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Making the decision to get married begins a new and exciting adventure in your life as a couple. Love and excitement permeate the air as you start planning the perfect day. Although the decisions surrounding a wedding seem endless, such as setting a date or picking the perfect venue, there are other important questions that need to be answered as you start your lives together.
Should two people manage the money?
The short answer is yes! Allowing only one person to be in control of the household finances can lead to potential disaster. You and your soon-to-be spouse should take an evening and sit down to discuss who is going to manage which aspects of the household funds. Be sure to honestly answer the “who, what, when, where and why” when it comes to both of your finances.
Now is the perfect time to come clean about everything you have whether it be the amount of debt or the bonus you received last week. Take out your last bank statements and review what you have and what you owe.
How will you handle the expenses?
There are a few different approaches to how you can split the expenses as a couple. One option is that you can split the expenses 50/50 (which means splitting everything equally). This works the best if both partners make approximately the same amount of money.
Another option is that you can split everything proportionately. For example, if one person makes $60,000 per year and the other makes only $30,000 annually, then the person with the higher income could pay 60% of the expenses and the person with the lower income would be responsible for the remaining 40% of the expenses. For this approach to work, each partner should prepare a personal budget to ensure that the expenses breakdown is realistic.
The last option is to pool all your money together, then set your financial goals. When using this approach, it is highly suggested to set aside a budgeted amount so each partner can have personal indulgences. Overall, this is a great strategy to ensure you are working together towards a goal while avoiding resentment.
How much personal spending money does each of you need?
The truth is each spouse needs their own personal spending budget. By setting aside a personal amount that will be outside of your household budget, you avoid the resentment that will come if you need to ask your partner for money each time you want to purchase that $10 t-shirt or buy that morning coffee. Together decide on an amount that is fair and work it into your budget.
You should also decide how much can be spent before you need consent from the other person. If one of you is a shop-a-holic, make the number low. If one of you is extremely frugal, negotiate a higher number. Doing this will not only eliminate the need to hide things from your partner, but it will also help to limit impulse purchases which can easily push your budget off-track.
How will you cope when things get difficult?
Are you prepared for the ups and downs that life will throw you? As much as you probably don’t want to think about worst case scenarios, make it a point to discuss what you would do if life throws you a lemon. Do you have a will, life insurance, disability and critical illness insurance, emergency savings, and so on? By having this conversation now, you will both be prepared for the potentially awful circumstances that life may throw at you in the future.
Check out our sample wedding budget here: MoneySmart Wedding Budget
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Regardless of what life stage you are in, you are likely to have some short and long term personal financial goals. Setting tangible and realistic goals, following them, and tracking your progress is the key to success in achieving all of your financial goals.
Be Specific and Realistic
Set goals that are specific and measurable. Instead of saying you want to have enough money to retire comfortably, think about how much money you’ll need. Maybe your specific goal will be to save $500,000 by the time you’re 65.
5 Questions to Ask Yourself
Your goals should also be realistic and based on your current financial situation. Think about how much you can afford to save toward your goals each month. Based on how much you can afford to save, you may have to decide which goals are most important to you.
- How soon do you want to reach each goal?
- How much money will it take to reach each goal?
- How much can you afford to save toward each goal?
- What will you gain or lose by putting one goal first?
- What choices will help you enjoy a better quality of life today? In the future?
If Your Goals Conflict
After setting your goals, you may find that some of them conflict. For example, paying for a child’s braces may take money from their university savings. Taking care of aging parents could reduce saving for your own retirement.
If you have to choose between 2 or more goals, ask yourself which goal causes the least harm if you don’t reach it. Sometimes you have to set one goal aside for a while to reach a more important goal.
Prioritizing Conflicting Goals
After setting your goals, you may find that you have goals that conflict. For example, many parents find themselves choosing between saving for their own retirement and saving for their children’s education. If you’re in this situation, ask yourself: How much harm would it cause if you didn’t have enough to live on when you retire? If you couldn’t help pay for your children’s education?
There’s no easy answer. Only you can decide which solution is likely to cause the least harm. For example, you might decide that you need to save more for retirement, and that you’ll help your kids arrange student loans when the time comes. Or, you might decide that saving for their education is your priority, and you’ll retire later than you originally planned. You may also choose to save for both your retirement and your children’s education by putting away a little less for each goal.
Review Your Top Goals
Your priorities will change over time, so review your top 3 goals at least once a year and adjust them if you need to.
Managing Big Financial Planning Goals – How Do You Eat An Elephant?
There’s a famous saying in the world of goal setting: “How do you eat an elephant? One bite at a time.”
The point of the statement is the recognition that if you try to tackle an enormous goal all at once, it can seem overwhelming, to the point of feeling so unachievable it’s not even worth trying. Instead, if you want to be prepared to succeed in a monumental sized goal, the key is to break it down to smaller, bite-sized goals that are feasible and achievable.
6 examples of specific goals
- Pay off your credit card debt within the next 6 months.
- Pay off your mortgage faster by paying down an extra $5,000 each year.
- Save $20,000 for an emergency fund within the next 2 years.
- Save $25,000 for a down payment on a house over the next 3 years.
- Save $40,000 for your child’s education by the time she turns 18.
- Save $5,000 for a vacation next year.
If you would like a consultation about any of the three broad stages of goals-based investing: setting personal goals; implementing a strategy to achieve those goals; and the monitoring process then please contact us at the office!
“The people who make a difference in your life are not the ones with the most credentials, the most money or the most awards. They are the ones who care”.
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The 2015 Federal Budget proposed to reduce the minimum withdrawal factors applicable to RRIF/LIF holders that are between the ages of 71 and 94 years of age inclusive. The reduced factor changes were included in Economic Action Plan 2015 Act, no. 1 (Bill C-59). The minimum RRIF* withdrawal factors applied before the age of 71, obtained by the formula 1/(90-age), remain unchanged.
The new factors will apply to 2015 and subsequent taxation years. The CRA has allowed financial institutions and individuals to comply with the proposed measures before they come into force.
*The mention of RRIF includes all immobilized disbursement products such as: LIF, Restricted LIF, LRIF, regulatory prescribed RIF.
As a retirement income account holder, you have the following options:
- Continue to receive payments (based on the original 2015 RRIF minimum)
- You are not obligated to reduce the new 2015 minimum rates; you can choose to take no action.
- Minimum reduction
- If you are already receiving minimum payments, you may reduce the annual minimum and reduce the future payments or stop future payments if the revised minimum amount has now been paid.
- If the new minimum is less than the amounts that have already been paid, the fund company will reduce upon request the minimum to amounts paid or the new minimum whichever is greater.
Example: Original minimum = $10,000.00, revised minimum = $7,000.00, amounts paid = $8,000.00. Minimum will be reduced to $8,000.000 and payments will resume in 2016.
- Minimum re-contribution
- If you have already taken your payments from the plan for the year you can choose to re-contribute the difference between the old minimum and the new minimum by February 29, 2016.
- The fund company will advise you (upon request) of the amount eligible for re-contribution in writing as required by the CRA.
- Note: That you are required to retain the notice of re-contribution should the CRA ask to review it.
- If you make a re-contribution, you will be provided with a 60(L) (V) Contribution receipt by March 2016 which is to be used when recording the deduction on your 2015 Income Tax Return.
- Note: The 60(L) (V) receipt indicates will display “RRSP Contribution Receipt” as the CRA does not have a template for RRIF contributions. This receipt can be used for reporting the deduction.
Example: If you have received an amount equal to the original minimum:
- Jane’s original 2015 minimum was $10,000.00 and her reduced 2015 minimum is $7,500.00.
- Part-way through 2015, Jane has already received $10,000.000 from her plan and has no further payments scheduled.
Here’s what Jane can do:
- Do nothing or …
- Re-contribute up to $2,500.00 to her plan by February 29, 2016. Jane will report as the full amount withdrawn from her plan as income (which will be at least $10,000.00) on her 2015 income tax return, but if she decides to make a re-contribution, she can claim a tax deduction for the amount of the re-contribution.
- Combination of the above noted scenarios
- If you have redeemed from your income plan, but also have an amount of the original minimum left to redeem you can request a reduction and you will be provided with a notice of the amount eligible for re-contribution (if you wish to re-contribute).
Example: John has received an amount less than his original minimum, but greater than reduced minimum:
- John’s original 2015 minimum was $10,000.00, and his reduced 2015 minimum is $7,500.00.
- Part-way through 2015, he already received $8,000.00 from his plan, and is scheduled to redeem a further $2,000.00 later in the year.
Here’s what John can do:
- John can continue to receive a further $2,000.00 this year, and re-contribute up to $2,500.00 to his plan by February 29, 2016, or …
- He can stop further payments at the $8,000.00 already reached, and then re-contribute up to $500 to his plan by February 29, 2016.
- John will report the full amount withdrawn from his plan (which will be at least $8,000.00) as income on his 2015 income tax return, but if he makes a re-contribution, he can also claim a tax deduction for the amount of the re-contribution.
If a re-contribution is made, a 60(L) (V) contribution receipt will be issued by mid-March 2016, representing the re-contributed amount.
If you have any questions or concerns regarding the above-mentioned retirement income payment changes, please contact us at the office.
- Continue to receive payments (based on the original 2015 RRIF minimum)
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In 2009, the Tax-Free Savings Account (TFSA) was introduced by the Canadian federal government. The TFSA is a great option to help Canadians save for long and short term financial goals and the funds can be withdrawn at any time on a tax-free basis.
Unlike a Registered Retirement Savings Plan (RRSP), the TFSA is meant to help you save for any type of general savings needs as opposed to simply retirement. There is no penalty to withdrawing funds from your TFSA whereas withdrawing funds from an RRSP will have resulting tax implications. However, like an RRSP, there is an annual contribution limit. For a TFSA the annual contribution limit is not linked to your income, but rather it is set by the federal government and it is the same limit for all Canadians.
How the TFSA Works
Here is some general information on how the TFSA works:
- Canadian residents age 18 and over can save up to $10,000 (beginning in 2015) a year in a TFSA
- Contributions are not tax-deductible, but investment returns (capital gains, interest and dividends) earned in a TFSA are not taxed, even when withdrawn.
- Withdrawals are tax-free and funds can be used for any purpose.
- Unused contribution room can be carried forward indefinitely. As well, any amount withdrawn from a TFSA can be re-contributed in a future year without requiring new contribution room.
- Neither income earned in a TFSA nor withdrawals will affect eligibility for federal tax credits or income-tested benefits such as the Canada Child Tax Benefit, Old Age Security (OAS) or the Guaranteed Income Supplement (GIS)
- Investments eligible for an RRSP can generally be held in a TFSA.*
Annual Contribution Limits
If you have never contributed to a TFSA before, the contribution limits from 2009 are cumulative. Thus, if you were to open a TFSA today you could contribute a maximum of $41,000.00, and then an additional $10,000.00 per year going forward.
Year Contribution Limit 2009 $5,000.00 2010 $5,000.00 2011 $5,000.00 2012 $5,000.00 2013 $5,500.00 2014 $5,500.00 2015 $10,000.00
Rate of Return Matters
Since the funds held within a TFSA are mutual funds, the better your rate of return, the faster your savings will grow. Please refer to the below charts developed by RBC Global Asset Management for some examples as to how much your TFSA may be worth assuming the contributions are maxed out.
Who does the TFSA benefit?
As you can see from above, the TFSA is a great option (whether you are an individual investor or an investing couple), even if you cannot invest the maximum allowable contribution on a yearly basis.
Thus, the TFSA can benefit the following:
- Young people just starting out: TFSAs will stimulate more savings when starting at a younger age.
- Seniors: TFSAs can provide retired persons with a means to save on a tax-free basis; neither withdrawals nor income earned in a TFSA will trigger clawbacks on Old Age Security (OAS) benefits or the Guaranteed Income Supplement (GIS).
- High Income Earners: Taxpayers who have already made the maximum contribution to their RRSPs will have another tax sheltered savings vehicle.
- Lower Income Earners: Taxpayers in a lower tax bracket may prefer to forgo the modest tax deduction of an RRSP in exchange for tax-free growth and withdrawals of a TFSA.
- Anyone Saving for a Large Ticket Item: TFSAs can be used to fund a car purchase, vacation or down payment on a house.*
In other words, the TFSA can benefits just about EVERYONE!
If you would like more information on TFSAs or would like to open a TFSA, please contact us.
*Excerpt from Mackenzie Investments Flyer. “Introduction to TFSAs.”
**Chart complied from RBC Global Asset Management Charts: Tax Free Savings Accounts – Rate of Return Matters (Individual Investor) & Tax Free Savings Accounts – Rate of Return Matters (Investing Couple).
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Did you know that now 2 out of every 3 jobs require some form of post-secondary education? College and university are more important than ever before and it is no secret that the cost of post-secondary education is rising. By planning in advance, you can make the dream of a higher education for your child, grandchild, niece, nephew or yourself possible.
As with all financial goals, the best way to save for a higher education is by working with your financial advisor. Your advisor will be able to help quantify your education-savings needs, looking at the various options, in order to best develop a plan that balances your education-savings goals with your other financial priorities.
Although putting off saving for education is always tempting (especially if it seems like a distant priority), but the best way to make education more affordable is to start saving right away. By starting to set money aside for education early on, you will have to save less money overall due to compound growth.
According to Statistics Canada, the 2014/2015 average annual cost of tuition for a full-time student is $5,959.00. Now, if you child (or grandchild) wants to be a lawyer, pharmacist, doctor or dentist, the average annual cost of tuition can range anywhere from $10,508.00 to an astronomical $18,187.00!
In order to start saving for higher education, you first need to understand what your education saving options are. Click on the link below to see a printable version of the various education savings plans options available.
Accounting for the cost of tuition and related fees in your education savings plan is a great place to start; however, these fees represent only 1/3 of the expenses that students face each year! Add in accommodation, food, transportation, books and computers, and leisure, and the costs associated with higher education begins to increase substantially.
A student can avoid crippling debt, by family members developing a plan of action early on in the student’s lifetime. In order to help your advisor do their best possible job to help you, be sure to:
- Provide an accurate and complete picture of your current situation as well as future aspirations; and
- Review any recommendations, address any concerns and ask questions so that you are completely comfortable before your plan is implemented.
Also, remember to keep your advisor informed of any changes that could influence your plan when they happen so that you advisor can recommend the appropriate adjustments before it is too late to do anything about it.
After all, always remember that a post-secondary education is not just about improving your children’s earning potential and standard of living. It also contributes to their personal growth and broadens their horizons.
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When you open a Manulife One account, we could lend you up to 80% of the appraised value of your home. You use this money to pay off the balance of your existing mortgage, personal lines of credit and any other outstanding debts you might have. Now you pay one low interest rate on every dollar you borrow.
Get more information at http://www.manulifeone.ca