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Become a Mistress of Money this Mother’s Day

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By Heather Compton

Special to the Financial Independence Hub

There is a Mother’s Day gift I wish I had the power to give to all the women I love and even to women I’ve never met. I would give them the gift of a title and all the qualifications and knowledge to go with it – “mistress of financial affairs”. Now I must admit the English language gives the term “master” a much more powerful and commanding sound of authority than “mistress” but I want my gift infused with feminine, not masculine power.

What did you learn about money from your Mother? I’m so grateful to my Mom, a fiscally prudent depression era Scot. She lived to her late 90s and raised four daughters to take an active interest in managing their own financial lives. Mom was always a believer a woman should have money to call her own and she regularly squirreled away a few dollars from the household allowance provided by my Father. Yes, he was a man of his times.

The White Knight

In my years as a financial advisor I saw women too often abdicate responsibility for their financial life. They told themselves creative stories such as “I just don’t have a mind for that stuff and my husband, boyfriend, or father just does a better job”. Some singletons believed there was a white knight out there, just around the corner, who would arrive to change or improve their financial situation. Many were understandably exhausted with all the other work and household responsibilities they carried or they felt that if they managed the day to day bill paying they could leave the big-picture financial decisions to their partner. Please don’t do it – off-load laundry or cooking or toilet bowls – never money management. A “right relationship” with money is too important – and it’s never to late to acquire it

Pick a label

We women hold many titles or labels throughout our lifetime – this month, of course, the first to come to mind is mother but we may also be a daughter, sister, wife, friend, teacher, student, employee – the list goes on and on. Continue Reading…

Generation X feeling the Retirement squeeze

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Generation X, and to a lesser extent the Millennials, are already starting to feel the retirement squeeze, according to a Franklin Templeton-sponsored survey released Thursday.

Details are in my column in Friday’s Financial Post, which you can retrieve by clicking on the highlighted headline here: Generation X is ‘stretched beyond their financial limits’ and struggling to save for Retirement. 

The challenges should be familiar to members of any generation (four are mentioned in the survey): it’s never easy saving money when you’re starting out in life with low wages and high expenses. But Franklin Templeton cautions against the  rationalization embraced by younger investors that they simply can  choose to keep on working if they haven’t accumulated enough assets to generate adequate income in retirement.

That may not always be an option, since ill health or corporate downsizing (to mention just two) may prevent this. You can find full details about the fifth annual edition of Franklin Templeton Investments Canada’s 2018 Retirement Income Strategies and Expectations (RISE) survey here.

Stressed GenX resigned to retiring later than hoped

More than half of Gen Xers (aged 37 to 52) are resigned to retiring later than they would want (56% in Canada, 59% in the US). While the online survey included Canadians and Americans across four generations, “this year we felt in particular that Gen X and the stress of preparing for Retirement was the predominant thing coming out of the research,” said Matthew Williams, a Franklin Templeton senior vice president, in an interview.

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5 common Mortgage mistakes made by first-time Homebuyers

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By Sean Cooper

Special to the Financial Independence Hub

Buying a home is an exciting time for first-time homebuyers. It’s also a busy time. Besides hiring a real estate agent, house hunting and finding time to get all your daily errands done, you’ll also need to find time to shop for a mortgage.

While it can be easy to treat your mortgage like an afterthought, by doing that you’re doing yourself a big disservice. Buying a home is most likely the single biggest financial transaction of your lifetime, so it’s important to give it the attention it deserves: that includes your mortgage.

Many first-time homebuyers shop for a mortgage based solely on the lowest mortgage rate, when there are so many other (more important) factors to consider. That’s just one of the common mistakes first-time homebuyers make. Let’s look at this and four more common mortgage mistakes to avoid.

Mistake #1: Skipping the Mortgage Preapproval

It’s hard to go house hunting if you don’t know how much you can afford to spend on a property. A mortgage preapproval helps you come up with a budget for the property you’d eventually like to buy. By providing your mortgage broker with some basic personal and financial information, such as your income, employment history and how much you’ve saved up towards a down payment, they’ll be able to take that information to the lender and get a mortgage preapproval. A mortgage preapproval tells you the maximum amount you can spend on a home. It also usually comes with a rate hold. You’re typically guaranteed a mortgage rate for between 90 and 120 days. If rates go up during this time, you’re guaranteed the lower rate. If rates go down, you get the lower rate. It’s a win-win situation for homebuyers.

Mistake #2: Shopping based solely on the Mortgage with the lowest rate

Many first-time homebuyers are fixated on getting the lowest mortgage rate:  too fixated. They use mortgage rate comparison websites to find the mortgage rate with the lowest rate, yet forget to consider other, more important factors. As I write in this post, the mortgage with the lowest rate may not be the best mortgage for you: quite often it’s not. It’s important to consider what I like to call the “3 mortgage P’s” – penalties, prepayments and portability. Of course, there are other factors to consider, such as fixed versus variable and standard versus collateral charges. Mortgage brokers know mortgages like the back of their hand since that’s all they deal with. A mortgage broker can help identify the factors that matter most to you and choose the mortgage that’s the best fit.

Mistake #3: Not considering other options besides the 5-Year Fixed Rate Mortgage

As Canadians we are very risk averse. Continue Reading…

How to win at tax-free investing: RRSPs, TFSAs and Dividend Stocks

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Tax-free investing can help you save money over both the long and short term if you invest using these tips.

Tax-free investing and using tax shelters are strategies employed by many successful investors.

Tax shelters are legal investment vehicles that let investors pay less tax. While some are risky and should be avoided, like flow-through limited partnerships, others, like RRSPs and TFSAs, are great ways for Canadian investors to cut their tax bills.

Here are the best ways to defer or lower the amount of tax you have to pay on your investments.

Tax-free investing with Registered Retirement Savings Plans (RRSPs)

 

RRSPs are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free.

You can put money in RRSP tax shelters each year (up to a limit based on your income) and deduct it from your taxable income. You only pay income tax on your investment, and the income it earns, when you make withdrawals from your RRSP.

In a way, investment gains in RRSP tax shelters give you a double profit. Instead of paying up to 50% of your investment gains in taxes right after you make them, you keep 100% of them working for you until you take money out. That will likely be years later in retirement, when most Canadians enter a lower tax bracket.

If you want to pay less tax on investment income while you’re still working, investing in an RRSP is the way to go.

Tax-free investing with tax-free savings accounts (TFSAs)

A tax-free savings account lets you earn investment income — including interest, dividends and capital gains — tax free. But unlike registered retirement savings plans (RRSPs), contributions to tax free savings accounts are not tax deductible. However, withdrawals from a TFSA are not taxed.

TFSAs can generally hold the same investments as an RRSP. This includes cash, ETFs, mutual funds, publicly traded stocks, GICs and bonds.

Here are three tips you can use to make sure you’re getting the most profit—and tax benefits—from your TFSA:

1.) Keep higher-risk investments out of your TFSA: Holding higher-risk stocks in your TFSA is a poor investment strategy. That’s because high-risk stocks come with a greater risk of loss. If you lose money in a TFSA, you lose both the money and the tax-deduction value of the loss.

2.) Let your current income help you decide between your tax free savings account and RRSPs:RRSPs may be the better choice in years of high income, since RRSP contributions are deductible from your taxable income. In years of low or no income—such as when you’re in school, beginning your career or between jobs—TFSAs may be the better choice.

3.) Consider holding exchange-traded funds in your TFSA: It’s difficult to build a diversified portfolio within your TFSA. Instead, look to exchange-traded funds for TFSA investing.

Tax-free investing strategies can include saving on dividend taxes

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A Canadian compromise on TFSA contribution room  

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By John De Goey

Special to the Financial Independence Hub

Canadians are notoriously nice consensus seekers.  The old joke might be that they tend to never cross the road because they consistently prefer to be in the middle.  If that’s the case, I’d like to propose a “Canadian” solution to the ongoing debate about how much should be allowed to contribute to their TFSAs annually.

You may recall that the limit is currently set at $5,500 and is likely to go up to $6,000 in a year or two (TFSA contributions are indexed to cumulative inflation and go up in $500 increments when thresholds are passed). You may also recall that for one brief year, the limit was set at $10,000 in keeping with a political promise made by a party that is no longer in power in Ottawa.  The debate, it seems has mostly revolved around the benefit of incremental tax relief for those who might not need it.

You may recall that I have argued that there is an unfair cap put on RRSP contributions because the 18% limit that applies to most people essentially penalizes the small percentage of Canadian income earners who make more than about $145,000 a year.  Similarly, some people like CIBC’s Jamie Golombek have pointed out that many Canadians are opposed to using RRSPs because they will end up paying tax down the road when making RRIF withdrawals.  The point made by Golombek* and others including yours truly is that people should be thinking about the concept of ‘tax bracket arbitrage’ when contributing to government plans. If you’re in a higher tax bracket now as compared to in retirement, contributing to your RRSP makes more sense.  If you’re in a lower bracket, the TFSA makes more sense.  If you think you’ll be in the same bracket, it makes no difference.

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