Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

10 financial lessons to share with friends

Posted By |

The personal finance community can be a bit of an echo chamber, reinforcing and repeating the same ideas on how to save, invest, and spend our money. This sort of tribalism can be intimidating for outsiders who are eager to learn but afraid to ask questions or know where to start, especially when it comes to more complicated topics.

The truth is not all Canadians are financially savvy. In fact, a Tangerine survey last year found that only half of Canadians consider themselves knowledgeable when it comes to personal finances.

As personal finance enthusiasts it’s our duty to move beyond this little corner of the Internet and start talking to our friends and family about money.

It’s not easy to talk in real-life about what we do with money, how much we save, how much we spend, and the foolish mistakes we make. But these are crucial conversations to help each other deal with money and the complex decisions about it that we all face.

We can start by sharing the kinds of tips and tricks that helped us build lifelong financial habits and skills. It’s what financial literacy is all about, right?

That’s why I was excited to partner with Tangerine for Financial Literacy Month and list my top 10 financial lessons to share with friends:

1.) Avoid credit card debt like the plague

It’s impossible to go through life without incurring at least some debt. I’ve had student loans, credit card debt, a car loan, line of credit, and finally a mortgage.

Carrying a balance on my credit card was by far the most harmful to my finances. Making the minimum monthly payment hardly puts a dent into the balance, and 19 percent interest ensures that balance will continue to grow.

Tackle it with the debt avalanche or debt snowball method, and once it’s gone commit to never again paying one cent of credit card interest.

2.) Track your spending

To free up that additional cash flow you need to understand how much money comes in and how much goes out every month. There’s no other way around it – how else will you know what you can afford to save?

Whether you use a mobile app, budgeting tool, or good old-fashioned Excel spreadsheet, the point is to track every transaction until you can glean some insight into how you spend your money. Use this information to make informed decisions on which areas of your budget you can cut, and where you’d like to direct any additional savings.

Related: Track your habits, save money

3.) Automate your savings

The key to building a life-long habit of saving is to make your contributions automatic and as painless as possible. Pick a day that coincides with your paycheque and set up an automatic transfer into your RRSP, TFSA, savings account, or RESP.

It’s called paying yourself first. Start with as little as $25 and increase it annually, or as your budget allows. This powerful strategy works because it treats your savings goals as ‘mortgage-like’ fixed expenses that come out of your account on a specific day.

4.) Save a percentage of your income

One rule of thumb suggests saving 10 percent of your take home pay for retirement. I say save a percentage – any percentage – of your income as long as you start with something and make it automatic.

One cool trick I learned was to bump up that percentage in tandem with a salary increase each year. So, for example, let’s say you earn $50,000 and saved 5 percent of that amount ($2,500). Then you get a 4 percent raise in the New Year, so now you make $52,000. Well, don’t just continue saving $2,500 – bump that up to $2,600 to stay in-line with your 5 percent savings rate. Continue Reading…

Countdown to Year-end: Is your tax planning in place?

Posted By |

By Matthew Ardrey

Special to the Financial Independence Hub

With less than a month to go before the end of the year, it’s time to give some thought to how you are going to put your affairs in order to minimize your taxes next April.

Below I have provided several points that you should contemplate for your own tax situation. Some of these are methods you should consider each year and some are very specific to this year, as the Federal Government proposed some significant changes to the Income Tax Act regarding corporate tax planning.

Capital gains/losses

The end of the year is a good time to review your portfolio. If there are stocks you are holding at a loss, you are better off to realize that loss before the end of 2017. In doing so, you will be able to use those losses to offset any capital gains you may have. If you do not have any capital gains in the current year, you can carry back your capital losses up to three years or forward indefinitely.

Age 71 RRSP Over-contribution

In the year in which you turn 71, you must convert your RRSP to a RRIF by December 31. Once you are in the year you turn 72, you may no longer make personal RRSP contributions; however, spousal RRSP contributions are still permitted if you spouse is under age 72. If you have earned income in your age 71 year, you can make an RRSP contribution in December. Though you will be over-contributed for one month, as you will have new contribution room on January 1, and have a penalty tax on it, the tax savings from the deduction could far outweigh the penalty.

Charitable Donations

December 31 is the final day to make a charitable contribution and receive the tax credit for your 2017 tax filing next April. With donations, the amount you contribute and the amount you earn have an impact on the credit you will receive. The first $200 attracts credits at the lowest marginal tax rates, but those above $200 can attract credits at or near the top bracket. In Ontario, for example, the first $200 will attract a credit of 22.89%, income below $220,000 a credit of 46.41% and above $220,000 50.41%. Continue Reading…

Tips for building brand awareness online

Posted By |

By Emily Jones

Special to the Financial Independence Hub

Marketing your online business isn’t necessarily a cut and dry endeavor. For instance, you may have the best products on the planet but are having trouble getting them in front of the right people. Or you’ve found the right people but are unable to communicate with them clearly. Either way, you won’t be making any money.

In the marketing world, there’s no quick fix to success: there are things you should know before choosing your business growth strategies and the following brand building strategies can help you take your efforts to the next level.

The Internet is now pervasive

There’s no denying it: the Internet dominates virtually every aspect of our lives. Thus, it comes as no surprise that it has become very a popular and effective marketing medium. Take control of this monster with these two tips:

Leverage social media

Sites like Instagram, LinkedIn, Snapchat, Twitter, and Facebook have the potential to boost the popularity of your brand exponentially. But to get the most out of these sites, it’s important to know which one works best for your brand. For instance:

  • Pinterest and Instagram are best for sites with a lot of pics
  • B2Bs do best on Twitter
  • Small businesses in creative industries do well on Instagram

To succeed, you must create a creative and engaging marketing campaign to help you stand apart from your competition. Do so by posting updates several times a day to make sure you are engaging with your audience on a regular basis.

Embrace influencer marketing

Influencers are well liked and trusted by their audience, making an endorsement by them very valuable. To take advantage of this, find key influencers who are already in your industry. Just make sure that their business complements (rather than competes) with your product or service.

Popular influencers are being courted by my many companies. Give yourself an advantage by researching them: this will give you an idea of what you can do capture their interest and get them to listen to your story.

You may also want to create a couple of influencer strategies. In this way, if your desired influencer decides to go another way, all is not lost. You have other options to choose from.

Offline Brand Building

Although most of your brand building marketing work will be done online, there’s still something to be said about offline marketing. Continue Reading…

5 ways to turn your Savings into Capital Gains

Posted By |

By Sia Hasan

Special to the Financial Independence Hub

Continuously adding to your savings account is a responsible and astute financial step towards a comfortable retirement. Unfortunately interest rates offered by banks on standard savings accounts make for really slow growth, which is barely enough to keep up with inflation. Fortunately, there are other investment options out there that can increase your money at a more decent pace, one of which is stocks. Here are five techniques to turning your spare cash into a portfolio that grows both in capital gains and dividend income.

1.) Start Small

You don’t need to pour all of your savings into stocks right away. Going about it slowly can minimize risk. For example, if you have $10,000 as your savings, start buying 10 to 20 shares of stocks per month. Consider increasing your order size or frequency of purchase as you gain more experience or as you get more data about specific companies. If company XYZ’s stock price has solid momentum, consider buying more of it.

2.) Dollar Cost Averaging

You can also do dollar cost averaging, which basically involves setting a budget to buy stock each month. For example, if you have $1,000 to invest per month and company XYZ’s stock costs $50 for this month, you buy 20 shares of it. The next month, it costs $40 per share, so you buy 25 shares. The month after that, it actually increase to $100, so you buy 10 shares for that month and so on.

3.) Strategize according to your Lifestyle

A methodical approach to investing is key to growing your investment portfolio consistently. Strategy removes emotions from the equation, which for an investor can be a detrimental quality or set of qualities to bring in the stock market. Figure out what strategy best fits you. Someone who is saving money month after month is probably occupied with a full-time job; hence there are limited hours in the day for monitoring prices and current positions. Continue Reading…

Why “Topping up to bracket” makes sense if you’re temporarily in a low tax bracket

Posted By |

My latest column in Wednesday’s Globe & Mail looks at a strategy called “Topping up to Bracket,” which can be useful to anyone who is temporarily in a lower tax bracket.

Click on the highlighted headline to access the online version, assuming you have Globe subscriber privileges or haven’t exceeded the monthly free click quota: A strong tax case for early RRSP withdrawals.

When might you be “temporarily” in a lower tax bracket than usual? This can of course happen when you lose a job or if you’re in your Sixties and transitioning between full employment (typically earning in higher tax brackets) and Semi-Retirement, when it’s tempting to “bask” in lower tax brackets.

Temporary because as Semi-Retirement progresses, you can end up moving back into higher tax brackets: for example, if you start to receive Old Age Security (OAS) at 65, then take Canada Pension Plan (CPP) a few years later, these are both taxable sources of income.

And the big hit can come at the end of the year you turn 71, when RRSPs must be converted to Registered Retirement Income Funds (RRIFs) or else annualized or cashed out. RRIFs entail forced annual withdrawal rates that keep rising between your 70s and your mid 90s.

So that makes “Topping up to Bracket” (a term used in a BMO Wealth Institute paper on the topic, published around 2013) a strategy not to be ignored. In practice it means making sure that in those low-earning years you at least bring into your hands each and every year the roughly $12,000 of untaxed earnings that’s called the Basic Personal Amount (BPA). And as the G&M column explains, it’s also a good idea to at least bring in the dollars that are in the lowest tax bracket (15% federally, 5% in Ontario), or roughly $42,000. There are of course higher tax brackets above that but the law of diminishing returns starts to kick in beyond the $42,000.

Note too that this is a “use it or lose it” proposition. If for example a year went by that you failed even to bring in even that $12,000 income that would not have been taxed, you can’t carry forward the opportunity to benefit from it the following year. You will of course have another opportunity for the BPA that year but it won’t double up because you neglected to earn low- or non-taxed income the previous year. Continue Reading…