Wednesday, 28 October 2015

Highlights of the Alberta Budget

The Alberta Budget (2015)
Things in Alberta are a little crazy right now. We voted for the NDP's with an overwhelming majority and now that they're taking action we're all freaking out a little. 

As I'm sure you all know the government put forward their budget for Alberta yesterday and there has been some serious debate. They are basically looking at running pretty massive deficits over the next couple of years with the first surplus not coming until 2020. That's scary, I get it. However, I also get that the economy in Alberta sucks right now because of the decline in oil prices but at the same time we have social programs that are struggling and need money. I for one am not ok with the government further sacrificing our education and healthcare needs to keep the province out of debt. 

Let's take a quick look at some of the main points of the plan: 

1. Individual and corporate taxation: farewell to the flat 10% tax rate for all Albertans. Those earning over $125,000 will now see their taxes increase for this year and again for next year (see rates listed below) and the corporate tax rate was increased from 10% to 12% (as of July 1, 2015). 

2. Sin Taxes: the markup on liquor will increase by 5%, and a carton of tobacco will go up by $5. I have no problem with this (probably because I don't smoke and am not a big drinker) and still won't cover the huge cost to the healthcare system that heavy users bring about. 

3. Healthcare: increase spending by 4% in 2016 with additional money going to support long term care facilities, home care and mental health services. I'm good with this one. With our ageing population, there is really no way out of spending more money on healthcare, and I like their goal of expanding home care. 

4. Education: reverse the 3% decrease in funding that was put in by the PC party. I don't have kids yet but I'm sure I will one day, and it's so important to ensure they have access to good education and safe schools. This will allow the province to hire almost 400 new teachers to help prevent class sizes from getting even larger.

5. New job creation program: they will give an incentive of $5,000 to employers for each new employee they hire. This one I'm not sold on, sure it's a perk if you have to hire someone, but I don't see a company going out of its way to add staff that they'll have to pay (let's say $50,000/yr) just to get $5,000.

6. Infrastructure: increase infrastructure spending by 15% to improve roads, schools and hospitals. This plan is similar to Trudeau's federal plan and is based on advice from Dave Hodge (former Bank of Canada governor) that you should spend during bad times and save during good. I ultimately do agree with this but worry we might be spending TOO much. 

Those are the key points I took out of the budget and my opinions on it, what are you guys thinking?

The Alberta Budget (2015)

Tuesday, 27 October 2015

Cash vs. Credit

Should you use cash or credit?
I'm going to go ahead and assume that at one point in all our lives we've been given the advice that we should only use cash and avoid credit cards at all costs. Probably the advice came from an older relative or a personal finance pro like Gail Vax-Oxlade, but is it actually that helpful? Well, I would argue that both have a time and place. If you are fighting to get yourself out of debt and have a problem with spending then yes, cash is likely the best solution, but credit cards can provide you with cash back or travel rewards that are very worthwhile if you can keep your bill paid in full at all times. That's the real key...paying off your credit cards every month means you can take advantage of the rewards but even coughing up the interest once or twice can eliminate any benefit. 

To break this down even further we're going to chat about the pros and cons of both cash and credit cards to make your decision easier. 

Cash - Pros 
  • Accepted pretty much everywhere
  • No additional fees 
  • Makes you consider large purchases (usually there would be a time lag between wanting something and having to go to the bank to pull out enough cash)
  • Easier to budget with because you have a visual representation of how much is left
Cash - Cons
  • If it's stolen it's as good as gone
  • Doesn't help build your credit 
  • Easier to waste cash on small purchases (I'm more likely to stop and grab a coffee if I've got $5 in my purse than if I'd have to put it on a card) 
  • Can't use to shop online 
Credit Cards - Pros
  • Many come with cash back or travel reward programs 
  • Helps build up your credit 
  • Can cancel if stolen and many cards have programs in place to refund fraudulent purchases 
  • You can buy stuff online and have more options available to find the best price
  • Easy to track your spending by looking through transaction history
Credit Cards - Cons
  • High-interest rates mean big payments if you don't pay your balances
  • Easy access to a high limit you may not be able to afford 
  • Encourage impulse buying 
  • Can damage your credit
  • Ever tried to pay for something but the store's credit/debit machine is down? That's a pain.
Knowing all of the pros and cons is great but you really need to know yourself. If you've had problems with credit card debt in the past then you may want to stick with using cash, or ensure your card has a LOW credit limit to keep you out of trouble. 

Some personal finance gurus (Dave Ramsey and Gail Vaz-Oxlade) are strong proponents of an all cash budget and I think for people trying to pull themselves out of debt that's a solid plan. For those who have control of their spending, I think the benefits of credit cards can be really great. The most important thing is to make sure you can pay off your balance EVERY month (have I made that clear yet?). I use credit cards for almost all of my purchases and I do so for many of the perks I listed above. I find they are more convenient than always ensuring I have cash on hand and the travel rewards I earn mean free stuff down the road. I also like to online shop. I find I can often find better deals on the internet and I only buy what I need instead of browsing at the mall. 

The takeaway is that credit cards can be a great way to get added benefits from your purchases, but you must know your limitations and use them properly.

Should you use cash or credit?

Wednesday, 21 October 2015

The Liberal Win and your Finances

What the Liberal means for your wallet

With the big Liberal win on Monday, there is a lot of talk about what this means for the country and for all of us that live in it. There were, of course, a lot of election promises made, and it will take some time to see how everything plays out and what is actually put into practice. Here's a look at some of the policies the Liberals put forward that would impact your personal or household finances.

As I've written before, I did vote Liberal in this election, and I'm in support of most of the policies listed below, but now we'll have to wait and see what/when things get introduced. 

Income Tax Changes
The biggie is a change to the income tax rates where the wealthiest Canadians would pay more, and the middle class would pay less. A new tax bracket would be introduced for those earning more than $200,000/year, and the rate on that would be 33%. Right now the highest tax bracket is 29% and is for income over $138.586.

The marginal tax bracket for those with incomes between $44,700 and $89,401 is currently 22%, and that would be dropped to 20.5%. This would also help out those earning more than $89,401 as that portion of their income would be taxed at the lower rate. If you need a refresher on marginal tax rates, check out this post.

Starting this year the Conservative's increased the annual TFSA contribution limit from $5,500 to $10,000 and the Liberal's have said they would roll this back to the original amount. This would also tend to hurt higher income earners as they are more likely to be maxing out TFSA's each year. As a bit of a side note, it will be interesting to see how this actually plays out as many people have already contributed the $10,000 for 2015. If it is reversed for this year instead of just going forward, it will certainly be an annoyance for all of us in my industry ;)

Income Splitting 
The Conservative's also introduced income splitting where families with children under 18 can shift up to $50,000 from the higher income earner to the lower income earner for a maximum tax benefit of $2,000. The Liberal's have said they would also get rid of this.

Child Tax Benefits
The current Universal Child Care Benefit and all other child tax credits/benefits will be halted and a new Canada Child Benefit will be introduced. This will be available for all families with children under 18 who have a household income of less than $150,000. The proposed Liberal plan (compared with Harper's UCCB) would actually give higher payments to those eligible families.

Home Buyer's Plan 
The Liberal's have said they would expand the Home Buyer's Plan to allow additional tax-free withdrawals from your RRSP when purchasing a house if a significant event has occurred (divorce, move for a job, having an elderly family member move in). Right now you can only take advantage of this for your first home purchase.

The current eligibility age for OAS is 67 Trudeau has said they would bump this back down to age 65. There has also been talk about enhancing CPP, but not many details are known about that.

Student Loans
Finally, the terms and conditions for student loans would be lightened up a bit. The available grants would be increased and the income requirements to meet such grants would also increase making them more readily available. Repayment of student loans would also be delayed until an income of $25,000/year was attained.

What the Liberal means for your wallet

Tuesday, 13 October 2015

5 Ways to Earn Extra Money Right Now

Tips for earning extra money

Everyone would be happy to have a little extra money in the bank, but you usually have to put in at least a bit of effort to bring in money. Sure, you might win the lottery but let's be real...that's not going to happen! Increasing your income means putting in the work, but there are some relatively simple ways to bring in a few extra bucks that don't require you taking on an extra job or selling your soul. 

In this post, we're going to talk about a few ways you can earn some extra money. Maybe you have some debt to pay off or are looking to boost how much you save every month? Whatever your motive, it's never a bad idea to try out a few of these tips.  

1. Sell your junk 
Ok, I don't mean actual junk...nobody wants your garbage! Chances are pretty good that you have a basement, garage, or closet overflowing with a few things that just aren't getting used in your house. This is the perfect opportunity to haul it out, clean it up, snap a few pictures and post your stuff on Kijiji, Craigslist or eBay and make some quick cash. I really hate clutter so a couple of times a year I go through the house and get rid of anything that we longer need. You can sort everything that will be exiting your house into a garbage pile, a donate pile, and a sell pile. Make sure the things you are selling are still in usable condition and post away. I find Kijiji is the quickest and easiest service to use for selling your items but depending on what you're selling you might have better luck elsewhere. If you've got a lot of brand name clothing you can also check out a local consignment store, it's not instant cash, but it tends to be a better option for clothing than Kijiji. This won't be a consistent source of income but can be a nice boost a few times a year, and will keep your house tidier! 

2. Swagbucks 
Swagbucks is a great service if you spend quite a bit of time on the internet. You can earn points (Swagbucks) for doing this like searching online, doing surveys, watching videos, playing games, etc. and then use those points to purchase gift certificates. If you shop online, you can also earn extra points that way. Many stores have partnered with Swagbucks, and by linking to their sites through the Swagbucks website, you will earn points based on your purchases. It does take awhile to build up enough for a redemption but if you're doing these things online anyways then why not earn something for your time. They have lots of options for gift cards that work in Canada and the US, such as Amazon, Starbucks, Old Navy, etc. so you shouldn't have a problem finding a way to spend your points. 

3. Market a skill or hobby 
There's a pretty good chance that something you do just for fun could actually earn you money. Maybe you like to knit or crochet, or take pictures, or make fancy greeting cards...any of these hobbies could start bringing in some money. Even if it's not much, just earning enough to pay for the hobby can save you money in the long run. Plus, if you have people to sell to then your house won't become overwhelmed with your creations. I like to crochet and trust me, there are only so many crocheted products I can wear and only so many times I can give scarves and blankets to my family. Build up a bit of a stockpile and look into setting up a booth at a local craft fair or farmers market. You could look into getting a table at a local market to sell your items (there's always lots of markets that pop up before Christmas). 

If crafting isn't really your thing then maybe you can do some manual labour for others. You could set up a side business doing basic landscaping or snow removal in your neighbourhood or offer your services as a handyman. Everyone has some sort of talent, it's just a matter of figuring it out and finding a way to market it.

4. Ask for a raise 
Asking for a raise can be nerve-wracking (I hate it!), but it's often the best way to get a real (and permanent) increase in your available funds. Most of the ways you can earn extra money might bring in a few extra bucks periodically but a decent raise can make an instant impact on your budget, just make sure you don't increase your spending and offset the benefit. In my opinion, asking for a raise annually is completely fair but make sure you are prepared with a list of reasons and specific examples of why you deserve it and have a figure in mind that you can realistically justify. It can be disappointing to hear no but don't just take the rejection...make sure you ask what you can do going forward to earn a raise. I wrote more on how to get a raise here if you'd like some more info. 

5. Lower your bills 
This is another good way to see a substantial decrease in the amount of money going out the door every month. Start by pulling up your last few months of bank account and credit card statements and see what you are actually paying every month. Then think really hard about whether or not there is anything you can simply cancel and get rid of all together. Maybe you're ready to go cold turkey and cancel cable? Ok, maybe not (it's always the sports!)...that doesn't mean you are out of luck. It's still worth a phone call to your provider to see if there are any extra services you don't actually need or maybe they will give you a promotional rate for being such a super awesome customer. It helps to be prepared with a few quotes from competitors and don't be afraid to switch companies if your current provider isn't willing to work with you. It costs companies more to bring on new customers than it does to maintain existing customers so they should want to do whatever they can to keep your business. Do this with your cable, internet, TV, insurance, streaming services, etc. Getting even a few dollars knocked off each bill will add up over time, and all it takes is a few minutes of your day. 

There you have it, five things you can do to have a bit more money in your pocket (bank account). What are your favourite ways to save money, earn money, or lower your budget? 

Tips for earning extra money

Thursday, 8 October 2015

Let's Talk About RESP's

Registered Education Saving Plans

If any of you have gone to college or university, you know that it is crazy expensive. I graduated from university a little over six years ago (uh, that's a long time) and even then it was upwards of $2,500 per semester just for tuition. Add a few hundred bucks for textbooks and all the other expenses that come with being on campus (bad food and too much beer), and it's shocking anyone can afford to go to school. I was able to live at home while in university so saved on living expenses, but even with working part-time during the school year and full-time during the summers, there was no way I could have afforded it without help. I was lucky enough to have parents who highly valued education and had saved up for my post-secondary and didn't have to take out any student loans. I am ever grateful for that...student loans are a necessity for so many people, and they can really drag you down when you are done school and trying to get your life set-up. This also brings up the debate about the value of university and whether or not I would do it again? My answer is yes, but that's a topic for another post. 

Maybe you are now at the point in your life where you are considering having children. You will then have to decide if you want to save money for their post-secondary schooling. My opinion? Yes! If you have the funds available then contributing to an RESP gives you good bang for your buck because of the grants that are available. Obviously, RESP's are meant for school, but if your child does end up passing on university there are options available so you'll never lose all your contributions. 

Setting up an RESP
The first thing you need to set-up an RESP is to get your little one a SIN number (ok, the first thing is to actually have a kid). You can find more information on getting that completed here. Once you have the SIN you can now contact your financial advisor or bank to get the account set-up. There are companies out there that offer group RESP's but I would stay away from those, they are significantly more restrictive and have much higher fees. Your new RESP can be set-up as either an individual or a family plan. If you are 100% certain you will only be having one child then you can go individual but if there's a chance you'll have more children then go for the family plan from the beginning. The advantage of the family plan is that the contributions can be shared among the beneficiaries (your children), so if you have one who goes to school and one who doesn't then it's still easy to access the funds. Now you're set-up and can start making contributions. Like any other savings plan, you can choose to do make an annual lump-sum contribution to the account or you can sign up for automatic monthly or even weekly deposits. Another thing to note is that it doesn't necessarily have to be the parents who set-up an RESP; it's quite common for grandparents to set-up and contribute to an RESP for their grandchildren. Just make sure to keep everyone in the loop so that you aren't making more contributions than necessary. 

Grants, Grants, Grants
The biggest perk of an RESP is that the federal government will give you money when you make contributions. For every $1 you put in the government will give you $0.20, up to a maximum of $500 per beneficiary per year. There is a lifetime maximum grant payout of $7,200, so if you do start contributing the full amount immediately you will be maxed out when your child is just over 14. To max out the government funding you want to put in $2,500 per child per year...that's ideal but do what you can! Contributing to RESP's should not come at the expense of paying off debt or your own retirement savings. The grant money will give you an automatic 20% return on your investment and having those funds invested for the long term should earn you even more. You are allowed to contribute more than the $2,500 per year (there's a lifetime maximum of $50,000 per child) but there's really no advantage in doing so as you won't earn any extra grant money. If you do want to save more money for your children you can look at other options like informal trust accounts that don't have the same limitations as RESP's. 

What if I start late? 
Don't worry if you already have a five-year-old and haven't even opened an RESP yet, or maybe you are just now in a position to start saving for their education. You're allowed to play catch-up. You can earn grant money for missed years by contributing double the amount each year until you're caught up. The only catch is that you can only catch-up one year at a time, so the maximum contribution would be $5,000 per year per beneficiary and you would get $1,000 in grants. 

Withdrawing the Money
Let's skip ahead now to when your child is ready to go to post-secondary. As long as they will be attending an eligible school you will have no problem pulling out the money. Check out this link for the master list of accredited schools. The money in an RESP is broken down into three categories: capital (the money you deposited), grant (the money from the government) and growth (how much the investments grew). When making a withdrawal you can choose whether to withdraw funds first from grant/growth or capital. There are limits to how much grant/income you can withdraw but it's a good idea to pull as much of that portion out as early as possible. The only thing with that strategy is that the grant/growth portion is taxable to the beneficiary (they'll get a T4) but no tax would be paid on the capital portion. Usually, that isn't an issue because students tend to have low incomes but it is something to keep in mind if your child does have a high income one year. 

There is no limit to the total amount you can withdraw at one time or how often you make withdrawals from the RESP. As long as the beneficiary has proof that they are enrolled in school you can take out as much money as necessary. This is an important point because if the last beneficiary is reaching the end of their schooling, it makes sense to pull out the balance of the funds. Even if it's much more than their costs, you can keep that money and go on a nice vacation ;) 

What if they don't go to school? 
This is where the big limitation of RESP's comes into play. If your children decide not to attend post-secondary or if you are left with a balance in the RESP after they are done school you have a couple of options. The first is called a capital withdrawal. Doing this allows you withdraw all capital (your original deposits) from the account but all the grant money is returned to the government, and any growth is taxed to you (at your marginal tax rate + an extra 20% penalty). Not a great option but at least you get back your original contributions and a bit of the growth. 

The other option is to transfer the funds to your RRSP. You will still have to give the grant money back to the government, but you are not taxed or penalized on the growth in the account. All capital and growth would be saved. You can transfer up to $50,000 this way, but you MUST have the RRSP room available, the plan must have been active for 10+ years, and all beneficiaries must be over 21. RESP's can be set-up jointly between both parents, but only one subscriber (account holder) can take advantage of the transfer to RESP, so you'll want to choose the person who has the most RRSP room. 
    That's a quick breakdown of some of the advantages (and disadvantages) of contributing to an RESP. Let me know if you have questions and if you want more information you can also check here

    Registered Education Saving Plans

    Tuesday, 6 October 2015

    No Fee Bank Accounts

    Stop paying bank fees

    Last year we switched over our everyday banking to PC Financial to take advantage of a really great intro bonus and get rid of our monthly banking fees. I've been really happy since the switch and don't see any reason to switch back. Before (I was with BMO) I was paying the lowest monthly fee and pretty much always went over the number of transactions I was allowed so was usually paying about $10/month in banking fees. It may not seem like a lot by why throw away $120 a year for no reason. 

    One thing to note is that you won't have access to a full-service branch if the need arises. For example, if you ever need a bank draft, certified cheque, etc. you will need to phone in and have it sent out to you (not exactly a speedy option). I've gotten around this by keeping my old BMO account open, and because I'm not putting any transactions through I can have it on their no-fee plan (pay per transaction) and then if I do need teller service for whatever reason I can simply email transfer money between the accounts. 

    Setting up a new bank account is simple enough, we were able to just do it in the kiosk at our local Superstore. The hassle comes in when you have to switch over all your pre-authorized payments. If you are anything like me, you hate having to actually deal with bills, so everything possible is withdrawn automatically from your bank account. Before making any changes, you'll want to go through your bank statement and make a list of all the companies who are set up for automatic withdrawals. It's worth checking back a full year in case there are annual payments you may be forgetting. Another good tip is to temporarily keep a balance in your old account just in case. The last thing you want is to have to pay NSF charges (that defeats the whole purpose of getting rid of bank fees).

    Let's take a look at the two main options for us Canadians:

    1. PC Financial
    • I'll start here since it's what I use and am most familiar with it. We initially chose PC Financial because of an offer for PC Points (I think it worked out to about $300 in free groceries). We do most of our grocery shopping at Superstore so this made sense for us, and since we're there regularly, we can use the ABM / small customer service kiosk in the store. You can also use any CIBC ABM's for no charge. The online access platform is easy to use, has a simple layout and I haven't found it to be missing anything that I used through BMO. I don't use many cheques, but you also get free cheques with PC. 
    • Right now they have an offer on where you receive 10,000 PC points if you set up your account for direct deposit of your pay cheque or pension (that's the equivalent of $100).
    2. Tangerine
    • Lots of the same features as PC Financial and if you don't shop at Superstore this would be one to look at. They let you use Scotiabank ABM's for no charge and also have a well laid out website. I've obviously never used their online access but based on the rest of the website I'm sure it's fine. Tangerine does offer free email transfers and $1 Interac E-Transfers, which is less than I pay! You will get your first pack of cheques for free but additional books will cost you $12.50 (but really, who uses cheques anymore). One great offer Tangerine has that PC doesn't is their referral program; you'll get a referral code and when someone uses it and deposits at least $100 you will both get $25.
    • Right now you can use the orange code ORANGE25 when you open a chequing account and deposit $100 or more and get $25 of cold hard cash. Then earn an additional $75 by setting up payroll direct deposit. If you want to set up a new savings account as well, you can get a promotional interest rate of 2.4% for the first 6 months (get that emergency fund topped up!) 
    Check out the website links above to see if one of these no-fee accounts would work for you. How many of you have already switched over, and if not, would you consider it?

    Stop paying bank fees

    Sunday, 4 October 2015

    Should You Contribute to an RRSP or TFSA?

    RRSP or TFSA? Where to save your money.

    One question that comes up all the time in my work (especially for younger investors) is whether to save in an RRSP or TFSA. Both are good options, but there are definitely times of your life when one has an advantage over the other. Today we're going to talk about when that's the case and why. 

    Everyone knows that the best part of an RRSP is that you get money back on your taxes when you make a contribution. Do you know how that process works, though? RRSP contributions are subtracted from your overall income which makes your income lower and less income means less tax. RRSP contributions then grow tax-free for as long as the funds are held within the account. That sounds great, right? Well yes, but the thing people sometimes forget is that the tax isn't gone forever, you have to pay tax when you make withdrawals from your RRSP. This doesn't completely defeat the purpose, though! Your goal for RRSP's should be to make your contributions when you are in a high tax bracket and make your withdrawals when you are in a low bracket. Let's look at a quick example. Say you are 35 years old and earning $150,000/year; that would have you in the 41% tax bracket. If you make an RRSP contribution of $10,000, you will get a refund of about $4,100. If you then leave that money in an RRSP until you are 65 and withdraw it with an income of $50,000 your marginal tax rate will be 30.5%, meaning you would pay $3,050 in tax. That would give you a tax savings of $1,050. Doing that every year would really start to add up! However, if you made the contribution at the same marginal tax rate as you withdraw it, you wouldn't get the same advantage. 

    What about TFSA's, what's great about them? Well, TFSA's don't give you a tax refund when you make a deposit but they allow your money to grow tax-free and you NEVER have to pay tax when you make withdrawals. That means that you could potentially deposit $1,000 to your TFSA, buy a stock that quadruples and grows your deposit to $4,000 and then be able to withdraw that full amount and never pay a cent in capital gains. If that same thing happened in a non-registered account, you'd be looking at a tax bill of $615 dollars if you're income was $150,000 ($3,000 of growth times a capital gains tax rate of 20.5%). Sheltering as much of your non-registered money as possible within a TFSA can save you a lot of money in tax over your lifetime. The TFSA was started in 2009 and as of January 1, 2017 the total contribution room is sitting at $52,000. You have to be 18 years old and a Canadian citizen to contribute, so if you only turned 18 after 2009, you would have to subtract those years of available room. The annual contribution limits have played out as follows: 

    2009 - 2012$5,000/year
    2013 - 2014$5,500/year
    2016 - 2017$5,500/year
    So, which is better? 
    The answer really depends on the purpose of the money you are saving. If you are saving for a shorter term goal (buying a new car, going on vacation, etc.), then the TFSA is your best bet because you can withdraw the funds at any time without paying tax. You also get back your contribution room the following year after a withdrawal. If you are instead saving for retirement, then you want to look at what the potential difference between what your marginal tax rate is now and what it will likely be in retirement. Most people's incomes drop substantially in retirement, but if you are lucky enough to be paying into a pension plan, you might be the exception. If your tax rate is higher now than it will be in retirement, then an RRSP is a good option. If not you might want to consider putting your savings towards your TFSA until it is maxed out and then work on your RRSP. 

    The one exception to the short term vs. long term rule would be saving to buy a house. Using the 'Home Buyer's Plan' allows you to make tax-free withdrawals from your RRSP to buy your first home. You do have to replace the funds, but it's a good way to save up your down payment because you do get the added bonus of a tax refund on those RRSP contributions; every dollar counts when you're trying to get into the housing market! Check out the linked article above for your details on the HBP. 

    RRSP or TFSA? Where to save your money.