Fenton's Finance Links Canada

Welcome to my homepage for all things "money" (as applied to Canada)!

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February 2012

This month's featured links:

http://www.ratesupermarket.ca

http://www.moneycoachescanada.ca

http://www.wealthdesigns.ca

http://ucbswww.bank-banque-canada.ca/scripts/search_english.cfm 

http://annuitynews.net/2009/07/29/210/ 

https://secure.nexgenfinancial.ca/calculator_tax_can.php 

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2011-Personal-Tax 

http://www.lunchmoneyday.com – Feb.16, Toronto

http://pricemyride.com – determine all costs of owning your car

Freebie:

http://sandypaper.com/cd_dvd_sleeves_sample  

Note/Disclaimer: Neither Fenton nor Fenton's websites assumes any responsibility for the accuracy of information from external or third-party websites (especially those advertising free stuff)

This Month's featured essay/article:

5 Financial Tips For Expecting Parents

By Michael B. Rubin  

1- Communicate with your partner  

The theoretical conversations you may have had a few times previously will now become real. Decisions will have to be made. Nothing should be assumed. So, our first financial tip for expecting parents is to talk about the issues.

Will one of you stay home? If so, for how long? Things may change. That’s OK.

Could all of you live on just one income? If you think so, what makes you so confident? Have you ever done so before?  

2- Live within your means 

It’s as important as ever to make sure to live within your means. (Also, while this is a financial tip for expecting parents, it really applies to everyone.) Resist the temptation to use your new arrival as an excuse to purchase things you can’t afford and don’t really need. If you have a car with four doors and four tires, you already have a “family car.” Your apartment or existing abode is probably big enough to accommodate the baby. Try to put off a major move for as long as possible. Not everything has to fit the stereotype. Spend on what’s important to you within the constraints of what you can actually afford. 

3- Establish an emergency fund -- now 

If you haven’t already done so, there’s no time like the present to establish an emergency fund. The traditional three to six months sounds like a lot. It is a lot. But it’s better to have some money socked away for this purpose than none at all. Do what is possible. Remember, you’re trying to set aside three to six months of non-discretionary living expenses only, not your full monthly income. If you aspire to have one partner stay at home for an extended period, one easy way to enhance your emergency fund is to practice living on one income while both spouses are still working.

Job security still have you feeling confident you’ll never need to tap an emergency fund? It’s not just about your job. When you first hold your baby in a few months, it will be so obvious that there’s another person in the picture now. The more people in the family, the greater chance there is for some kind of emergency. Be prepared.  

4- Get life insurance  

Many young adults without children can actually spend their money more wisely than of life insurance. That concept changes immediately upon conception. Now, someone will be depending on your income for years to come. You’ll need to be sure that if something unfortunate happens to you, your child can still maintain the lifestyle you’ve been providing. Only life insurance can provide that financial security.  

5- Sign up for the health insurance reimbursement account at work  

Also known as a flexible spending account (FSA), this account requiring minor paperwork can effectively save you 25% or more (depending on your tax rate) on your medical expenses. When you’re expecting, you’re going to have big medical bills, including prenatal care and delivery.

Your next annual enrollment date presents the perfect chance to increase your contribution rate to reflect your new medical spending and to reduce your after-tax costs in the process. If you won’t reach an enrollment date prior to delivery, remember that your child’s birth constitutes a “life event” and will give you a special onetime opportunity to increase your contribution rate.

Be prepared, don’t overspend, and remember that what really matters is not the brand, design or expense of your child’s bedding, stroller or onesie, but rather your love and care for them.

Michael B. Rubin is the author of Beyond Paycheck to Paycheck and the blog of the same name. He is the president of Total Candor, a financial planning education company.

RRSPs

By Jasper Anson   

RRSP. You've seen the abbreviation, but what does it mean? You might have heard something about RRSPs being good for your taxes and your retirement plans, but how does this work?

In this era of high earnings and higher taxes, it's never a bad idea to enroll in some RRSP education. What you learn now can soften your tax load and help you plan your future responsibly, among other things.

A financial advisor can always give you the lowdown on all things RRSP, but we'd like to share some key points that every aspiring RRSP enthusiast should know.

rrsp essentials  

One of the reasons why the government likes RRSPs is because they inspire Canadians to plan for retirement and save our pennies. Think of an RRSP as a supplement for your pension. You've got your golden years to look forward to, but first you need to know some more specifics.

An RRSP account is essentially a tax-shielded investment portfolio of regular contributions, up to an annual contribution limit. This limit is the lower of a taxation-set maximum, 18% of your previous year's income, or whatever is left over after any employer contributions. It's easy to start an RRSP if you're a Canadian who's filing taxes, but as a newbie, your prime considerations are: account types, tax benefits and financial considerations.  

Account types 

Your choice of RRSP account should be based, in part, on your existing knowledge of investing. Just like any investment, RRSPs can be money losers if you choose poorly, so that's why there are various accounts to match the variety of investors out there. Here are some popular choices:  

Basic accounts: This account offers little in the way of variety and there are often fees because it's usually handled through financial institutions. The main advantage is that you can pay for an investment advisor to help and to guide you, so that your investment risks are low. This is attractive for first-timers.

Self-directed accounts: Usually done through brokerage firms, the account holder takes full responsibility for investments and only pays for costs. This saves money on investment advisors and allows for a wider investment selection.  

Group accounts: These are employer-subsidized accounts where employees of the same company will maintain RRSP accounts through the same financial entity. Group accounts are wise since they can save on costs and often receive employer contributions, but if you need to take money out early, you might face some additional restrictions.

Before you finalize an account, take time to consider what each financial institution offers. At the end of the day, don't be surprised if your daily banking is handled somewhere other than your RRSP banking.  

Tax benefits 

Retirement is in the future, so you're probably wondering what RRSPs can do for you in the present. Welcome to the wonders of RRSP tax benefits.   

The government counts your yearly RRSP contributions against your taxable income. If you're an employee with regular tax deductions, your yearly RRSP contributions will earn you a tax refund. So if you gross $25K annually against 20% in taxes, a $5K RRSP contribution could earn you an easy $1K tax refund. If you're self-employed and pay your taxes annually, those same numbers would save you $1K on taxes when it's time to file. Either way, keep your RRSP contribution receipts, otherwise your tax savings will stop before they start.

RRSPs benefit your tax return, but your portfolio balance grows tax-free until it's withdrawn. This is what makes RRSPs a strong choice over alternatives like GICs or, more specifically, stocks, where you can make sizeable coin, but get taxed annually on capital gains.  

Financial considerations 

Reduced taxes are beneficial, but taxes can also become your enemy if you don't know how RRSPs can make you money and what it will cost you to take money out.

An RRSP account grows thanks to your investment gains, while its compounding interest provides an added bump. It might be tempting to take some of this money out, but if you're not of retirement age, it's not a wise idea.  

RRSP withdrawals are considered taxable income and you will also face an immediate withholding tax, an amount that varies by province. The taxes won't be friendly, especially if your income is high, but for withdrawals less than $5K, the withholding tax can be slightly lower. The main idea is if you wait until retirement, you'll be at a lower tax bracket, and the bulk of the profit will be yours to enjoy.

Resources:
www.rrsp.org
www.rbcroyalbank.com
www.investored.ca
www.cra-arc.gc.ca
www.cra-arc.gc.ca
www.investorsgroup.com
www.investored.ca
www.altamira.com