Category: General

General musings on money management

Savvy Real Estate Series – Part 1: Should you sell your house yourself?

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Many money management blogs will focus on ways to save money by doing little things over a long period of time – things like meal prep, not buying coffee every day, budgeting for the holidays, shopping around for savings etc. And while those things are certainly important, I think its also important to consider areas where you can save a LOT of money in a short amount of time.

One of those things is by selling your home yourself and not using an agent to avoid having to fork over the commission.

This is something I’ve now done several times –  I’ve sold two homes and leased/rent several properties without using an agent and each time I’ve managed to do better than realtors had told me I’d get. So I decided to make a series of posts on this topic. I’ll start with this one – helping you determine if selling your house yourself is something you should do – and I’ll follow it with tips on selling your house as well as how to choose the best agent, if you decide selling your house yourself isn’t for you.

Why you should always look into selling your house yourself

In most countries, real estate agents charge a commission – i.e. a percentage of the sale price of your home – as their compensation for selling your house. In Canada, the buying and selling agent will typically charge 2.5% each – or 5% total. In New Zealand (where I’m currently living), only the selling agents get commission, and its typically 4.5% + GST.

Now this can amount to be a HUGE chunk of change. The average home in Canada now sells for about $475,000. This means that when you sell your house, you will have to pay the realtors $23,750 in commissions alone . Also, if the house you sell is your primary home, this money would also be free from capital gains tax, so it would be ALL yours to use as you please. That money could be used to pay off debt, beef up savings or a down payment for another home (so you don’t have to get as high a mortgage). And that is just the average – this number gets higher the more you sell your home for.

This leads me to another reason – many agents are just not that good, and in my opinion don’t really earn that generous commission. But it doesn’t take an idiot to do the math above and realize that if they are able to sell just a few houses in a year, it can effectively replace a 50 week, 9-5 salary – for significantly less work.

Granted, realtors don’t get to keep the entire commission (some goes to the brokerage, overhead costs, taxes etc) but in a hot market like we are currently experiencing where houses often sell within days of being listed, for ridiculous sums of money and no conditions, its no wonder that the number of real-estate agents is at an all time high. In what other profession can you take a quick course, have no post-secondary education and be licensed to work within a year, getting paid upwards of $20,000 per sale? Its no wonder that in Toronto alone, the number of licensed agents has doubled over the past ten years. As a result, there are a ton of inexperienced agents out there that really don’t know what they are doing any more than you do.

Another main driver for me was the fact that selling your home is work to you regardless if you use an agent or not. In most cases, YOU have to clean/tidy your home before showings or open homes, YOU need to organize your family to be elsewhere when these showings take place, YOU need to pay for staging, YOU choose who to sell to and where to compromise and YOU have to pay for a lawyer to deal with the legal stuff.

You should also some market research to know what to expect what your home will sell for – sometimes agents will low-ball a house just so they can sell it faster. For every $10,000 the agent gets $500 extra – it might not be worth the extra effort to a realtor to market a house for $10,000 or $20,000 more for a few hundred dollars but to the seller, that is a lot of money, especially if that is what it is worth and could sell for. So whether or not you use an agent, YOU should still know approximately what your home is worth. In sum, a lot of it is on you anyway, so shouldn’t YOU get some compensation for that?

However, selling your house yourself is still work – don’t kid yourself – there is a reason that there is a whole profession dedicated to selling houses. So I’ve developed a guideline to follow for  when it would make sense to do it yourself.

When to sell your house yourself:

  • You have time and are flexible. This is one of the main reasons I do it myself. I am a work-at-home mom and I was available to show my house at any time, on any day of the week. I’ve even had people ring the doorbell and asking to have a look because they knew they’d be dealing with the seller directly anyway and I was able to show it. No need to worry about a busy agent showing another client’s house or personal time and potentially losing a sale.
  • In a seller’s market. This is when house prices are on the rise and supply of houses is low. Basically, the situation right now in many big cities like Toronto or Vancouver or Auckland. Buyers have to be less picky and can’t put as many (or any) conditions on purchase, which pretty much guarantees you the sale if your home is in the location they want.
  • Your house is in an excellent location. There is a reason that “location, location, location” is the dogma of real estate. If your house is in a good location, even if its the worst house on the block, it will sell. And in a market like this? It will pretty much sell itself and will sell very quickly.
  • You aren’t easily offended. Look, buying real estate is a big deal for most people, so purchasers will be critical (in order to not seem too keen, because its easy to criticize when its not your home, people have different tastes etc) and it may be hard to hear someone mutter about the hideous curtains/wall colour you lovingly chose, renovations you’ve done etc. You can’t let it discourage you.
  • You have some business savvy/confidence and be a bit of a risk taker. A home sale is a business transaction at the end of the day. You need to know how to market your home, stage it and understand the market well enough to be able to negotiate effectively (I will do a post on tips to sell your home soon).
  • You are and can afford to be patient. Selling your home yourself will probably take longer than with an agent. Selling agents may avoid showing your house to potential clients (since they don’t get any commission), buyers themselves may not want to deal without agents and in general you will not be able to reach the same number of potential buyers that an agent can. It can get discouraging when you put in all this effort to get it ready only to have no or little interest after your first open home. But if you are able to give it some time, selling yourself may be a good idea. Remember, you can only have one buyer at the end of the day and chances are that if you are in a sought after area, you will have no problem finding interested buyers.

That all said, there are times when I would recommend using an agent.

When to use an agent:

  • You are just too busy and don’t have the flexibility to show the home whenever a potential buyer is interested, it really is in your best interest to use an agent.
  • In a buyer’s market. This is when there may be an abundance of houses or the market has cooled off for whatever reason and a realtor will potentially be better able to reach  a bigger network of interested buyers and be better able to help you negotiate. This is where an experienced agent is key.
  • Your property is very unique or difficult to sell. The easiest houses to sell are those that appeal to a larger group of people – that also means they are pretty conventional and in popular locatoins. But if your property is very unique – for example, its a luxury property, or has some unique features, or is in a less than desirable location – a good agent that specializes in that type of real estate would be good to use to make sure you are getting the best price.
  • You are not a natural negotiator and/or don’t like conflict. There are some people who are born sales people or negotiators and there are some who aren’t. The latter are the people who will mess up selling their own home and will be the horror stories that realtors will tell potential clients with glee. Like I mentioned before, selling by yourself is work and its not as easy as it looks.
  • You need to sell ASAP. If you have to move quickly, I’d recommend using an agent for sure. My approach to selling on my own involves having a timeline of how long I am willing to list without an agent before giving in and getting an agent and still making the timeline I want to have my house sold. If you don’t have the luxury to wait it out selling yourself, don’t do it.

Convinced yet? If so, stay tuned for my next post which will include tips on how to sell your home yourself!

6 things worth going into debt for when you have a family – and 3 things that AREN’T

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First of all – apologies for not updating this blog for such a long time! I’ve had some major life changes (moved from Canada to New Zealand, pregnant with my 3rd baby, enrolled in a university course…) so it’s taken a while to find my footing again.

Anyway, I was talking about financial priorities with a friend recently and we were debating whether there are any purchases worth going into debt for. My first instinct was NO, there is NOTHING. I don’t like debt as a general rule.

But then I started thinking – I do have some debt (mortgage) and that’s worth it (more below). And I also know that there are somethings that really are more important than money. So, are there some things worth buying, even if they mean going into debt? Yes and here is my list:

  1. Life/Disability Insurance

Even if you are struggling to make ends meet, I really think that having adequate life and disability insurance is a MUST for someone who has a family. In my opinion, families should have life insurance coverage that would cover living and housing costs for 10 years at the very least.

If you earn a lot of money, you should also consider how much money your family would be missing out on if you died or became disabled. For some professions, the disability portion maybe even more important to look into. For example, if you are say, a dentist, you need your hands to be functional to make a living, so even a minor accident can devastate you if you are no longer able to perform your job.

Tip: The younger/healthier you are when you get it, the cheaper your premiums for a long time.

2. Health Insurance

If you live in a country like Canada, where there is universal health care coverage (i.e. paid for by the government), then additional health insurance is gravy – usually something that covers dental care, vision care, massages etc – and is something many employers provide. If you don’t get this extra health insurance, it’s not that big of a deal but still worth looking into.

But if you live somewhere where the isn’t universal health care, like the US, please, please get health insurance. Put it as a priority even above life insurance. Put your monthly premiums on your credit card if you have to. Because medical bills are the #1 reason people go bankrupt in the US. Just one adverse medical problem can devastate a family overnight.  And I’m not talking about a cancer or a major disease diagnosis, but normal life things like birth or accidents can end up costing hundreds of thousands of dollars. Unfortunately, even insurance is no guarantee that you won’t be faced with high deductibles or some out of pocket expenses, however hopefully the brunt of it will be taken care of by the insurance.

If you live in a country that has a two-tier system, like New Zealand, I’d still consider getting additional health insurance especially after seeing the benefits of having it with a family member who was diagnosed with cancer recently.

3. Marital/Relationship Counselling

Divorce/separation is expensive – not just the actual cost of divorcing (legal fees etc), but the aftermath as well. Going from two incomes to one income to support pretty much the same sized family is tough (or having one income support double the living expenses). Not to mention the emotional cost and psychological cost that a divorce has on the children.

As such, I highly recommend that couples seek counselling prior to officially separating and really trying to work on the issues the counsellor identifies. This may take more than one or two sessions so it is important to be patient. But you married/started a family with that person for a reason and it was likely very legitimate! Hopefully a bit of guidance can help you get back to the way you were.

Even if you still choose to separate afterwards, I think that attempting counselling can be good for closure (you tried everything) and you may get tips on how best to go forward to minimize the negative effects on your family (which can have a huge effect on your financial situation).

Counselling doesn’t have to cost a lot either – there may even be great free options at a church or community center.

Of course there are certain situations where divorce is really the best option. But I believe only extreme cases warrant a divorce without an attempt at fixing what is broken.

4. Mortgage

A mortgage is debt – make NO mistake about this. And it can be bad debt if you buy a house that you can’t afford. But it can also be good debt. Good if your mortgage (and other home-ownership costs) can be managed comfortably in your budget (see here for my recommendation on how much of your budget should be allocated to your housing costs). Good if you buy at a time when prices are on their way up (thus creating equity). And good if owning a home is an important life goal for you (it isn’t for everyone, so for those people, buying a home may NOT be the best idea) and you are at a point in your life where you are up for the responsibility.

5. Car loan

A car loan is debt. For some reason, I’ve met many people who seem to think that their car payment doesn’t count. Sorry, but yes, if you have an obligation to pay for your car – whether it is to the dealership, a family member or the bank, it is debt. And yes, a lease is debt too!

However, in this day and age, having a car is pretty important – especially if they need it to get to work (and especially if public transportation options are not available, very limited or plain inconvenient). So I think going into debt to buy a car is usually totally acceptable. That said, I don’t think going into any amount of debt is justifiable – and I discuss how to determine what a reasonable amount for car ownership/lease is in greater detail here.

There were some other things that I considered and things that I’ve seen mentioned on Facebook or whatever as worth going into debt for.

But I disagree –  here are some of the things that did NOT make the cut:

  1. Travel to make memories

Sorry, but going into a lot of debt to “create memories” is not a good reason. You can make memories with your family by organizing a great “stay-cation” and exploring your home town, choosing cheaper activities (camping vs going to a resort), cheaper travel methods (driving vs flying) and my favorite, SAVING for trips. These are the best way to really give your family experiences and creating memories because you will be doing so without the stress and burden of debt.

In my mind, the only exception for going into debt for travel is for something like visiting a loved one who is sick or dying or perhaps attending a funeral.

2. Once-in-a-lifetime experiences

OMG – the Rolling Stones/[Insert your favorite band or singer] are coming to your city! Tickets are expensive but it’s their LAST TOUR.  You HAVE TO GO.

No, no you don’t. If you don’t have the money saved, don’t go into debt. Its not worth it. Unless you can squeeze it into your budget or take away from an unnecessary category (for example, taking from your vacation budget or forgoing going out for dinner for your next three date nights), then sure, go for it. But if you really don’t have the money to pay upfront for those tickets, it’s NOT justifiable.

3. AH-MAZING sale or offer

Recently I went to the jewellers to get a ring I have fixed. It had a design flaw and the stones on it were always loose – I even lost the centre stone one time (luckily found it) and I was worried it would happen again. I had avoided wearing it for fear of losing a stone again so when I noticed that the jewellery store had a policy where you can “upgrade” your jewellery by trading in your older piece for a new one, if the new one was more expensive, I decided to look into it.

At first, this seemed like a great deal. Not only could I use the value of my ring as credit towards my new item, the manager at the store offered me a further discount. I’d be getting a way bigger stone ring, worth $3,500 and would ONLY be out of pocket $900.

Except $900 is a lot of money. And even though we actually HAD the money was this really something worth doing? Did I NEED a more expensive ring? A ring that I didn’t even know existed until that day?

No. I didn’t. Other than the opportunity to get a nice piece of jewellery for a great price (it really was a great price), there was no benefit. Especially when I did the math and realized I’d have to lose and replace the loose stone of my original ring like 6 times before I’d be out of pocket $900.

This applies to everything – whether it’s a handbag you’ve been coveting, a great deal on an appliance or whatever, if you don’t have the money saved for it, it’s NOT WORTH going into debt for. Because at the end of the day, if you are paying interest on it, you aren’t *really* getting a deal. And remember, these deals come around again and again you will have plenty of opportunity to take advantage of them in the future. My advice? If you really, really, really want it, start making it a priority to save for it!

 

Don’t fall for this small business tax trap – and tips on how to avoid it

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There are many benefits to owning your own business – you are the boss, your hours are more flexible (though on average, small business owner work more than regular employees) and you can often make more money.

The reason you can make more money or at least, running your small business can be positive financially, is because of the things that you can expense (read: reduce your profit and pay less tax) through your business that you can also use outside of your business.

However, some people take it too far and end up expensing way too much – and get caught with serious consequences.

It can be exhilarating to know that as a small business owner you can legitimately expense things you need and use everyday anyway – things like your car, your cell phone and – if you work from home – even a portion of your mortgage interest. As these are things that you often need to run your business, they can be written off as a business expense.

But some people cross the line from grey to black. One friend, a successful small business owner, admitted to me that he and his two business partners had a very good year and realized that their company will need to pay a lot of tax. So they decided to buy some extremely expensive designer suits (at a cost of $10,000 a pop!) and expense them as “uniforms” to reduce the total profit to bump them down into a lower tax bracket. Sounds like a great idea, right? Except that the tax authority caught on right away and not only did they have to pay the tax, they were slapped with a fine – and they weren’t able to return the suits!

This is a trap that many small business owners fall for, and I think the worst offenders are people who run small businesses that are closer to hobbies or are part of a multi-level-marketing type business because they often don’t understand what is reasonable to expense and what isn’t.

Here are some expensing tips to avoid being audited and potentially hit with major fines.

1. Expense reasonable things.

Even if you don’t always or only use the items for your business, there are many expenses that we have that are considered reasonable to expense through a business.

These are things that a person would reasonably use for their business. For example, if you are a physiotherapist that does house calls, expensing your car payments and gas is reasonable even if you also use that car for personal reasons. Bought a bunch of stamps that you mostly used to mail Christmas cards to your family and friends? That’s ok too as having postage is a reasonable thing for any business to need (even if you mostly communicate with your clients via email). Expensing flights to Hawaii as a travel expense? Not reasonable because why would a physiotherapist need to go to Hawaii (unless maybe it was for a conference related to your field of work)?

2. Make sure the expense amount is reasonable. If you are a part-time real estate agent that sells two or three houses per year, its reasonable to expense four or five $200 bottle of champagne (even if you ended up drinking some of those yourself) as a marketing expense. It would not be reasonable to expense 50 bottles worth. Why? Because its reasonable for an agent to give a thank you gift to her clients and buying four or five bottles seems like a reasonable amount (you might want to give awesome clients two bottles for example). But if you only sell about two or three house it might be difficult to make the argument for why you needed so many bottles of champagne that year.

This also applies to how much of an expense you allocate to your business. Things like car payments, cell phones, home office expenses etc are reasonable to expense in full only if you use them mostly for your business. But if you sell Arbonne cosmetics on the side and do a couple shows per month, its not reasonable for you to expense 100% of your cell phone bill or your entire internet bill.

Look at your bills and try and gauge how much you use for your business. It doesn’t have to be exact (no one is going to throw you into jail if only 8% of your cell phone minutes were used calling customers but you expensed 10% of your cell phone bill). Another good way to determine reasonable allocation is based on the time you spend on your business. If you spend about 20% of your time working on your business (cold calling customers, following up on appointments, administration etc), then expensing everything that would be reasonable to spend on your business at 20% is fair.

3. Keep receipts for everything. In my books, if you don’t have the receipt, don’t claim the expense. If its a major expense (say you bought a new computer) and lost the receipt you can get away with potentially using a credit card statement as evidence (so a $1,500 charge on your credit card from the Apple store might be sufficient) if you are audited, but I would fall back on this as exception rather than a rule.

But keep receipts for the small ticket purchases too – people often get caught up in the big ticket items and forget that small legitimate expenses add up. For example, did you take a potential client out for coffee? Buy a thank you gift for that couple that recommended your services? These are legitimate expenses (though remember, food and entertainment can only be claimed at 50%) even if they are only $5 or $10 each.

4. Remember that there is an expectation of profit. Look, the government is aware that most small business owners will expense things that they will use personally and they will turn a blind eye if its reasonable because its not worth their time (or money) to verify, for example, that every cell phone conversation is related to your business and every item purchased at Staples is in your office cupboard. But you, as a small business owner, have to show that its worthwhile for you being in business and that you are making (or are close to making) a profit from your business. Generally, if you don’t start showing a profit after two or three years of business, you will be at much higher risk of being audited and having your expenses declined – even if they are legitimate.

Remember a good rule of thumb to follow is one that my dad (a CA and business owner) gave me.

It is that you can be a pig – but not a hog.

Why? Because pigs get fat and hogs get slaughtered 🙂

Top 6 money wasters that parents are guilty of

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We ALL waste money – we all buy things we don’t really need (just want), buy things for ourselves and our kids purely because they make us happy or make our lives easier.

And you know what? To me those things are often justified IF people can afford them, so this isn’t going to be a list of the typical money wasters you read about, like a daily Starbucks, designer kids clothing, eating out or gym memberships.

But there are some things that parents spend money on that are a waste of money even if they can afford them – why? Because they are being bought on false information and do not deliver on their promises or they are inherently just a waste of money. Here are the six top contenders for the biggest money wasters that parents are guilty of:

1. Organic food

People who buy organic foods are usually doing so because they think that this food is better or safer for their families and accept this comes at a premium. This was a big concern for me personally and I’ll admit, I totally bought into it. But then I looked into it more and discovered that the evidence shows that organic foods are not any more nutritious, organic farmers also use fertilizers and pesticides (which vary widely in terms of how eco-friendly and safe they are for humans), don’t taste better and also need to use more land because their yields aren’t as good as conventional farming yields (and given our growing world populations, I really think we need to be more efficient with the land we already farm).

That being said, I still buy certain organic food brands (because they are tasty though, not because they are organic) and I will usually opt to buy organic eggs if I can’t find any conventional ones that are free-run or free range because that is important to me.

2. Anything homoeopathic

Not to be confused with naturopathy (which has some legitimate alternative remedies proven to work), homoeopathy was invented by Samuel Hahnemann in 1796 who theorized that, according to him, “a substance that causes the symptoms of a disease in healthy people will cure similar symptoms in sick people” (ok, this is similar to vaccines, so on the right track). But here is the kicker – the main premise of homoeopathy is that the more dilute the active ingredient, the more potent it is and more effective it is at curing people because the water has “memory” of the ingredient. Um ok.

Too bad that it goes against all the rules of biochemistry, physics and pharmacology (its like saying vodka will get you more drunk the more more water you add to it). Not surprisingly, it has not been proven to effectively treat any condition and no homoeopathic remedy has even been proven more effective than a placebo (which isn’t shocking, given that the main ingredients are sugar, water or alcohol – the same things placebos are made of). Yet in the US people spent $3 Billion in 2007 alone on these homoeopathic remedies sugar pills (because lets call them what they really are) and that number is growing steadily every year.

Also, because these “medicines” are not regulated by entities like the FDA, or are only loosely regulated in Canada, we really don’t know what we are getting and if its even safe. Recently a scientist tested a homoeopathic pet calming medicine that turned out to be 13% alcohol – it wasn’t “calming” the pets – it was getting them drunk!

3.Supplements

While there are some supplements that are truly beneficial, many dieticians and nutritionists insist that most of the supplements people are taking are not necessary. And given that they are also expensive to add to your daily routine, why waste the money if you don’t need to?

But one thing that many people fail to keep in mind that just because they come from natural sources like plants, that it doesn’t mean they are safe by default. A great example is St. John’s wort – a plant based supplement that is often used as a “natural” treatment for depression. Not only does it come with a list of serious potential side effects when used on its own,  it can pose additional risks when mixed with certain pharmaceuticals (like reducing the effectiveness of the birth control pill).

But the main reason its a money waster? Because of recent studies that have shown that up to 80% of all supplements sold don’t contain any DNA of the plant that the bottle states the pills inside are supposedly made of and are instead full of fillers. Yikes!

4. Kids’ vitamins

I’m sure many parents struggle with making sure that their kids eat a balanced, nutritious diet. And I’m sure many of them thought that “oh well, at least they take a multivitamin” when their 3 year old only agrees eat plain white pasta with butter for the 4th day in a row (or was that just me?).

But according to registered dietician, Sarah Remmer, unless your kids is “an extremely picky eater, failing to thrive or has several food restrictions” they really don’t need them. There are some exceptions like Vitamin D and Omega-3 supplements, however even the need for these should be discussed with your child’s doctor and not just thrown into the grocery cart and given to your kid “just in case.” Not only that, but vitamins just aren’t absorbed as well by the body when they come in pill form as compared to when they come from food and there is even the risk over overdosing on vitamins when taken in pill/gummy form, which can be very dangerous.

So take that $10-$15 a month that you are spending on vitamins and instead, invest it in an RESP.

5. Products that claim to reverse damage

Motherhood can do a number on you – stretch marks, weight gain, cellulite,  damaged skin, damaged hair…to just not having the time (or energy) to properly care for yourself, many of us moms just feel very frumpy a lot of the time. So when products promise to take those things away or reserve the damage caused by pregnancy, sleepless nights and not having enough time to visit the hair dresser/gym/spa, many of us jump on it.

But in reality, there is no evidence that any of them work. Stretch marks? Well, thank your mom for those. Evidence shows that whether or not a woman will get stretch marks depends on genetics and how much weight she gains during pregnancy. Any cream that promised to help prevent or diminish the appearance of them is 100% lying to you. The most those creams do is provide some relief from itching.

Similarly with creams, lotions, serums or whatever that promise to get rid of cellulite, “reverse” signs of aging or fix split ends. You cannot undo that damage any more than you can unscramble an egg, according to this industry insider. What you CAN do is exercise more, eat healthier food, wear sunscreen to prevent skin damage and, for the split ends, get regular haircuts etc (sigh – admit it, you knew this already).

6. Credit card interest

Credit card interest is the definition of wasting money. I don’t care how rich you are – any time you don’t pay your full credit card balance off or don’t pay it in time, you are charged interest as high as 30%. Even if you CAN afford it, wouldn’t that money be better spent on saving for retirement, a charitable donation or heck, even lighting it on fire (watching it burn would at least provide you with entertainment)?

Credit cards can be a useful tool however, but its important to treat them with respect – something which I discuss in more detail in a past post.

Think I missed something? Leave me a comment!

 Resources used:

Scientific American – Fact or Fiction? Vitamin Supplements Improve Your Health

Sarah Remmer – Registered Dietitian

A System review of systemic reviews of homoeopathy in the British Journal of Clinical Pharmacology 

Are the clinical effects of homoepathy placebo effects? Comparative study of placebo-controlled trials of homoeopathy and allopathy in The Lancet

How to get the most money back on your family’s income tax return

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Its that time of the year again! And I have to say, I’m always excited about it. Why? Because income tax time is also income tax REFUND time (did you know that the average refund in 2012 was $1,641?)! Even though we do get my hubby (the higher earner) to claim our kids as dependants on his T1213 to ensure we pay less taxes throughout the year, because of new tax rules, charitable donations, etc we usually end up with a refund.

As a professional accountant, people often ask me for tax advice  – so here are some of my top tips for getting the most money back.

1. File your taxes YOURSELF!

Unless you have some very complicated tax situation, there is no reason to not do your tax returns yourself. Programs like TurboTax, Ufile etc make it pretty fool-proof and are much cheaper than paying a professional accountant or even going to H&R Block (who, FYI, don’t even use professional accountants for the most part and just give their employees some basic training before hand).

The hardest part of any tax return is gathering all the documents and you need to do that yourself anyway – why pay upwards of $100 for someone to just plug the numbers into the form? Even if you have a moderately difficult tax return (such as having to declare rental or investment income), I really think anyone with half a brain can do this themselves.

2. File your tax returns together 

If you are married or in a common-law relationship, file your tax returns together. Doing so allows you to transfer certain non-refundable tax credits (like charitable donations or a spouses medical expenses) and let you allocate them based on who would get the best refund (most tax programs will figure this out for you).

This year it especially makes sense to do so with the new income splitting rule that came into effect. While this tax break is somewhat controversial, the fact is that many Canadian families with children under 18 will benefit from this new Family Tax Cut. Basically, the higher earning spouse can transfer up to $50,000 of their income to the stay-at-home parent or lower earning spouse. This will trigger a tax refund for the higher earning spouse but will also trigger a tax liability for the lower/non-earning spouse – however the net effect will be a refund, which is capped at $2,000.

3. Be organized

Like I mentioned earlier, gathering documents is probably the most arduous part of doing your tax return. So to make this as simple as possible, its a good idea to have everything ready to go. How will this save you money? Well for one thing, it will help ensure you don’t miss or forget about some important receipts (i.e. deductions) and will enable you to finish faster and get your refund faster. Time is money!

I use a very basic and easy tax filing system that consists of just two things – a folder in my email and a manilla envelope in my filing cabinet. Each is labelled “Tax 2014” and in both I file anything tax related. So for example, when I make a donation to a friend’s Movember campaign or pay for my son’s swimming lessons and have the tax receipt emailed to me, I immediately file it under my Tax 2014 folder. At the end of each month I’ll pop in my husband’s transit passes into the envelope. When our T4s or RRSP contribution statements come in, I add those. When I have everything, I just take everything out of the envelopes, print off all my emailed receipts and just plug away. Then when I’m done and have filed my return, I print out a copy and put it and all the receipts, T4s, statements etc that I used to prepare my return into that same envelope. That way, if I am audited, I can immediately retrieve the relevant documents. Just remember that you need to keep these documents for 7 years after filing.

4. Keep your medical and dental expense receipts

Did you know that you can claim medical and dental expenses if their total is great than 3% of your net income or $2,171? And you can even choose any 12 month period, as long as it ends in the 2014 tax year (so you can claim items from April 2013 to April 2014, for example, if it helps you reach that 3% or $2,171 amount).

This is great for anyone who has had significant medical and dental expenses that weren’t covered by their work health insurance plan (or if you don’t have one or are self-employed). And bonus for couples that file together – you can merge your and your partners and your kids expenses to meet the above mentioned threshold.

So if you had laser eye surgery or your kid got braces, these things can be deducted. But even a bunch of small expenses throughout the year may end up reaching the threshold, so make sure to keep all those receipts! I found out that if you have celiac disease and need to buy gluten-free food, even that can be claimed! For a full list of what can be claimed, go here.

5. Contribute to your RRSP

When you make a contribution to your or your spouse’s RRSP, that amount is used to lower your income – hence triggering a refund. So not only are you saving for the future, you actually get some of that money back! The amount that you can contribute depends on how much you made that year and how much contribution room you have left over from prior years (this will be on your previous year’s Notice of Assessment).

Just remember, the deadline to contribute to your RRSP is March 1st, NOT the filing deadline of April 30th, for it to count towards the prior year (i.e. the year you are filing for). This is important because sometimes people may have a balance owing and this can be offset or lowered just by making an RRSP contribution (and I don’t know about you, but I’d rather pay myself than pay the government).

6. Remember to claim your deductions!

Monthly transit passes, child care costs this includes a summer or March break day camp!), child fitness costs (like membership or registration fees for a physical activity), children’s arts amounts, charitable donations, tuition credit and the aforementioned medical/dental expenses are expenses that most families should expect to claim.

Other deductions you may want to consider are:

  • A portion of your cell phone bill if your employer uses it to call you to obtain work from you (just make sure it can trace back to your airtime on your statements)
  • Student loan interest – the one good thing about those loans!
  • Home office expenses if you work from home more than 50% of the time – so a portion of your internet, stationary expenses or office equipment etc can be claimed.
  • Moving expenses – you can claim eligible moving expenses if you move for work or run a business at a new location, or if you move to take courses as a student in full-time attendance enrolled in a post-secondary program. Note you have to have moved at least 40km closer to the work or school (via the shortest route possible).

7. Do them ASAP

The deadline to file your tax return is April 30th in Canada (for all but self-employed workers and their spouses or common-law partners). But most people have the information and documents they need much earlier than that. So you really should start preparing as soon as you can because it gives you time to:

a) gather all your documents to make sure you have everything you need and if you are missing something, time to get another copy,

b) top-up your RRSP to offset a balance owing or increase your refund,

c) lets you avoid any late fees and penalties in the event you have an amount owing but didn’t realize it until you prepared your return and lastly (and most importantly)

d) get your refund faster – you should get your refund within a few business days if you file online using NETFILE and the closer you file to the deadline, the longer it will take as the number of people filing increases.

The only time I’d recommend filing right before the deadline (and I mean filing, not preparing!) is if you are self-employed and/or if you know you are going to have an amount owing.

8. Don’t lie

I know this may seem obvious, but please don’t cheat or lie on your income tax return. I know someone who claimed 12 months of transit passes – even though she only had 2 – and got audited.

This also applies if you just lost a receipt – if you don’t have proof that you had an expense, you can’t claim it. You may be able to get away with a credit card or bank statement (for example, if you purchased your subway pass on the first of the month and the amount matches the amount a pass costs), but this should be an exception and not a rule for substantiating a deduction.

Getting caught can lead to fines and penalties and will make you the target of audits more frequently in the future. And while audits usually just mean that you need to submit receipts or statements, an audit may involve a CRA auditor coming to your home and looking at all your financial information, including your bank statements or whatever they believe is required to complete their audit. Also, remember that they can ask for your tax return supporting evidence as far back as 7 years, so make sure you keep it (and know where it is!).

What to look forward to in 2015

Universal Child Care Benefit Increases

In 2015, the Universal Child Care Benefit is going to increase from $100 to $160 for kids under 6 and kids 6 to 17 will receive $60 (before, they got nothing). This benefit won’t be paid out until July, however it will be back-paid till the start of the year – so expect an additional lump sum of $420 per kid to be deposited in your account (for kids 6 and under the amount for July will be $420+$100 and for kids 6 and older will be $420). Afterwards the amounts will be paid monthly at $160 and $60 respectively. Good news is that if you are already enrolled in this program (reminder, its available to ALL children, regardless of income), you don’t need to do anything.

Child Fitness Tax Credit will be doubled

This credit is being doubled from $500 to $1,000 per child 16 years of age or younger in 2015.

Child Care Expense Deduction

The government proposed to increase the dollar limits of the CCED by $1,000—i.e., to $8,000 from $7,000 per child under age 7, to $5,000 from $4,000 for each child aged 7 through 16 (and for infirm dependent children over age 16), and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit in 2015.

Resources:

http://www.budget.gc.ca/efp-peb/2014/overview-apercu-eng.html

Canada Revenue Agency website

30 Day Shred – Level 2 – Days 10 to 20

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On Friday I finished Level 2 of the 30 Day Shred! Whew, I’ll admit I found it a LOT harder than Level 1. Like, 100% harder. One of the toughest things about this level is that there is a lot of plank-based moves (including the cardio portions!) and I would definitely have to take a second break every now and then because my legs were burning, especially at first. I did manage to do all the exercises at the advanced level but it was a challenge for sure. I also had to get some 3lb weights for the last circuit because there was no way I’d get through some of those lifts with the 8lb weights yet still wanted more challenge than then 1lb ones.

It took me a bit longer to finish this level as I took an extra rest day (I had originally planned to take a day off after finishing the first level and then part way) because I had one day where I was just NOT in the mood to exercise and so didn’t, even though I had taken a rest day two days prior.

Anyway, just as with Level 1, this level also went by very quickly. I liked the second circuit the most (spoiler – there is a lot of lunge work) but really didn’t like the last one, however since it was the last one, it was easy to push through.

One thing that I didn’t like in this level is in general I found that Jillian gave less instruction for proper form or technique as compared to Level 1 and there were a couple exercises that I wasn’t 100% sure I was doing correctly (such as the last ab move). Instead she babbled about random stuff that I found a bit irritating.

I also wanted to add that I’ve been reading a bit of criticism of Jillian Michaels recently and have to say, even I could see that her form was not great in some of the lunge based exercises. Luckily I AM aware of what a proper lunge looks like, but I could see people getting injured if they base their lunge on the way she does it. I also lost a bit of respect for her when I found out that she toutes supplements and weight loss pills (for which she is facing lawsuits claiming dangerous ingredients).

That being said, I am happy with my progress so far – I enjoy the workouts and I am seeing results. I’m now down to 156.5lbs (so another 1.5lbs lost for a total of 3.5lbs since starting) even when considering the fact that I’ve definitely gained a lot of muscle. I do like that the workout is over before I know it and I really think its very doable for pretty much anyone. I usually do the 30 Day Shred in the evenings after I put my youngest son to bed, but sometimes do them earlier in the day if I have an evening event planned.

I’ve also kept on a low carb diet for the most part though I think the reason I’m not losing weight as fast as I’d like is because I’m probably still eating too many calories. I’m not too concerned about this since I’m still losing weight but I think I might adjust them a bit. I want to see those abs, that I KNOW are there, better!

Okay, so here are the before and after photos (the before are from my day 10 photos after completing Level 1). The photo quality isn’t as good and looking at the pictures I don’t see as much change – however, when I look at myself in real life, I definitely can see much more muscle definition everywhere and I feel so much stronger (I can even do proper push-ups now!). But looking at the pictures I see there is still room for improvement (I’m looking at you muffin-top!).

3ds level 2 before & after

But I’m glad to be done Level 2 and that I’m 2/3rd of the way through! I started Level 3 today and am excited because I really liked it much better than Level 2 – definitely kicked my butt yet again, but I like all the exercises. Can’t wait to see what these last 10 days will lead to!

Is organic food worth it?

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For most families, food is arguabley one of their most important (and often largest) budget categories. We need to eat to live, yes, but food is also a source of pleasure and has direct links to our health.

Since being on my “extended mat leave” (as I like to call my current stint as a stay-at-home-mom), one of the things that I’ve been reading a LOT about is food. And I’m not the only one – food seems to be a major topic of conversation and focus of a lot of media and social media these days. As a mom and conscientious person, I wanted to find out what kind of food is the best for my family, the environment, the economy. And there is a TON of information, both good and bad, out there.

One of the main food topics out there now is organic food. Now, I’ll admit – I TOTALLY bought into the whole “organic is better” thing for a long time. I would almost always choose the organic option when I could, I had a green basket of organic fruits and veggies delivered to my house…I honestly thought that I was doing the best for my family. I thought – hey, if I can afford it, why wouldn’t I buy organic? Isn’t my family’s health the most important thing? Because one thing that organic food most definitely is, is more expensive.

But when I started to look into it more and learning more about food in general (organic, conventional, GMO, farming methods etc) I started to realize that maybe its not that cut and dry. So I started looking into the reasons that I and others started buying organic to see if they were actually supported by real, scientific evidence.

Reason 1: Organic food doesn’t have pesticides (and we all know that pesticides are bad right? They KILL pests!).

Since I’m Canadian, I went right to the source – the Canadian Food Inspection Agency. Here is what is considered organic by them: “An organic product is an agricultural product that has been certified as organic. A product can be certified if it is produced using the methods outlined by the Canadian Organic Standards.”

Hmm…so what IS permitted for food to still be considered organic? Here is what the CFIA says:

CAN/CGSB-32.311, Organic Production Systems – Permitted Substances Lists, includes the following substances lists:

  • Crop production including fertilizers, plant foods, soil amendments, crop production aids and materials, and weed management
  • Livestock production including feed, feed additives and feed supplements, health care products and production aids
  • Processing and sanitation including organic ingredients, non-organic ingredients and with organic ingredients, processing aids, cleaners, disinfectants and sanitizers, and pest control substances.

Oh – so organic farming also allows for pesticides, fertilizers, feed additives, health care products and disinfectants? How is that any different from conventional farming? The fact that they are organic or natural pesticides doesn’t change the fact that they still kill pests. Natural or organic pesticides aren’t safe by default just because they aren’t synthetic.

From my reading I did learn that conventionally farmed food does have higher pesticide residuals than organic (a large study showed that about 38% of conventional foods had pesticide residue vs 7% of organic foods). However, in most cases for both conventional and organic, the residue was negligible.

That said, I decided to look at is how harmful are pesticides in general to people? Yes, they kill pests, but what affect do they have on humans? I came across this pesticide residue calculator which will show you how much you can safely consume. For example, a child could to consume 154 servings of apple in one day  without any effect even if the apples have the highest pesticide residue recorded for apples by the USDA (I haven’t been able to find anything similar for organic pesticides so I can’t comment on their relative safety). Even still – there is currently no evidence that people who eat conventional foods have a higher risk of diseases like cancer or that organic foods can prevent it.

And lets not forget that organic foods aren’t without risk – like e.coli poisoning (due to use of cow manure as opposed to synthetic fertilizers) which can – and does – cause death (like for the 5 people who died from eating organic spinach). To be fair, you can get e.coli poisoning from conventional foods as well – I just wanted to point out that just because its organic doesn’t mean it is automatically risk free.

Reason 2: Organic food is more nutritious

Now I always had my doubts about this one, though I guess I can see why some people may think this. But while there have been some studies to suggest that some organic fruits and veggies are marginally more nutritious, the main study that supports this has been criticized for being funded by a group that supports the promotion of organic farming and focused on only the positive results (where they found foods that were more nutritious) and not the negative results of the study (where they found foods to be less nutritious). In fact, most studies (such as this one done by researchers at Stanford University) show that there is very little nutritional difference between organic and conventional produce and meat (though studies have shown that organic chickens have higher levels of Omega-3 than conventionally raised ones).

At the end of the day, most experts agree that just eating fruits and veggies is important and that even if some organic foods are a bit more nutritious, their cost doesn’t make up for that tiny benefit.

Reason 3: Organic food tastes better

This is an argument I hear all the time and I was always a bit sceptical because in general fruits and veggies have a high range of tastes. Some seasons a particular fruit or veggie could be amazing and some poor. Plus taste is subjective.

But people certainly seem to think that food tastes better if they are told its organic (in a Swedish study, almost 50% of people given the same coffee, one labelled organic and the other not, said the organic labelled coffee tasted better). However, no study has been able to definitively prove that organic actually tastes better nor can people tell if they are eating organic or non-organic food.

Reason 4: Organic farming is better for the environment

This was one of my main reasons for supporting organic – hey, if there are no fertilizers, no pesticides, then DUH, it MUST be better for the environment, right?

Except we’ve already established that fertilizers and pesticides (even some with non-organic ingredients) ARE allowed. Now, its true that many are more eco-friendly than conventional. However, organic also doesn’t allow for GMO crops – and one of the whole points of GMO is to use less pesticides, fertilizers, water etc.

What made me question the eco-friendliness of organic was this point: organic farms have lower yields (anywhere between 20-50% depending on the type of crop!) and this means more of our forests, nature reserves and rainforests are being mowed down to meet the demand. And to me that is awful (though it was pointed out to me, which I verified, that the main culprit of rainforest destruction is due to palm oil production). Combine that with growing world populations and overall growing food demand, shouldn’t we be trying to make the most of the farm land we already farm? And this is where I think conventional farming is doing its part.

*** One thing I wanted to add to this section is that organic standards prohibit the use of antibiotics and added hormones to their meat. While this remains the most valid reason for me to buy organic meats (especially the antibiotics which are contributing to our current crisis of antibiotic resistant super bugs), its worth mentioning that in Canada, only beef farmers are allowed to use hormones (and many choose not to) and many conventional meat/poultry farmers opt out of using antibiotics. This is usually clearly labelled. So while this is guaranteed with organic meat, its not the only option.

Look, I’m not saying that conventional farming is amazing for the planet – but when I realized that organic is no better for the most part – and can actually be worse – for the environment due to shunning of GM technology and requiring more land to produce the same yield, it lost a lot of its appeal for me.

Reason 5: Organic farmers treat their animals better

This is also a real reason I would choose organic eggs or meat. For example, I  was under the impression that all organic eggs came from free-range chickens (meaning they can run freely inside AND have access to outside), but learned that its actually not a requirement (it really depends on which certification they receive). Yes, some organic eggs come from free-range farms. But most that I’ve seen are only free-run (means they are in one large pen and not locked in cages) and you can buy conventional eggs that are free run or free range anyway. So the only difference is the feed that they get (organic eggs hens are fed organic grains). In general I have found that the whole system of certifying eggs organic, free-range, free-run etc to be very confusing because there are different certifiers and all have different standards. The best advice regarding eggs choice would be to find a brand that meets the criteria you are comfortable with (and can afford) and buy that.

As for meat farming, I think its very unfair to assume that just because an animal comes from a conventional farm they are badly treated. Organic meat requirements are that animals are treated “humanely” – and the requirements are quite strict. However, this doesn’t mean that by default conventional ones don’t treat them that way – their standards are also very strict. Of course there will always be a few “bad apples” and farms exposed for inhumane treatment. With regards to this, the only way to know is by visiting the farms themselves and educating yourself on what humane really means.

Reason 6: Organic food is GMO free

Ok, this wasn’t really a reason for me, but it is a reason I see cited by many people. This is true – organic food is GMO free – but the question is, does it matter? I’ll admit “genetically modified” does sound scary and Frankensteinish, but what does the science say, is it ACTUALLY bad for us to consume?

And the answer is that that there is no documented evidence that genetically modified foods are in anyway harmful to human health. NONE. At most some anti-GMO bloggers (because they are rarely actual scientists, farmers, researchers or doctors – you know, the people who understand and know what they are talking about) make claims that GM foods “might be harmful” or “potentially cause health problems” but aren’t able to show any proof of this. They use the “evil doings” of Monsanto, a company that produces GM seeds and develops the technology, as a reason to avoid GM foods. But whatever their business practices are (and I’m sure they have some questionable/immoral ones) this doesn’t a) mean that the technology behind GM foods is bad nor b) does it in anyway prove that organic is better.

Not only that, but GM technology is helping farmers be more efficient, use less pesticides/herbicides and have their crops less vulnerable to the effects of climate change. To me, this is a huge plus for supporting conventional farming.

So WHY?

So WHY are organic foods sales soaring? How is it that is has become a $30+ billion industry in the US alone? The answer: marketing. Here is an excellent breakdown of how good its been. Whole Paycheck, Whole Foods alone made $13 billion in sales in 2013. I think that because people are much more concerned about the environment and their health now then they have been in the past, there is a huge appeal in all things natural and the organic idea definitely caters to that.

Also, I feel like there is a lot of food shaming happening – people, especially moms I think, are guilted into thinking that  they are being selfish for NOT buying organic for their families and that is ridiculous. .

Conclusion

So what do I think (if you can’t tell already)? Since this is a personal finance blog and I try to encourage people to be smart about and mindful of how they spend their money, I think that at the end of the day, for me, organic foods just aren’t worth it. When all things are considered, I still don’t think that the benefits from organic foods or farming methods justify the premium that they cost, especially since in Canada conventional foods are just as healthy and the industry is constantly working to improve its standards of quality and eco-friendliness.

That said, I’m not suggesting people shouldn’t buy organic. People should have the right to spend their money on whatever they like. I spend a lot of money on designer shoes and handbags compared to some people – but I budget for them and I can afford them. So I’m not going to judge someone for paying $0.87Ib for organic bananas when the conventional are $0.57lb if they can afford to do so. Nor will I judge someone for choosing organic chicken/beef/pork because they like the certain extra effort made to make the animals comfortable. Everyone has different priorities and they should make the choice that best aligns them with those priorities.

Also, while now I do avoid organic (because why pay more?) as a rule, there are some organic food brands I really like and I will continue to buy them. And I will continue to read and learn about both types of farming and will constantly be re-evaluating my choice.

So I hope that who ever reads this, their guilt about not buying organic will subside and those who have been straining to afford to buy organic realize that they don’t have to and that it doesn’t make them bad parents.

***Updated to discuss a point that I forgot to mention before.

Bon apetit!

 

 

Want to learn more? Here are some fantastic resources!

Canadian Food Inspection Agency –> great for learning about Canadian food standards, what they really are and what they mean.

Nurse Loves Farmer -> excellent blog by a farmer’s wife who explains farming processes and has a ton of knowledge about GMOs, pesticides and general farming issue.

Scientific American article on conventional vs. organic farming

Genetic Literacy Project –> great resource for science based health news and current issues

Science Babe –> a blog by a scientist who busts common science and health myths

BC-SPCA  –> Good document that shows requirements for SPCA certification of animal treatment in British Columbia and is very similar to Canada Organic standards (for all of Canada – BC is has the strictest requirements compared to the other provinces). I couldn’t find a direct link to Canada Organic.

 

 

 

Easy Money Saving Challenge

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Is one of your resolutions for the new year to get your finances under control? If so, the first thing I highly recommend doing is starting a budget. And I have a great series especially geared to beginners – but really, its totally applicable for anyone who wants to start a budget and get a control over their money.

Check out Part 1, Part 2 and Part 3. Part 2 comes complete with an Excel template to help get you started! Alternatively, I also have a template which is geared towards families for whom childcare is a big expense here.

But for something a bit more tangible, I’ve also created a quick and easy Money Saving Challenge to motivate you to start SAVING!

All you do is save the dollar equivalent of the calendar week we are in. You can set up an automatic transfer OR simply take the money in cash and put into a jar.

Here is what it would look like – check out how much you would have saved by the end of the year!

Easy Money Saving Challenge

Easy Money Saving Challenge

 

Obviously, this isn’t a life changing amount of money. But its still significant enough to do something special with – dropping a sum like that on your mortgage could take months off your amortization. You could use it for a family trip (or romantic getaway for you and your partner) make a big ticket purchases you’ve always wanted. Or you can just keep it for a rainy day and have that peace of mind that comes along with just having it there in case.

Up for a bigger challenge? Here is what it would look life if you doubled the amounts:

Accelerated Money Saving Challenge

So what are you waiting for? This week is super easy – start by saving just $1. 

 

 

Why you need to contribute to your child’s RESP – NOW

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Nothing bugs me more than people not taking advantage of free money. But people do it all the time. Many Canadians are not taking advantage of their company defined contribution pension plans (where companies will match a percentage of the employees contributions) and another place that this occurs is with RESPs.

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My son “graduating” from pre-school. Hopefully the first of many graduations!

 

What are RESPs?

RESPs – Registered Education Savings Plans – allow parents in Canada to contribute a certain amount of money every year to save for their child’s education and get a government match of 20% of the amount they contribute, up to $500 per year (so to get $500, a parent would need to contribute $2,500), with a life time maximum of $7,200. Many provinces also have their own additional grants as a way on encouraging parents to contribute.

Although unlike with RRSPs (Registered Retirement Saving’s Plans), the money you contribute is after-tax money and is not deductible. The interest and any earnings on the plan though are not taxable until it is taken out and the idea is that it will be taxed in your child’s hands when they are a low-income student.

Why you should start contributing ASAP

The cost of university tuition and fees has been outpacing inflation since 1998 and the cost of four years at university for a child born in 2012 is expected to be over $100,000 if the pace remains the same. Combine that with the Government of Canada saying that currently over 2/3rds of all jobs require some sort of post-secondary education, those who won’t have one will be at an even bigger disadvantage then they have been in the past. So in order to give your child the best start at adulthood, you would want them to be able to get a good job AND have as little debt as possible holding them back, right?

However, the main reason you want to start contributing as soon as possible is because you want time to be on your side:

1. You can get up to $500 per year – however, you can only make up for ONE year when you contribute. So if you don’t contribute for several years, that matching amount will be lost for good (though you can contribute every other year and make up for the year before). To ensure you get the maximum of $7,200 this means you need to be consistently contributing $2,500 per year for 14 years.

2. You may be too late. You can only receive the grants up until the year that your child turns 17 – however, there is also a rule that says if you haven’t contributed by age 15, you won’t get ANY grant money for ages 16 and 17.

3. It is an automatic 20% return on your investment – even if you just left the funds sitting in cash, an RESP will earn as much as a much higher risk investment without the risk. But invest all those funds into a low risk investment, like a mutual fund or even GICs, you will get an even higher return.

4. Its easier on your budget. Putting aside $100 or $200 every month from from birth to age 17 is much more doable for families than the $1,000 or $2,000 per month they would have to contribute to make up for it if they start contributing once their child hits their teens.

5. Compounding. Your child’s RESP will continue to accumulate in value even if you don’t contribute for a few years. For example, say you contributed $2,500 the year they were born but didn’t contribute anything else except the $100 per year that is required for the four years before your child turns 16, even at a conservative rate of return of 5% here is how much money you would have:

Year Starting Balance Contribution Grant Rate of Return 5% Total
1  $               2,500  $        500  $            150  $        3,150
2  $         3,150  $                      –  $            –  $            158  $        3,308
3  $         3,308  $                      –  $            –  $            165  $        3,473
4  $         3,473  $                      –  $            –  $            174  $        3,647
5  $         3,647  $                      –  $            –  $            182  $        3,829
6  $         3,829  $                      –  $            –  $            191  $        4,020
7  $         4,020  $                      –  $            –  $            201  $        4,221
8  $         4,221  $                      –  $            –  $            211  $        4,432
9  $         4,432  $                      –  $            –  $            222  $        4,654
10  $         4,654  $                      –  $            –  $            233  $        4,887
11  $         4,887  $                      –  $            –  $            244  $        5,131
12  $         5,131  $                   100  $           20  $            263  $        5,514
13  $         5,514  $                   100  $           20  $            282  $        5,915
14  $         5,915  $                   100  $           20  $            302  $        6,337
15  $         6,337  $                   100  $           20  $            323  $        6,780
16  $         6,780  $                      –  $            –  $            339  $        7,119
17  $         7,119  $                      –  $            –  $            356  $        7,475

That’s right – just that initial contribution of $2,500 would lead to almost $7,500.

But now imagine that you DO max it out – THIS is how much money you would have for your child:

Year Starting Balance Contribution Grant Rate of Return 5% Total
1 0  $               2,500  $        500  $            150  $        3,150
2  $         3,150  $               2,500  $        500  $            308  $        6,458
3  $         6,458  $               2,500  $        500  $            473  $        9,930
4  $         9,930  $               2,500  $        500  $            647  $     13,577
5  $      13,577  $               2,500  $        500  $            829  $     17,406
6  $      17,406  $               2,500  $        500  $        1,020  $     21,426
7  $      21,426  $               2,500  $        500  $        1,221  $     25,647
8  $      25,647  $               2,500  $        500  $        1,432  $     30,080
9  $      30,080  $               2,500  $        500  $        1,654  $     34,734
10  $      34,734  $               2,500  $        500  $        1,887  $     39,620
11  $      39,620  $               2,500  $        500  $        2,131  $     44,751
12  $      44,751  $               2,500  $        500  $        2,388  $     50,139
13  $      50,139  $               2,500  $        500  $        2,657  $     55,796
14  $      55,796  $               2,500  $        500  $        2,940  $     61,736
15  $      61,736  $               2,500  $        500  $        3,237  $     67,972
16  $      67,972  $               2,500  $        500  $        3,549  $     74,521
17  $      74,521  $               2,500  $        500  $        3,876  $     81,397

Why you don’t have any excuses to NOT contribute

If you are in Canada and you have a child that is less than five years old, you have NO excuse to not contribute to the RESP. This is because every child in Canada, no matter what household income they come from, is entitled to received $100 per month every month until they turn 6 years old in the form of the Universal Childcare Benefit.

So to FULLY take advantage of the government matching plan and get the full $500, you would only need to fork over an additional $108 per month. This is not a lot of money and I bet that most families would be able to find room in the budget to accommodate this. Lower your cable or phone package, hunt for cheaper insurance plans, shop at the discount grocery stores, buy the store brand diapers. Keep maximizing your RESP contributions at the forefront of your mind when making other budgetary decisions. If you need to finance a new car, if you are picking a model that makes it difficult to maximize your RESP contributions, you are picking a car that is too expensive.

But even if you really can’t afford to maximize the contributions every year, remember anything you contribute is better than nothing, especially earlier on.

Still struggling? How about asking grandparents and aunts and uncles to make a contribution to RESPs instead of buying pricey toys for birthdays and Christmas. Use any money your child received for baby showers, baptisms, bar mitzvah’s or other milestone events as contributions. This is what we do – my parents don’t buy my kids expensive presents – they make a contribution to their RESP every year instead and its helped us ensure that we get the full $500.

What if my child DOESN’T go to university?

First of all, the RESP money can be used for pretty much any post-secondary program. This includes universities, colleges and various post-secondary education programs outside of Canada as well. So there is a lot of choice.

But here are your options:

1. Leave the RESP open

The RESP can stay open for 36 years, which gives your child a chance to change their minds (trust me, the novelty of working as a bartender will wear off when they start serving people who are younger than them and that more money).

2. Change the beneficiary

You can also transfer funds to another RESP beneficiary (such as a sibling). If you have an individual plan, you may have the option of naming another beneficiary. If you have a family plan, you can use the earnings and certain federal and provincial grants to pay for the education of another child under the plan (certain fees may apply though – you need to discuss this with your RESP provider).

3. Transfer the money to your RRSP

You might be able to transfer up to $50,000 of earnings tax-free from the RESP to your RRSP under certain conditions.

4. Close the RESP

The contributions you made are yours to keep and you get them back. You do have to return the grant money from the government, however if the RESP has been open for 10 years and the beneficiary is at least 21 years old and not continuing post-secondary education, you can keep the investment earnings. Please note that a 20% fee and income tax will apply. If you have a group plan, you cannot get the earnings back as these are shared with the other plan members to increase their payments.

5. Transfer the money to a Registered Disability Savings Plan (RDSP)

It may be an option for you to transfer the RESP funds into an RDSP if the beneficiary of the RESP has a severe and prolonged mental impairment that can reasonably be expected to prevent the beneficiary from pursuing post-secondary education.

So get saving – remember you have until December 31st to contribute to make the year count.

 

 

Credit Card Do’s and Don’ts

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Credit cards have a bad rap. On the TV show “Till Debt Do Us Part,” (which I totally love) the host Gail Vaz-Oxlade often starts the show by having the participants cut up their credit cards. Indeed, having a credit card can be dangerous to those who don’t use it responsibly. Many people see credit cards as “free money” or think that they are on top of their credit card debt just by paying the minimum payment, when really they are just getting into debt faster.

But I’ve always been taught (and still believe) that credit cards are a useful tool.  And if you use credits cards responsibly, they are a great way to keep track of your purchases (excellent for budgeting), can earn you great rewards and many have added benefits, such as travel insurance and can help you establish a good credit history.

DO:

  • Have one credit card available for emergencies.

Even if you are uncomfortable having one, I think that having access to one for emergencies (say your car breaks down somewhere and you need a tow, or your suitcase gets lost when you go on holiday and you need to buy some essentials etc). Make sure you have clear rules about what constitutes an emergency and stick to them.

  • Research the different cards available.

Make sure that you are aware of any additional fees or costs to the card that you may incur. Some cards have a promotional low interest rate to start, but it might sky rocket after a few months or even by just one late payment.

  • Pay your balance off IN FULL every month.

This is extremely important, as you will be charged interest on your ENTIRE original balance, not just the unpaid part. So say you have a balance of $1,000. You decide to pay $900 off and leave a $100 balance. You will be charged interest on the FULL $1,000.

  • Pay your balance ON TIME.

Not only will you be charged interest on your full balance, but your credit score will take a hit.

  • Check your statement every month for errors or fraudulent charges.

I’ve had my credit card compromised twice and each time I was able to get a full refund because I alerted the company right away. Make sure you do this, because most companies will assume the charge is legitimate if you don’t address it within 30 days of the statement date.

  • Fight your interest or other fee charges whenever you can.

I once paid my balance a day late due to submitting the payment online after banking hours and was charged interest. I called the company and told them that I always pay my balance off in full and on time, and that I shouldn’t be punished for a timing error. They waived the entire amount of interest and all it took was a quick call. Another friend never pays his annual fee because he calls the company a month before it is due and threatens to cancel his card if they don’t waive it.

DON’T

  • Take cash advances on your credit card.

They will charge you interest from the MOMENT you take the cash out. I don’t even give myself the option to do this – I rip up the PIN the moment it arrives.

  • Only pay the minimum the payment.

Not only does paying the minimum amount usually so small that it doesn’t make a dent in the debt you owe, but it will trigger interest charges.

  • Own too many credit cards

Specifically store credit cards. It seem like every store nowadays has their own credit card. But unless you really shop at a particular store regularly, there is no point. Also you want to make sure you are on top of all the bills you have to pay, and it gets hard the more cards you have to remember.

  • Max out your credit card.

Maxing out your card (when you hit your limit or go over it) will cause your interest rates to sky-rocket and could affect your credit rating. This is why it’s a good idea to have a high limit. I always ask for as high a limit as I can get not so I can spend a lot but so I have a lot of buffer room. I like to keep within 30% of my limit.

  • Buy something that you can’t afford to pay off right away.

It’s always a good idea to save money in cash for big ticket purchases, like say a couch. You can still use your credit card to pay for it in the store (I always do) because you can get some great points but then just use the cash to pay it off right away.