RESP

How to teach your children financial independence

March 15, 2016 in GIC, RESP

Now may be the perfect time to teach your children about financial independence. There are plenty of real-life examples in the media of how ‘not’ to manage your finances. To really teach children money management skills, they must learn to handle money personally and to make consequential decisions on how to manage it.

An allowance is an ideal way to set a solid financial belief system for your children that will have a lasting effect well into adulthood. Money management requires discipline obtained through practice, trial-and-error and observation. It’s also learning to balance desire and practicality when it comes to financial issues.

Not everyone agrees on whether you should pay your child allowance based on services rendered, such as the completion of chores, or whether it should be given freely with chores being an unpaid necessity of family life. Positives are seen in both options. The following are tips to start your children on the road to financial mastery:

Teach them how to save. There are many #child savings

formulas used in money management to facilitate saving. Consider using a 10/10/10/70 system. Under this system ten percent of income is used for savings, investing, and charity. The remaining 70% is used for everyday expenses. This method can also get them into the habit of paying themselves first.

Teach your children about relative value. Let’s say your child wants to purchase a video game priced at $50 and they’re receiving a $10 per week allowance. Show them, using your financial management formula, how long it will take to purchase the game.

Help them develop financial self-discipline. Teach your children that for every purchase, something must be given up. Help them determine the difference between needs and wants.

Let them make some mistakes. Life is

about choices. If we don’t always make the right ones, how can we expect our children to? Allow them to learn painful financial lessons while they are dealing with small amounts of money and not the larger amounts they will be dealing with as adults.

Allow them to find a solution to their financial missteps and resist the temptation to “bail them out.”

Teach them how to invest. Invest in something interesting and exciting. An investment in Savings Bonds or GIC’s will not hold the interest of the child (or earn much interest these days). Look towards your child following the stock price in a favorite company, perhaps a sporting goods, technology or entertainment company for which the child has a particular connection.

Self-discipline is the key to success in life and a successful money manager will need to develop this attribute. Experts agree that teaching kids to save, invest and make wise spending decisions will go a long way towards ensuring they prosper as adults. An allowance can be a powerful tool for teaching children lifelong money management skills.

Insurance must haves

December 9, 2015 in RESP

Life Insurance

Accident and sickness insurance

Health and dental insurance

Automobile insurance

Homeowner or renters insurance

Insurance is, and has always been, a tool to manage risk. If you cannot afford to “lose” something, it is best to insure for that loss. The five types of insurance everyone should have are:

Life Insurance

The primary reason to have life insurance is to replace an income that will be lost on death and to meet the financial obligations that are left behind. No one’s debts should no hassel life insurance uote last longer than they do and life insurance can be a very economical way to pay them off if you die too soon. Also, it is becoming more and more common for people to carry significant debt into retirement.

If someone is relying on you for the financial support your income provides now, they will also need it when you die. While a single person may not need very much life insurance, perhaps enough to take care of their last expenses, many seniors are relying on their children for financial help.

Accident and sickness insurance

Your lifestyle is determined by your income. If you were hurt or become sick and couldn’t work for an extended period of time, how would you be affected financially? Disability insurance can replace a portion of your income to help meet your daily needs.

A critical illness, like cancer, heart attack or stroke, can bring additional expenses that your disability insurance may not adequately cover. Critical illness insurance can pay a lump sum to help you through a medical crisis.

If an illness or cognitive impairment prevents you from looking after yourself, you may need long-term care at home or in a facility. Long term care insurancecan help meet the cost of professional help. After all, do you want your kids to bathe or toilet you?

Health and dental insurance

Provincial health care insurance provides for our basic health care needs, but it does not cover such things as prescription drugs, ambulance services or dental care. Many employers provide group coverage for their employee’s health care needs. Individual plans are also available and can help cover health care costs.

Automobile insurance

While this insurance is required in every province, some drive car insurance rs don’t
have it and many may
be underinsured. Have you paid too much attention to the replacement cost of your vehicle and left yourself exposed to a liability if you are at fault in a collision? Your vehicle is worth only so much, but a liability claim can run into the millions. If you run a stop sign while chatting on your cell phone and cause someone a serious brain injury, a judgment could be well in excess of your liability coverage. It costs relatively little to significantly increase your liability coverage limits.

Homeowner or renters insurance

We’ve all read news stories about someone’s house burning down and they didn’t home insurance have insurance. If you rent, be aware that your landlord may have insured the building you live in, but you are responsible for your contents. These policies provide liability coverage as well in case someone gets hurt on your property and you get sued. If you can’t afford to replace all of your belongings today or compensate someone for their injuries, you need insurance protection.house burning down and they didn’t have insurance. If you rent, be aware that your landlord may have insured the building you live in, but you are responsible for your contents. These policies provide liability coverage as well in case someone gets hurt on your property and you get sued. If you can’t afford to replace all of your belongings today or compensate someone for their injuries, you need insurance protection.house burning down and they didn’t havehouse burning down and they didn’t have

Financial & estate planning for common-law couples

October 5, 2015 in RESP

According to the Statistics Canada website, common-law relationships are more likely to fail. The General Social Survey issued by Statistics Canada in July 2002 illustrates that common-law unions are twice as likely to end in separation as marriages and these relationships are far more common today than they were over a decade ago.

Many mistakenly believe laws across Canada are consistent in how they treat common-law relationships. Nothing could be further from the truth. There are federal laws that govern how these unions are treated for income tax purposes. Each province, however, dictates what constitutes such a relationship and how it is viewed legally.

In BC, a March 2013 ruling now treats common-law couples the same as married couples if they have cohabited for over two years. In Alberta, these are referred to as “adult interdependent partners” and are deemed a common-law relationship when the couple has lived together for more than three years, or has a child and live together. A couple can be considered common-law in Newfoundland after living in a conjugal relationship for over two years. In Nova Scotia, a couple living together over two years would be entitled to spousal support, but would not be permitted to register as a “domestic partnership” under the Nova Scotia Vital Statistics Act. In Manitoba and Ontario, a couple would have common-law standing if they have lived together for three years or one year if they have a child. A couple in Manitoba can register their common-law relationship at the Vital Statistics Registry.

Because the laws vary so much from province to province, here are some steps that can be taken to protect oneself in a common-law relationship:

Cohabitation Agreement

Go to a lawyer and get one. It will probably cost less than a wedding, but it will determine how assets and debts will be dealt with if the union fails. Decide if you want to put any assets, including investments, in joint-ownership.

Will

Get a will and the other important estate documents professionally prepared as that will lay out exactly how you want your things dealt with when you die or become seriously ill. Consideration needs to be made for previous support obligations.

If a child, a spouse, a life partner, or a parent depends on you and your income , you need life insurance.

Life Insurance

Work with an insurance and financial advisor to make sure you have adequate coverage and review beneficiary designations. Make sure obligations will be properly met on death.

Accident & Sickness Insurance

This includes disability insurance that can provide an income if you can’t work because of illness or injury; critical illness insurance that pays a lump sum if diagnosed with a listed critical illness; and, long-term care insurance which pays a benefit to offset the costs of caring for someone who can’t look after themselves.

Certainly most of the above recommends apply in any situation. Nobody really wants to be a burden on someone else. Extra steps and attention should be taken in a common-law relationship as each person entering into it is more vulnerable than they may wish to believe.

Susan McArter
Certified Financial Planner

RRSP vs. TFSA What’s The Difference

October 5, 2015 in RESP

Tax Free Savings Accounts (TFSAs) were introduced in 2009 and they seem to be struggling to catch on. Registered Retirement Savings Plans (RRSPs), however have been around for over fifty years and attract billions of dollars of deposits each year. If you are serious about saving for your future, it is important to know the differences between the two tax-efficient savings plans and when to use them.

While RRSPs and TFSAs seem to be very similar on the surface, they are really apples and kumquats apart. The only similarity is that, within limitations, earnings inside either plan are allowed to grow without current taxation. Before the TFSA came around the age long question was should I do an RRSP or pay down my mortgage (reduce debt). Now there is three choices. The answer can vary, depending on an individuals personal situation. Sitting down with a financial planner will help with these questions. Lets take a look some of the feature of both.

Deposits – Contribution limits to an RRSP are based on a percentage of income of the preceding year to an annual maximum, plus any unused contribution room, minus a pension adjustment. So, the maximum contribution for 2015, ignoring unused room and pension adjustments, is 18% of 2014 income to a maximum of $24930.00. Any contributions made to an RRSP are deductible from income for the tax year you choose.

There are no income requirements to make a deposit to a TFSA because deposits cannot be deducted from income. As a result of most recent budget the 2015 limit was increased from $5500.00 per year to $10,000.00 per year. Currently the maximum that is aloud to have been contributed for 2015 is $41000.00. any unused portion of this can be carried forward and contributed in another year.

Withdrawals – RRSPs are a tax-postponed savings plan. When withdrawals are made, they are fully taxable in the year they are received at whatever the tax rate is for the plan holder. Which is expected to be when you retire and are in a lower tax bracket.

Income arrangements (RRIF) from an RRSP must be made before the end of the year in which the plan holder turns age 71. There are also minimum amounts that must be withdrawn each year and these minimums increase each year.

TFSAs are truly tax-free plans for saving money.
Withdrawals are not taxed and actually get added back to contribution room. For example, John contributed the maximum allowed each year since 2009. He has no contribution room left. He makes a withdrawal of $6,000 for his dream vacation in 2015. This means that in 2016 he can contribute $16000 ( $10,000 for 2016 allowable amount plus $6000.00 to replace 2015 withdrawl)to his TFSA.

You can keep a TFSA for as long as you want. Unlike RRSPs, you will not be forced to take an income or withdraw funds from your TFSA at a certain age.

Government Benefits – Because income from an RRSP shows up on a tax return, it may affect government benefits such as Old Age Security (OAS). Withdrawals from a TFSA are fully tax free and will not cause a reduction in OAS benefits. For some, this means they may qualify for the Guaranteed Income Supplement (GIS) even though they are receiving an income from their TFSA.

RRSPs and TFSAs are different animals. They each have distinct features and benefits that will affect people in different ways. Both of these tax preferred plans can play a role in your future as can debt reduction.

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9 things you need to know about RRSPs

January 22, 2015 in RESP

Registered Retirement Savings Plans (RRSPs) have evolved into the most popular savings vehicles in Canada since being introduced in 1957. It is important to be aware of the key features of RRSPs in order to maximize the benefits:

Income Tax Savings – First and foremost, it may go without saying that any contribution to RRSPs can result in an immediate tax savings. These deposits are deducted from the contributor’s income at the highest tax rate they must pay first.

RRSP2 Tax-Postponed Growth – Any growth than an RRSP earns does not attract income tax until it is actually withdrawn from the plan. This maximizes the benefit of compound interest.

Income Splitting – When income is taken from an RRSP after age 65, an election can be made on the tax returns of a married or common-law couple to split qualified income between them. This generally means a lower overall income tax bill, in many cases significantly lower.

Deferred Deduction – A contributor can choose to make a deposit to an RRSP but delay deducting all or part of it until a later tax year. This makes sense if income in a future year would put them into a higher tax bracket. In the case of someone who receives a financial windfall and has unused contribution room, a large deposit can be made initially and deductions from income only used to reduce their highest taxed income in several future years.

New Home Purchase – If certain conditions are met, funds can be withdrawn from an RRSP tax-free and used towards the purchase of a new home. The funds need to be paid back into an RRSP within fifteen years or they may become taxable.

LLL plan Education Funding – The Lifelong Learning Plan (LLP) allows you to withdraw amounts from RRSPs to finance full-time training or education for you or your spouse or common-law partner. You cannot participate in the LLP to finance your children’s training or education, or the training or education of your spouse’s or common-law partner’s children.

Instant Tax Break – If you are making regular contributions (say, monthly) to an RRSP, you can apply to the Canadian Revenue Agency (CRA) to get permission for your employer to deduct the RRSP contributions from your income before calculating the amounts that need to be withheld and remitted.

RRSP Loans – Many contributors borrow to invest in their RRSP close to the annual deadline. They then use their tax refund to reduce or pay-off the loan.

Name a Beneficiary – You can name a beneficiary and, in some cases, a secondary beneficiary for an RRSP on death. This means funds can be paid directly to that person or persons and avoid the delays and cost of being processed in your estate.

adress man2 It is wise to work with someone experienced in the area of RRSPs and retirement planning to help set up and monitor your program. Avoid making RRSP decisions at the last minute because of the deadline. A well planned strategy can mean retirement comfort. -M Dumond

Telephone: 705-798-2105
Toll free: 888-722-3604

10-10-10-10-60

December 10, 2014 in Estate Planning, GIC, Insurance, RESP, RRSP, Tax Strategies

No, this is not a John Lithgow long-distance plan commercial. Remember these numbers, however, when allocating your paycheque.

All too often, people experience financial stress when something happens and they haven’t done a proper job of allocating their income. Ideally, an allocation plan will become a habit that leaves you prepared for just about any eventuality. Here’s how:

insure

10% for Lifestyle Protection – Disasters happen and most rarely make the news. You have likely experienced at least one already. Very few people are in the financial position where they can cover the cost of an event without the help of insurance. Use life insurance to cover debts, last expenses and income replacement on death; vehicle insurance to cover the costs of damages or injuries; property insurance to replace lost or damaged property; critical illness insurance to help recover from a serious illness; disability insurance to replace a portion of your income if you can’t work because of illness or injury; travel insurance if you become ill while travelling outside your province or country.

10% for Savings – There will come a time when you will need funds for a certain event in your future. Put aside these funds regularly for things like education, home down-payments and, perhaps most importantly, an emergency fund. Eventually your savings should be at a level that will allow you to allocate some of these funds to other things.

10% for Investing – An investment is something that will generate an income, either right away or sometime in the future. This includes retirement savings, a business, income generating real estate, or funds that generate a regular income.

10% for Giving – There are financial benefits to you for giving to charity. The first $200 generates a non-refundable tax credit or 15%. Everything above that, within limits, gets a credit at the top tax rate no matter what tax bracket you are in. In Alberta, for example, the maximum credit is actually 50% which is 11% higher than the maximum tax bracket of 39%.

60% for Lifestyle – This is where everything else comes from – your home, your vehicle(s), your food and clothing, your vacations, your entertainment and hobbies. All too often, this portion gets too much income allocated to it and is the first to suffer when something goes wrong.

Your income is what makes your lifestyle possible. However, if your income stops due to illness, injury or death, will there be adequate funds for you and your family to maintain your lifestyle? Will your resources be adequate if you experience a short period of unemployment, when a child is ready for post-secondary education, or if you need legal help with an unforeseen problem? Will you have enough independent income in the future or will you have to keep working at a time when you would have preferred retiring?

If you don’t have a problem tipping a server 15% to 20%, why not pay yourself a little better than that? – M Dumond

allocate

How to prepare for the expensive adolescent years

September 16, 2014 in RESP, Uncategorized

At this time of year families are planning for the return to school and the costs associated with that. If your family has kids in highschool you already know all too well what I am talking about.

Are you financially prepared for the teenage years? Plans should be made if you have children approaching their adolescent years. This can be a turbulent time, not just the emotion and drama it can bring, but also the associated expenses that get added to the family budget. When you think of your family financial planning, it is wise to consider each and every phase of life. Many families don’t consider just how expensive the adolescent years can be and that can be their downfall.

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New Situations Mean New Expenses

When you consider all of the obvious alone, the adolescent years can be quite costly. You may think that the baby and toddler years drain the bank account, but consider “normal” expenses that adolescents can bring.

Consider starting a savings program now for future expenses like extracurricular activities, summer camps, school trips, sports teams, clothes, increased food costs, and lessons and tutors that may be required for school. Don’t overlook the car and driving lessons that can be a huge financial drain, even though necessary. Remember, many of your regular expenses can expand just because you are adding a teen to your list. Insurance, fuel, maintenance, these things and many others can quickly strain a budget.

Those are the standard expenses assuming that your child doesn’t require any additional help in the way of counseling, summer school, or even more extreme measures depending on their ability to adjust to changing and turbulent times. There really is no telling what the teen years bring. Just beyond them is setting your child up for life beyond your walls. Suddenly the list is growing indeed.

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Let’s face it, adolescence can be a tough time! It’s not just tough for kids going through it but often for the parents as well. Many parents think about their monthly expenses and consider the one thing they have to save up for in their childrens’ future is post-secondary education. Setting up an RESP in your children’s early years will go a long way toward reducing the debt they come out of university with. While this is true and is a great thing to consider in advance, you could be in big trouble when all of the expenses need to be met. As you consider all your financial planning needs and look at the years ahead, giving special attention to the adolescent years can be greatly important.

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Planning Ahead Can Mean Peace of Mind

Financial planning, should incorporate all the important phases of life, particularly those that will be full of additional expenses and unforeseen circumstances. The adolescent years are a time of uncertainty in every sense of the word. When you look at your family and consider all the financial needs that lie ahead, include adolescent years in your overall plan. Teach your kids about money. Get them to start saving when they get that first job. If you could somehow make the adolescent years a little bit easier for them, you would do anything.

Thinking through the financial needs of this turbulent time of life can be a great start toward making things much smoother. – M Dumond

Planning For Life Phases – because it’s the right thing to do.

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