With so many parts of our lives feeling disrupted, I am offering a 45 mintue phone consultation at no charge. If you have questions about managing your expenses, how to get through the next few months or would like to talk through how investment markets may impact your plans, please contact me by email: email@example.com. I will have two no-charge consultation times per day available until June 1, 2020.
How to Support Your Small Changes and Your Big Changes
Wednesday, October 18, 2017
How to Support Your Small Changes and Your Big Changes
This is Part I in a 3 Part series: How to Actually Make the Changes You Want
Change is hard, and can take a long time. We make goals, promises and wishes, then surrender to our routines rather than step onto a new path. Your goals aren’t going to go away; this can be the time that you meet them.
Take stock of how 2017 has gone for you so far. Did you make New Year’s Resolutions in January? If you did, how have they worked out? Evaluating the success and failure of past ideas/goals/ commitments has value for us. If you made a resolution that you soon abandoned, it is helpful to go back and take a closer look. Maybe the resolution didn’t matter enough to you to commit the time and energy to make it happen. If that’s the case, let that resolution go and move your attention somewhere else. If the resolution does still matter to you, take a look at what else you might need to make it to the goal. Resolved to cook at home more and eat out less but you haven’t so far? Sometimes our goals need to be broken down into steps that we can turn into habits. You might reach that goal if you signed up for a regular email recipe, chose two a week to cook on your least-busy nights of the week to start and planned to eat chicken burritos every Wednesday (or whatever meal is most popular and easy to make in your house). Now you’ve turned 7 decisions made daily into 5- Wednesdays are already decided, one day a week you’ll pick 2 recipes to try, and you need to sort out 4 other dinners. Once that pattern becomes a habit, move further into the remaining days until you’re happy with your level of eating out vs eating at home.
For the resolutions that you’ve kept, evaluate the effect on your life. Did the change meet the goal that you thought it would? If you committed to exercising more but the early-morning gym run is leaving dark circles under your eyes, perhaps a change in timing is needed. We can’t always predict the outcome of meeting our goals. We assume that getting what we wanted is good, and it can be. Sometimes it means we have to make other decisions or adjustments to meet our bigger goals. In a situation that took several years to unfold, spouse A was offered a job approximately an hour from Spouse B’s job. It was a good offer, in a location that both wanted to live in. Spouse A took the job, and Spouse B worked on negotiations with his current employer to change his sales territory to include the new home location. He thought the new territory would leave him closer to home 3 days a week, and the commute to the existing territory would be manageable for 2 days a week. After setting this up, he realized that the territory was significantly larger than he thought, meaning he was now travelling an hour from home in 2 directions, instead of one; the new territory wasn’t generating the sales he anticipated, and he liked driving less than he thought. The goal was achieved, but once it was, further evaluation was needed. Don’t shy away from making decisions that may be adjustments of previous decisions.
Questions to ask:
What did I think my life was going to look like this year?
What areas are different from my expectations, what areas line up with my expectations?
If you had trouble answering the first question, spend some time thinking about what your goals and expectations are. We all have them, it can be difficult to pull them out of a busy life into conscious thought.
To discuss your goals, progress and changes and develop your own plan, contact Sara at 519-569-7526 or firstname.lastname@example.org
Changing employers, contract positions and total career changes have become a normal part of our landscape. Today, we look at the range of information, impacts and decisions that go along with that. Some information and questions are obvious:
Is the regular compensation higher or lower?
Is there a bonus structure?
Is the time commitment higher or lower? This could involve daily commuting, regular travel or number of responsibilities and resources given to meet them. Vacation time and flex time may also be considered here.
Is there a benefits package? How does it compare to your current package?
Do you expect opportunities in the future for change to compensation or time commitment?
Something that may be less obvious: Reviewing the above only makes sense if you know what your own needs and goals are. If your current position pays enough to meet your needs and goals, moving to a higher pay, less flex time position may not make sense for you. If you haven’t developed your own plan, there may be a temptation to take the higher pay only to realize that it wasn’t worth it to you later.
Changing employers or careers can also generate options related to the benefits that you are leaving. Questions about what to do with a Defined Benefit pension plan need careful analysis that draw in your personal situation. There is often a time limit to make a decision about commuting (moving your benefit amount out of the plan and managing the money yourself) or remaining in the plan. The impact of this decision may not be felt for many years.
Sometimes, you don’t have a choice in the change; layoff or company closure forced the change. Understanding your personal goals and financial situation gives you the information that you need to decide what your next step looks like.
In the midst of change, it can feel impossible to call a time-out to review your needs and goals. Without the relevant information and analysis however, you may find yourself writing a ‘ladder against the wrong wall’ chapter in your life.
“If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.” Stephen R. Covey
On this Thanksgiving weekend, many of us will have an opportunity to spend time with family and friends. This holiday can be a time to reflect on what we are thankful for, or what we have received. Christmas is only ** days away. Pre-Christmas can be a season of charitable solicitations, a time when many focus on giving to family, friends and charities.
Recent Statscan statistics reveal that 84% of Canadians claimed a charitable tax deduction, and 44% of Canadians volunteer their time. Like other areas of your life, taking the time to develop your giving plan can have significant positive impact for you and those that you help.
A meaningful giving plan starts with a discussion about what issues you care about and why you want to support them. What does community mean to you? What are your views on international versus local ventures? Answers to these initial questions will drive the rest of the dialogue about where and how to have an impact on issues that matter most to you. A deep discussion about your values will connect your giving to the rest of your plan; income, spending, investments and estate planning will all start to reflect your values about who and how you want to be in your community.
To have a conversation that starts with your interests and goals, ending with an executable plan, instead of starting and ending with tax strategies, contact Sara at 519-569-7526 or email@example.com
Creating and maintaining a family always comes with unexpected highs and lows. The birth of a child is a joyous event, regardless of the challenges. When a child is born with special needs—whether developmental or medical—parents can face unique challenges that can initially feel overwhelming.
When first learning their child has special needs, parents face a steep learning curve, says Kathy Netten, a social worker with the complex care program at The Hospital for Sick Children (Sick Kids) in Toronto. Parents need to learn medical terms, how to navigate the healthcare system and how to advocate effectively. Because many conditions are discovered in infancy, they are often learning how to be parents for the first time. And, they may also be grieving.
Sick Kids has over 50 social workers like Ms. Netten who provide counselling, therapy and support services for families with special needs children. “We are available to help parents find resources and work effectively with care teams, to problem solve when there are challenges, and for the very difficult decision-making,” she says.
From her experience, Ms. Netten says parents will often push themselves to physical and mental exhaustion to benefit their child. “The key is to find a balance between hope and despair, even under the most difficult of circumstances. Hope will allow parents to take care of their own emotional, psychological and spiritual needs so they can care for the developmental and medical needs of their child.”
Parents must also be mindful that financial questions are not forgotten at this most critical time, only to become an additional burden later on. While it can be difficult to think about long-term financial concerns, a firm financial foundation will not only protect your family, it will also free you to focus on the physical and emotional needs that only you can meet.
For parents of special needs children, this can be even more important. A typical family will see income increase over time. However, for families with special needs children—especially those that have the most complex needs—literature shows that income actually decreases. Medication and equipment costs, time taken from work, and lack of knowledge of available assistance programs are all contributors.
A comprehensive financial plan for families in this situation will:
Clarify your current financial position and options
Identify potential future costs and/or obstacles
Review available government programs and benefits
Develop your estate plan to protect all of your beneficiaries
To review your situation and explore how a personalized plan would benefit your family, please contact Sara at 519-569-7526 or firstname.lastname@example.org.
Spending less than you earn is an important skill that we all need. We all have unexpected expenses, larger purchases that we need to pay for, and we will eventually stop earning money from our careers and live on our savings.
Recent government proposals for tax changes to small businesses and corporations have raised questions about savings and taxes; some of the proposals seem to punish for saving. Unravelling the proposed changes, their impact and why you need to save is a process. Today we’ll start with the savings.
If you are starting a savings plan, there are several steps that I recommend:
Define different types of savings
Emergency Savings- this amount would cover the cost of sudden income loss, a large home repair, or a series of unexpected expenses. A good number to start with is 3-6 months of your usual monthly expenses
Short- Term Savings- this amount would cover the cost of larger purchases that you know are going to happen. Cars need repairs, houses need maintenance, vacations need to be paid for
Long- Term Savings- car replacement, retirement, children’s education (this topic has also been covered in Planning for the next educational step - RESP withdrawals)
Ideally, your emergency and short-term savings will have different locations than your main bank account ie- separate bank accounts, a TFSA, a non-registered investment account. Differentiating the location helps you to keep the purpose separate (and you are less likely to spend the money on something else).
Match the Type of Saving to the Type of Investment
Different types of savings need different types of investments.
The purpose of emergency savings is to have the money available when you need it. You don’t know when an emergency is going to happen; it’s important that you don’t take risk in the value or availability of the investment. For example, if you invest your emergency money into a Guaranteed Investment Certificate (GIC); you are locking that money into that investment for a specific amount of time. You can’t access it earlier. This is not the purpose of this money. If you invest your emergency money into a stock or stock mutual fund, for potential higher growth, you are also accepting the risk of short-term loss of value. This type of investment also doesn’t suit the purpose. Emergency money is best left in cash that pays you interest.
The purpose of short-term savings is to have the money available when the expense occurs. These may be annual expenses, or expenses that occur within 3 years. Short-term goals often have a desired ‘spend’ date, which like your emergency savings, means that you need the money available when the expense occurs. This timeline also means that you don’t want to take significant risk in chasing growth on this money. Cash or a bond fund is suitable in most cases.
Long-term Savings- we will discuss this area in next week’s blog.
Separating your savings based on purpose has many benefits: organizing your day-to-day cash; ensuring money is available for larger expected purchases and protecting your family and finances in an emergency.
To apply this to your situation or discuss further, please contact Sara at 519-569-7526 or email@example.com
A follow-up to the Question Wednesday in May: Incorporated clients with surplus cash may have received advice against opening a Tax-Free Savings Account (TFSA) account. This week explores why that may be, and what factors go into the TFSA decision.
A quick primer on what some terms mean and how they are used here:
Corporation- for the purposes of this blog, I am referring to privately-held operating companies or investment holding companies. I am focusing on the surplus cash that has been generated by the company/ deposited to the investment holding company from the operating company.
Surplus cash- any money that the corporation owner doesn’t expect to use for at least 3 years.
TFSA- introduced in 2009 by the Federal Government, these accounts allow for deposits, to a yearly maximum amount. Once in the TFSA, the owner can choose how the money is invested. Investment choices are broad, and similar to investment choices within an RSP. TFSAs are owned by a single person; they are not owned by a corporation or jointly with another party. You do not receive a tax credit for your deposits, however, you do not pay income tax on the money when it is withdrawn from a TFSA. When a withdrawal is made, that amount can be re-deposited to the TFSA in the next calendar year. For more information on TFSA rules, see the link below.
Surplus cash in a corporation can be invested for longer-term gains. Investment choices are very broad. Money that stays in the corporation is taxed at the corporate tax rate. Currently, corporate tax rates are lower than personal tax rates, which allows for more money to be invested initially than if the cash were withdrawn from the corporation to be deposited to a TFSA. For example, $1 of earned income inside the corporation may pay 15% income tax, leaving $0.85 that can be invested. If the $1 of earned income is moved out of the corporation to a TFSA, you will need to pay personal income tax on that $1, leaving approximately $0.54* to invest in the TFSA. This initial difference in the amount available to invest is the main driver for the advice to leave the money invested inside the corporation.
I believe that the TFSA option is worth exploring when we start looking at the long-term effects of investments in a corporation and in a TFSA. Investments in a corporation are taxed yearly on the returns that they generate. The returns are taxed as passive income, not as active business income. Investment returns do not receive the 15% corporate tax rate mentioned above; instead they are taxed based on their nature. Interest income is taxed at approximately 50%; dividends at approximately 36%; capital gains at approximately 25%. Investment returns inside a TFSA are not taxed, as the account is tax-sheltered. Over a long time period, tax-sheltering is valuable. The other factors to consider are the uncertainty of personal dividend tax rates in the future- should you choose the ‘invest in the corporation now’ option, when you need the money, you will pay income tax at the going rate. Indications from governments are that tax rates on Canadian Controlled Private Corporations are more likely to move up than down. As the portfolio grows inside the corporation, you are likely to need to re-balance your investments, triggering capital gains. It may make sense to move some of that money to a TFSA, where re-balancing is not a taxable event. See the link below for a paper researched by Jamie Golombek reviewing the nature of investments held and the optimal location. Although the paper was first researched in the brief time that the yearly TFSA limit was $10,000, the conclusions still stand- if you are investing in interest-bearing investments, you are best to move that money out of the corporation and purchase those investments inside a TFSA. Investments that pay dividends are also best inside a TFSA over the long-term. Capital gains (usually generated from stock investments) are more beneficial inside a corporation- it may not be worth the initial tax payment to move the money to a TFSA, then invest.
The decision to deposit to a TFSA or invest inside your corporation is best made in discussion between your accountant and your planner- there are many individual solutions that take into account yearly tax positions and opportunities, as well as investment preferences and overall portfolio allocation. If you don’t have a TFSA solely because of your corporation, I recommend that you review your situation again and see if there are opportunities to tax-shelter while still being tax-efficient.
Disclaimer- the above is a general illustration only, personal circumstances will vary. As always, talk to your accountant before making any significant changes to your situation.
How do we decide how we spend our money? Most of us have trouble answering this question. How are we teaching our children then? Well, they watch what we do, and interpret our actions, correctly or incorrectly. If we don’t deliberately teach financial literacy, our kids may end up with a tangle of patterns as adults.
5 Financial Values*
Learn to Handle ‘No’
You’ll have many chances to practice this one and it’s never to late to start. Younger children can hear “not this time” when they pick up items while shopping or in line at the grocery store. Conversations with older children will take a different form, especially if they haven’t heard ‘no’ often. ‘No’ with an explanation helps them develop a process for making decision. For example, when a child asks for a new phone, you can explain why you’re not buying them a new phone the day they ask for one. The explanation can be as broad as “we’re making some changes in how we manage our money for the family, and I’m not going to put that amount towards a phone for you right now”.
Differentiate between Needs and Wants
This can be a tough distinction, but it’s important. Use the chart from last week’s blog to help you sort your expenses into the pie chart. If you have some amount left over in the “live” section, you have room for wants. Wants need to be prioritized, as all of us run to end of our money at some point. Allowance can be helpful for kids to differentiate – give a monthly amount that must cover some needs and leaves something left over for wants. “Your allowance needs to cover your clothes (except shoes, coats and boots). You can decide how to divide the rest between eating out for lunch, movies and other things that you may want to do.”
Tolerate Delayed Gratification
Advertisers would have us believe that delayed gratification is a phrase from a previous generation. This skill is key to many successful adult behaviours- I don’t know anyone who has completed a course of education without delayed gratification. If you give an allowance, talk to your child about saving for larger purchases. For older children, when allowance must cover some needs and needs, wants may have a wait a few months to accumulate the money for the purchase. This is a good chance for the child to evaluate how much they want the item; they may forget all about it, or decide that another experience/purchase is more valuable to them.
None of us can have everything at one time, we all make tradeoffs. Tell your children about some of your tradeoffs- “We went out for dinner last week, this weekend we’ll choose a movie from Netflix instead of going to the theatre.” Verbalizing makes it clear that you are making decisions, otherwise children just see a string of events. It’s okay to talk to kids about spending decisions that you wish you hadn’t made. They don’t need gory details on what you may have done, generalities and a solution are enough to teach the values.
“We had a collision of expenses last month, and I need to spend less on (insert a discretionary spending area for you here) this month.”
“I loved this sweater in the store and I was so sure that it was really important to me to own it. Now that it’s here, I realize I could have used the money for other things that would have been more meaningful to me.”
Develop a Healthy Skepticism
Watch commercials and other forms of advertising with your kids. Ask questions, listen to what they think of the promises and product portrayal. Remind them that an advertisement’s only goal is for you to purchase the product, not to make your life better. Teach them to put new information in the context of their current situation and priorities.
“I’ve already spent money on a Lego set this month, and I wanted to go to a movie with my friends next weekend. If I buy this new thing now, how will I pay for the movie?”
Pulling financial transactions into a conscious decision-making arena helps adults and children use money as a tool to meet goals instead of being controlled by our purchasing patterns.
* Kids, Wealth and Consequences by Richard A. Morris and Jayne A. Pearl. 2010 Bloomberg Press
We all have goals, and we’ve all seen an advertising slogan about needing a map to arrive successfully at our desired destination. Today’s graphic is useful for those who would like a clearer picture of their finances, or who have experienced significant change recently. To move towards the goal of helping your children understand and successfully manage finances, this simple illustration covers a lot of ground. This week’s post is Part 1 of 2- check back next week for thoughts on how to clarify your financial values for yourself, then teach your children using concrete examples.
LIVE- anything spent that supports your lifestyle would go in this category. It is the largest category, however, if ‘Live’ exceeds 50% of your gross (total before taxes) income, I recommend that you look more closely at where your money is going- that percentage puts you are risk if there is a sudden change in your income or needs. If you are starting at the beginning of understanding your finances, leaving this category for last may be easier- all of the other categories are more defined. ‘Live’ is what’s left over after you meet the other 4 categories.
OWE-Taxes and Debt- taxes are a function of our income; the percentage here will vary depending on your personal and family income situation. Sometimes adjustments can be made to be more efficient here, but at the end of the year, they are symptomatic of income. Debt is more in our direct control. Debt restricts our future choices, and needs to be managed according to circumstance and personal preferences. The percentage of gross income that debt commands should be reviewed; I recommend reviewing options if debt payments are at 20% of gross income and/or if debt is continuing to increase through monthly shortfalls.
GROW- growing your savings is the only way to meet long-term goals. Setting aside money regularly for maintenance of house and car, goals such as children’s education or a family vacation, and retirement. As you become more familiar with your ‘Live’ and ‘Debt’ pieces, you will be able to choose how much income goes into this piece.
GIVE- this piece includes any amounts that are given outside of your immediate family. Please do not include amounts that are given to children here; that amount would be included in ‘Live’. The importance of this piece is it’s relation to your financial values, the control that it gives over the whole financial picture and the benefit to those who receive your gift. Think of this as the ‘tiny but mighty’ lever that you can use to push other pieces over to where they will meet your goals faster.
For specific questions and/or a review of your personal situation, please contact firstname.lastname@example.org to book a phone or in-person consultation.
As always, consult your tax professional for specifics related to tax matters.
Planning for the next educational step - RESP withdrawals
Wednesday, June 14, 2017
As this school year wind down, for some families, there will be significant change in a few months. For high school graduates moving on to post-secondary education, there are many hopes and fears.
For parents with Registered Education Savings Plans, there is relief that you have money available, and often uncertainty about how to access it. This post is a primer on how to use the money that you’ve saved and how any withdrawals will be treated for tax purposes.
When you were putting money in to the RESP and tracking it’s growth, you looked at 3 different amounts or ‘buckets’: your contributions; government grant amounts and investment growth. On withdrawal, the government allows for 2 buckets- Post-Secondary Education Amount and Educational Assistance Payment.
For example, your RESP account has $7200 in grant money and $10,000 in investment growth. If your withdrawal form indicates $5,000 in EAP, that amount will be removed from the RESP to your bank account. You will receive a follow up letter from the government letting you know how much of that $5,000 is grant. The remainder is investment growth. There is no way to ask that all of the $5,000 be taken from the grant money, even though there is more than $5,000 in grant in the account.
As you can see in the chart above, PSE is the non-taxable contribution amounts that you deposited. EAP are the 2 amounts that are taxable to the child. As the owner of the account, you can not separate the grant money and the investment return. When you submit a withdrawal form, the government has a formula that will indicate how much of the withdrawal is grant and how much is investment return.
Your financial institution can review the 3 different amounts with you and help you understand the implications of each type of withdrawal. Remember to review the specific investment holdings within that account- you will need to sell investments to generate cash for the withdrawal; your investment advisor should ensure that remaining investments meet your goals. Once your student starts withdrawing, the timeline for investments becomes quite short; holding investments that change in value quickly when you know you need the money within 2 years can mean that you don’t have funds available when you need them.
To discuss your education funding goals for your family, please contact email@example.com to arrange a meeting.
The above is an illustration for planning purposes only. For advice related your specific situation, speak to your accountant and investment professional.