributions. Just like your life, you need a plan and it starts with planning your investments. In my future RESP posts, I will go over contributions and the tracking you need to do to plan withdrawal in the future, otherwise you may very well run into trouble.
Finances for Students
“Don’t be afraid to fail. Don’t waste energy trying to cover up failure. Learn from your failures and go on to the next challenge. It’s OK to fail. If you’re not failing, you’re not growing” – H. Stanley Judd
For many students, university and college is an opportunity to learn about much more than just the subjects that they are studying. So much of the University/College experience seems to revolve around figuring out the best (and worst) ways to do things, testing limits, falling down and getting back up again. Lessons about life, love and friendship are as much a part of the student experience as the academics; some of those lessons are easier to absorb than others but it seems that the hardest lessons are often the most powerful. For students living away from home for the first time, managing their time and their finances effectively can be two of the most challenging aspects of student life to master. However, any student who can get them under control can be sure that they’re creating a solid foundation for their future success. When it comes to managing student finances, the principles are very simple:
Understand Your Cashflow
Student finances can be tricky to manage because often students will receive large sums of money from student loans and bursaries that need to last for several months. Human nature and a person’s money psychology make it very tempting to spend more than necessary at the beginning of the semester when the bank account looks healthy which can make things challenging later on. Figuring out how much money a student needs for tuition, books, food, accommodation, transportation and other necessities and putting it straight into a separate account (preferably not one linked to their debit card!) can help them determine more clearly exactly how much they have for extras and reduce the risk that they’ll overspend without realizing.
Keep Track of Your Spending
Keeping track of your spending is the easiest way to keep it under control. Figuring out a reasonable budget or money management system and then keeping track of spending is a great way for students to avoid going into debt. It’s also really good practice in developing good spending habits and effective money management skills that will help them a great deal once they graduate. It’s not always easy at first but if students can make tracking their money a habit it will go a long way to keeping them out of debt.
Minimize Your Expense
This may sound logical but for many students it doesn’t come naturally and a big part of that is because they expect their lifestyle as a student to be exactly what they’ve been used to at home. Often, that means eating out regularly, lots of trips to the mall and those “must haves” such as VIP cable and super-fast internet. All the little luxuries that can make living on a student budget seriously challenging and taking on more debt seriously tempting. Human beings are hard-wired for pleasure so it can be hard for students to cut back on the things they’ve come to take for granted, especially when so many other students have them. However, the fact is that the less debt graduates have when they start working the better off they are in the long run. Trying to shift their perspective to see reducing expenses as empowering rather than restrictive can go a long way towards helping students to keep their spending in check.
Contribute as Much as You Can
Part-time work while in school and full-time work when not in school can go a long way to helping students stay out of debt and can also help them value their education more. We can’t help but attach a value to something that we’ve had to work for and working in order to help pay for education is no different than working and saving hard for a new computer or something else that we really want. There are also lots of bursaries and other grants available to students with good grades or who meet certain criteria and students who are willing to take the time to research and write application letters or fill out application forms can often get a great financial return on that time investment. I know of one student who funded her entire degree through bursaries and part-time work and she found herself miles ahead of her classmates financially within a short period of time after graduation. Education can be expensive but the more students can do to help cover the costs of being in school, the better off they’ll be after graduation.
At the end of the day, university (or college) is a training ground for life, not simply for a chosen career path. The whole experience is a unique opportunity for students to develop the money management skills necessary to succeed in the “real world” and to build a solid foundation for their future financial success. It’s also an environment riddled with opportunities to get into debt; an environment rich with offers of student loans, credit cards and credit lines that are likely to be approved based on a student’s expected income upon graduation rather than their current situation. Being approved for credit is not an indicator of a person’s ability to manage it or pay it off. The more we can do to help our young people avoid falling into the debt trap during their student years so that they can graduate with as little debt as possible the better off they will be in the long term and this is a topic I’m planning to explore further in next week’s post.
The 5 Fastest Ways to Repay Your College Loans
If there's one obstacle that prevents most millennials from investing either independently or with a financial adviser, it's the burden of college loans. These loans weigh down graduates, preventing them from seizing new financial opportunities until they clear their debt. In 2012, the Federal Reserve Bank of New York reported that the average outstanding student loan balance was $24,301, with 10 percent of borrowers owing more than $58,000.
So how can you get out from under that debt quickly? We spoke to investment managers and financial planners for their top tips to become free of that student loan. While they may be faster, some will definitely not be cheaper -- at least initially. But all are worthwhile in the end.
1. Treat the loan like a mortgage
If you can afford it, treat the loan like a mortgage and simply make larger payments to reduce the principal more quickly, says financial planner Allan Katz, CFP, president of Comprehensive Wealth Management Group in New York's Staten Island.
For example, a $25,000 student loan with 6.8 percent interest with a 10-year payback period would cost $288 a month. Paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years, Katz says.
By doing this, borrowers are "paying the principal down more quickly, which results in lower interest charges," he says. By paying extra, the entire loan would cost $28,000 rather than $34,560.
Another strategy is adding payments and sending in checks every two weeks rather than monthly.
Once that college loan is repaid, the benefits proliferate. "It's one less debt you owe. The money you make is now free to be invested and applied to owning a house, saving for retirement or putting a child through college," Katz says.
2. Create a 3- to 5-year plan
Clayton Shearer, a Certified Financial Planner at Wellness Financial Services in Thornton, Colo., urges clients to create a three- to five-year plan to pare down college debt. Knowing exactly when the loan ends is comforting for many clients. Clients "have a goal in place, they're committed to it and they know exactly what to pay monthly," Shearer says. Paying it becomes part of their monthly routine comparable to submitting checks for mortgages, cable TV and telephone.
For example, two clients had $50,000 combined in college debt and were making around $100,000 a year jointly. To pay it off, they established a budget and curtailed spending. Their budget was helped by two sizable bonuses from work, resulting in their sending $800 per month for two years to cancel their college debt. Had they not prepaid, it would have taken about 15 years to pay off the loan. The result, Shearer says, is clients "get debt-free and have a load lifted off their shoulder."
3. Establish your own college repayment fund
If a graduate can save an additional $100, $200 or more a month and deposit it into an account via automatic savings, it can expedite repayment. Having money moved automatically is effective because it's forced savings, Katz says. It enables people to set aside money to grow what otherwise would be spent on TVs or iPhones, Katz says. Just make sure to set up an account that will be used only for paying back your college debt. Don't use checking or savings accounts you already have because you might use that money for something other than your loan.
When you create the account, you can tie it to mutual funds, saving accounts, annuities and stocks that offer dividend reinvestment plans. The most effective way to ensure that the money saved multiplies is to let the money grow until it accumulates into a lump sum and then transfer it a chunk at a time to pay off the loan balance. "How long somebody must save depends on the returns they get, as well as the amount they are investing and how much they owe," he says.
Of course, there's risk associated with savings in investments like mutual funds because the stock market is volatile and can falter. Typically over the span of a five-year or longer loan, stock market investments recover and grow, he says.
4. Start early with a part-time job in college
Earning money while attending college is one way to be proactive about keeping college debt in check, says Charles Sachs, a principal at Private Wealth Counsel in Miami. He says it's a win-win because "getting a paid position while still in school generates some money that offsets loans and builds invaluable industry specific knowledge."
If a student can manage to put away $1,000 a month, "that's $12,000 (a year) less in student loans and not having to take that money out in loans -- a big savings," Shearer says.
Working part time while attending college can also strengthen a student's ability, Shearer says. It develops discipline, provides real-world experience and earns income to lower future debt obligations, he adds.
5. Avoid the usual traps
The most compelling obstacle preventing people from repaying loans faster is the need for "instant gratification," Shearer says. People can lose sight of their future financial goals, live for today, and "fall off the budgetary wagon," he says. The most effective way to reduce debt is to plan ahead, make some sacrifices, focus on future financial goals and delay instant gratification.
Katz agrees. Maintaining financial discipline is a difficult hurdle for many people, he says. "Most people don't have the discipline to save. Most people spend like goldfish eat, which is nonstop," Katz says.
The people who succeed at reducing college debts are those who "live within their own means and are conscientious about saving," Katz says.
Make Claims for Children’s Programs in Year Paid
Claims for the Children’s Arts and Children’s Fitness tax credits are based on when the payment is made, not the year in which the activities are scheduled.
If you register your children — or your spouse’s or common-law partner’s children — in an artistic, cultural, recreational or developmental program that starts in January 2014 but you pay for it in December 2013, you can claim the non-refundable Children’s Art tax credit on your 2013 income tax return. You can claim up to $500 per child under the age of 16.
The same goes for the Children’s Fitness tax credit if you enrol a child under 16 in an eligible program of physical activity. For both credits, if the child is disabled, an additional amount of $500 can be claimed if the child is under the age of 18 and at least $100 is paid for the program.
Financial Lessons From my Dad
“A father is his daughter’s first hero.” – Unknown
As children, our parents are the centre of our world. Their words and actions shape our understanding of the world around us and what it takes to be a good person. We learn our relationship and parenting skills from our parents and we also learn how to handle money. No matter how carefully our parents try to tell us the right thing and give us the right advice though, more often than not it is the lessons we absorb from watching their actions rather than listening to their words that make the strongest impression and stick with us as we move into adulthood. Managing the household finances has always been something that my parents did together and seeing the way that my dad always respected and included my mum in all the financial decisions even though he was the main wage-earner taught me that, as a woman, I should never be afraid to take charge of my finances.
Happy Fathers Day!
The fact that this post is about financial lessons I learned from my dad doesn’t mean that I didn’t also learn valuable financial lessons from my mum. I did. However, my dad has been on a challenging journey over the past nine months, so this Father’s Day weekend I am especially keen to celebrate what a huge impact he has had on my life.
I’m very lucky to have a father whose integrity, work ethic and gentle nature has inspired me since I was a child and I have an enormous amount of respect and appreciation for him. However, he is part of a generation that was raised with the belief that money is a subject you keep private and don’t talk about and so most of the financial lessons I’ve learned from him are definitely the result of observation rather than conversation. Here are the first two:
1. If You Want It, You Pay For It
This one might seem like a no-brainer but it’s a lesson that was drilled into each of us as we grew up. When we were young we were given a small amount of “pocket money” each week that we could spend or save as we chose. Once we got older though, if we wanted something that cost more than our weekly allowance we quickly learned that the extra wasn’t coming from Dad; we either needed to save for a really long time or get a job! I started babysitting at 11 and got my first early morning paper route as soon as I was old enough at 13. Once I turned 15 I worked in the family-owned store (at minimum wage) on Saturdays and picked up extra shifts through the summer when the regular staff took vacation. It was just understood among my siblings and I that if we wanted something that wasn’t connected to our education (ie: clothes and gadgets) we had to earn the money to buy it. It’s not that my parents couldn’t afford to buy us what we wanted, they just figured that having to save for things would make us more selective about our “wants” and would help us appreciate our purchases more once we made them.
2. Be a Conscious Spender
I’m pretty sure that my dad’s money personality is ‘Saver’. He’s just one of those people who have a natural instinct for handling money well, combined with a drive to understand different investment options so he can make informed decisions. This natural instinct extended to his spending decisions and, although I didn’t necessarily appreciate his frugality when I was growing up, now I can clearly see how it positively impacted his achievement of his retirement savings goals and his current lifestyle. What I’ve learned from this is that choosing to have some things is better for your financial health than needing to have everything. Dad chose to spend the money he saved on family vacations, a new kitchen or a home renovation rather than a fancy TV, a new car or expensive furniture. Our Christmas gifts were generous but never overly extravagant and eating out was a treat reserved for birthdays rather than a weekly event. I wish I could tell you that it was my Dad’s approach that helped me learn to find pleasure in small treats rather than big splurges and to appreciate the reward of buying something that you’ve saved for but unfortunately it took a spectacular fall into a hole created by Visa to get me to that point! What I can tell you is that, having conquered the credit habit and learned the lesson, I have a much deeper appreciation for the massive benefits that being a conscious spender brings. (I also deeply appreciate the fact my dad can resist using the phrase “I told you so” even when it’s absolutely justified!)
The Power of saying no to children
“We have compassion. We just don’t believe the safety net should be used as a hammock.” – Allen West
Even though it seems counter-intuitive to the idea of helping; sometimes the most powerful thing you can do to help someone is to say no. It can be the hardest thing in the world to say no to someone who you know is in absolute need of your help, especially when you are in a position where helping them is entirely within your abilities. However, being forced into a situation where you have no choice but to take the tough route is often the most powerful factor in creating long-lasting change.
Over the last couple of weeks, I’ve written about five financial lessons I’ve learned from my dad
. If you’ve read my posts before, there’s a good chance that you’ll have picked up on the fact that I have a deep admiration for both my parents and in many ways they are the epitome of the values I am building my own life on. We didn’t always get along but as I grow older, my respect for them and understanding of what motivates them has grown and I am blessed that we have such a strong relationship. It’s not always easy though and I think that the fact I live 4000 miles and an ocean away from them definitely helps us appreciate each other in a way that we couldn’t if I still lived close by!
One of the things I appreciate about my parents is that they’ve always allowed me to make my own decisions and supported my choices even when they didn’t agree with me. They’ve watched me fall flat on my face and then supported me in getting back on my feet again, sometimes financially, mostly emotionally and (mostly) without recriminations or an “I told you so”. The knowledge that, no matter what, they would be there to lean on if absolutely necessary has always been a kind of a “safety net” for me. It’s not that I’ve had to lean on them often, or that I make reckless choices but knowing that “net” is there has definitely made walking the tightrope of life a little less daunting. Nine months ago though, everything changed and suddenly I found myself in a situation where, for the first time in my life, I was confronted with the knowledge that even if I needed to turn to my parents for help I wouldn’t be able to.
It’s said that we find our greatest strengths in times of challenge and I believe that’s true. Finding myself in a situation where my safety net no longer existed forced me to a level of independence that I’ve never achieved before and I am definitely much stronger for it. It’s not that I had to manage a disaster, or that I found myself in a place where I needed help and couldn’t ask for it, but the knowledge that I only had myself to rely on forced me to look at my situation in a different light, made me re-evaluate my priorities and gave me a renewed commitment to achieving my financial goals
As parents our “job” is to protect our children from harm and to take care of them in every way that we can. However, as our children grow older, it can be hard to refuse to give them the help and support that we gave them as younger children and to force them to stand on their own two feet, especially when we know that they’re in need and we have the ability to help. Whether it’s paying off debts, providing free accommodation, subsidizing expenses or always picking up the bill when going out for dinner, parents often find themselves helping out their adult children and more often than not, the helping becomes a habit. I’m not saying that parents shouldn’t help out their children but I wonder if sometimes the most effective way to help is to draw a line in the sand and stand firm in your refusal to be drawn past it. I come across parents all the time who are paying more towards their kids’ expenses than they are towards their own savings goals and parents who are dipping into their own savings in order to help out their children. Regardless of whether the parents are in a position to help or whether they are compromising their own financial future in order to provide assistance, my recent experience of ‘living without the net’ makes me wonder if saying “no” would actually be better in the long run for both the parents and the child. It seems that having no choice but to find your own solution is the most effective way to create permanent change rather than a temporary fix making it a win-win situation for all involved.
What do you think? How much responsibility do parents have to care for their children financially once they reach adulthood? What can we do to help our kids prepare for life ‘without the net’ or should we always be there to step in if necessary? Is there a time and place to say no to children? I’d love to hear your thoughts and stories.