In the spirit of my recent rash of political commentary articles (rash and politics just seem to go together so well) I thought I would give a shout out to a recent idea proposed by a Liberal Party in Canada. Ok, so it isn’t THE Liberal Party of Canada (federal), but the Alberta Provincial Liberals. Not that I really know anything about provincial politics in the oil-rich province, but I would assume that the left wing of that political spectrum would probably still be called fascists in metropolitan Quebec. Anyway, I read something in the paper that really got me thinking, and it had my inner educator and “plan for the future” side debating furiously with my libertarian leanings. Best Bus Design Ever For those of you that aren’t familiar with an election that has already included one of the greatest political photo-ops ever (see above) the only parties with a real chance to win are the Conservative party, and the Wildrose party. Only in Alberta could one of the most right-wing political parties in Canada be outflanked on the right (definitely of note, both party leaders are female… only in Canada would the most right wing parties both be led by females and not old white men, but I digress). Interestingly, with nothing to lose, the Liberals have proposed a very original idea that I believe at least deserves debate. Much of this election has revolved around what to do with the embarrassment of riches Alberta will receive from oil royalties in the next 5+ years. While various proposals have been heard, the two opposing arguments that really stuck out to me were these: 1) The Wildrose Party: Simply give the money back to the citizens of Alberta in the form of direct cheques (to the tune of $300 or so). 2) Create an income trust that will be used to fund post-secondary education in the province with the eventual goal of free tuition by 2025. Now I’m not really a fan of free tuition. I believe that post-secondary education should not be a right and that there should be a balance between what society subsidizes and what the individual pays because both sides do benefit from having an educated citizen. That being said, a government-created income trust designed to benefit education is a uniquely original idea (to me anyway). I would argue that the money could be better invested in terms of giving grants to innovation, or something like that, but the overall premise and juxtaposition with the Wildrose Party’s proposal gives us an interesting contrast. I also find it ironic, that the “Crazy Cowboy” West is throwing around the idea of free tuition, while the “Pinko Commies” in Quebec are having to raise tuition 75% over the next few years and having violent protests on account of this. The Gift That Keeps On Giving – An Angel On Both Shoulders? So who wins this internal debate? I’m leaning towards my plan for the future side. I’m not saying [...]
The Gift That Keeps On Giving
Book Review – The Wealthy Barber Returns
Those of you who have been reading this blog for awhile might remember that my favourite all-time personal finance book is The Wealthy Barber by David Chilton (released in 1989). Since it sold over 2 million copies I’m going to assume I’m not the only who thought it was pretty good. I’m fairly certain that 90% of everything a person needs to know about personal finance can be found in those pages. So obviously when I heard Chilton was about to release a sequel to his personal finance gospel, I was pretty excited. I was so pumped I immediately emailed the man himself and asked if I could receive a review copy, I was actually fairly surprised he said yes, since we are still a fairly small player in the immense blogosphere, but Chilton immediately responded he’d be happy to send me an early copy. The Wealthy Barber Returns - Not Really A “True” Sequel After receiving it, I buzzed through the book in a couple of days. As you can tell from my borderline Chilton-worship I’m definitely going to recommend the book. Before I get into all the reasons why the book was great, I will say that my lone disappointment was that Chilton didn’t find some folksy narrative to tie it all together like he did in the original. I realize that the narrative has no relevance whatsoever to the quality of financial information located within the pages, but The Wealthy Barber it just such a cool way of explaining “dry” personal finance concepts, I was hoping for the same ingenuity. While Chilton decided not to bring back Roy the barber, he does manage to keep his common-sense approach and down-to-earth communication style that make the book a pleasure to read (even if it isn’t quite as good as the original). Debt Is NOT Our Friend! In The Wealthy Barber Returns, David takes on the newfound addiction to debt that society has embraced since he released his best-seller. A large part of the book is spent rightly reminding people how toxic debt can be to financial planning, as well as asking how much “stuff” people actually need. He admits to the fact that he could have placed a higher priority on tracking costs in the original, and says that over-borrowing is likely the biggest danger most individuals face in today’s consumer-driven world. I find it interesting that Chilton (and every other personal finance writer out there) is placing more and more emphasis on saving, while Maclean’s magazine just did an article on why savers have been getting screwed by spender-dominated government policy the last decade or so. The bottom line on debt and how it can quickly compound is just so simple to me, I’m not quite sure how so many people can screw it up not just a little bit (we all make mistakes), but by such a large margin! Best “Potpourri” Section Ever The second part of The Wealthy Barber Returns is random set of neat little [...]
Investing Series – RRSPs, TFSAs and RESPs
For the fourth instalment in our investing basics series (click here to begin the journey) we are going to look at the different account options that are available to you as an investor. I’m sure most of you have heard people talking around tax time about how they should try to, “Buy some RRSPs.” These people don’t realize that what they just said made little sense because no one stops to explain it to them. RRSP actually stands for Registered Retirement Savings Plan. It is not an investment product you can buy. That being said, if you walk into pretty much any bank and tell them you would like to buy some RRSPs they will almost definitely sit you down and promptly lock you into investing in their house mutual fund which pays them an exorbitant fee to invest in a product that you could likely have for much cheaper. This is why you need to know what these weird account acronyms stand for in order to invest your money most effectively. For the vast majority of people, putting your investments in tax-advantaged accounts is the smartest way to invest your money (we will talk about some other options next time). The principle behind the whole setup of RRSPs, TFSAs and RESPs is that the government wants to encourage you to invest your money. In order to encourage you they will give you cash incentives in the form of tax breaks. If you do not invest your money inside of these protected accounts then it is subject to varying degrees of taxes (we will cover this next time as well) because it is income (just like the income tax that gets taken off your check); however, inside these accounts it is sheltered from taxation to a large degree. This makes a huge difference when you factor in the compounding over a large number of years. I’ll briefly explain what these accounts all mean and advantages of each: The RRSP The Registered Retirement Savings Plan is the most popular tax shelter in Canada, and is meant to help Canadians save effectively for their retirement. Whatever money you invest in RRSPs is tax deductible. This means that when you file your taxes for the year you can get back some of the income tax you paid on your income. Not only that, but anything invested within the plan is allowed to compound and grow tax free. The money is taxed as income when you take it out of the account, but of course when you are retired your income will be fairly low, and consequently it will be taxed at a lower rate. Your tax return from last year will tell you how much contribution room you currently have available in your RRSP. The TFSA The Tax Free Savings Account (TFSA) is a rather new addition to the tax shelter stable. It is much more flexible than its RRSP cousin. Investors can take money in and out of these accounts (although this [...]
RESPs – A Great Graduation Gift
As I stated in my article, “7 Reasons Why I Graduated With 2 Degrees and No Debt” I am very thankful for the fact that my parents decided to start a family RESP for myself and my brother. If it wasn’t for the money my parents earmarked for me (about $4,000) per year from the RESP I would have finished school at least 15K in debt. The interest alone I would have paid on that money will save me a ton, never mind the obvious original gift. RESPs – The Ultimate Gift I know a lot of kids in high school whose parents bought them vehicles and then paid the insurance on them. Many of these kids treated the vehicles like crap and didn’t really respect the value of them. My parents pointed me in the direction of a part-time job (the classic gas jockey position) and then helped me out with the insurance when I bought a 15 year-old used car for myself. It wasn’t the nicest car amongst my friends, but it gave me freedom, got me from A to B (most of the time), and I felt the pride that comes with true ownership. Instead of giving me materialistic gifts like this, my parents were very conscious about putting a little money away for me each year in a RESP account. They realized the great deal the government gave them and took advantage of their 20% match. My parents are very conservative financial people and so they didn’t take many investment risks within, the RESP. Nonetheless, it came to a sizeable sum and a graduation gift of $0 in debt that I am very thankful for. RESPs – You Only Realize How Good They Are Once You Are In School Without Income My parents have never just handed me money. They made sure that I realized the importance of the gift they were giving. My mom hadn’t had a lot of financial help with her university education, and my dad had never graduated high school. They made sure to let me know how important it was to them that I received whatever education I wanted without burying myself in debt. At the same time they always let me know when there was firewood to do, lawn to cut, Christmas lights to put up/take down, or the 101 other little chores that occur in a household. This was my way of ‘earning’ the money, even though I’m pretty sure my $30+ per hour of chores that it would have equalled out to might have been a shade above what the market demanded. The benefit of having a family plan is that if I didn’t need the money either because I had some great part-time job, or because I didn’t go to post-secondary education, my brother (3 and half years my younger) could have used it. In much the same fashion, my brother has chosen to go to university, but if he didn’t, I am planning on starting a masters degree [...]
RESP Rules – Not Exactly Tax Free
The first thing to realize about RESPs is that they are taxed in the hands of the student and do not add income of any kind to the subscriber. This is intentionally set up by the government because students usually don’t use all of their tax credit room anyway. RESP Rules – Contributions and Accumulated Income Next is that the government actually differentiates the types of money in your RESP account. There are two types of money: contributions and accumulated income. Contributions are all of the original money your parents put into the RESP, it’s important to note that they have already paid tax on this money. Accumulated income is the money in the account that the government gave through the CESG (Canada Education Savings Grant), and then any interest, dividends, or capital gains that were made by investments inside the account. It’s important to note that before withdrawing this money no taxes have been paid on it. RESP Rules – An Everyday Example For example: If the Smiths invest 2,500 in an account for Jr every year until he is 18, and invest the money in basic 4% bonds there would be a total of about $80,000 in the account. Of this $80,000 the Smiths would have invested $45,000. This falls under their contributions and subsequently can be taken out tax free. This leaves about $35,000 that the Smiths have received through the CESG grants, and the bond interest on their money and the government’s. This is accumulated income and will be taxed in the hands of the student when they take it out. When money is withdrawn from the account, only the part that is accumulated income is taxed at all. Now, as previously mentioned, students should have plenty of tax credits ready to soak up this extra income and it shouldn’t be a big deal; however, if you want to get really efficient you may want to consider withdrawing much of the accumulated income portion of the RESP in the first year of university. The reason for this is that most students will probably make a lot less money working two months as a 17/18 year old, than they will working 4 months with some accumulated education and work experience. Consequently, they should have the most tax-free room that first year. This strategy would leave the contribution money for the next few years as the student starts (hopefully) making more money at their summer/part-time jobs. RESP Rules – How Do I Get My Money? Ok, so now you’re set with a withdrawal strategy that you can personalize for yourself. The obvious question is: “What stack of paperwork does the government need to get my money out?” There is good news on this front! The government only requires a short document called a Verification of Enrolment form. Most administration offices should have a stack of these handy (and unfortunately they’ll probably charge you a ridiculous user fee for processing). At the U of M they are located right in [...]
Free Expense Tracking Software
