Wednesday, 22 February 2017

What You Need to Know About RRSP's

The Ins and Outs of Using an RRSP

We've been having some really mild weather in Edmonton recently which makes it feel like Spring is already here, but it's still February. For us Edmontonians that means we could very well be faced with another bout of winter...please no. March can be such a sketchy month, it can be beautiful and warm with hardly any snow, or it can be freezing cold and blizzarding. It's also the month of my birthday, and my mom still complains about trying to plan parties when I was a kid because of how unpredictable it was. I would have dreams of going skating or tobogganing, and it would end up pouring rain. Seasons...who needs them!? Uh, nevermind...I totally like seasons. Green Christmases are the worst. 

Anyways, February doesn't just mean surprise weather conditions, it also means that you still have time to make your annual RRSP contribution to lower your 2016 taxes. The RRSP deadline doesn't actually follow the calendar year, and to make it even more confusing, it's not always even on the same date. Usually, it lands on March 1st, but the actual rule is that you have the first 60 days of the year to contribute to your RRSP for the previous tax year. This means that every four years a leap year comes along, and the deadline gets bumped up to February 29th...just to keep us all on our toes! And all you leap year birthday babies actually get to celebrate ;) 

Automate It
One way to get around the confusion and never forget the deadline is to STOP making annual, lump-sum contributions to your RRSP. No, I don't mean skip your contribution...I mean make it an automatic monthly (or weekly, bi-weekly, semi-monthly...whatever) payment and never have to think about it again. The only thing to remember here is that pesky little 1st of the month. If you have your automatic contribution set to run on the first, every four years that March 1st payment won't count for the previous year. Maybe save yourself that headache and set it to run on the 15th or even the 5th. 

Contribution Limits
Each year you are allowed to contribute 18% of the previous years earned income, up to a maximum amount set by CRA. For 2016 that maximum was $25,370. You don't lose your RRSP room, so if you have missed contributions from past years, you can catch-up at any time. The easiest way to check your current room is by looking at your 'Notice of Assessment,' it will be listed there. There are penalties to pay if you happen to go over your RRSP contribution limit. You do have a little leeway; CRA gives you a cushion of $2,000, but if you go over that then you'll have to pay a tax of 1% per month on the excess amount. This will keep accumulating until you either withdraw the over-contribution or earn more room. Trust me, it's a pain to fix so just don't do it. 

If you contribute to a group RRSP through your employer, then those contributions also count towards your annual limit. This also applies if you are contributing to a pension plan. You will see a 'pension adjustment' listed on your NOA that lowers the amount you can contribute. 

Why an RRSP?
I've talked about the benefits to an RRSP before (find that here) but I'll give you a quick recap. You might think that the biggest advantage of an RRSP is the refund it can give you when you file your taxes, but that's not entirely true because you still have to pay tax when you withdraw the money down the road. The main benefit is that you can make a deposit to your RRSP when you are in a high tax bracket and then withdraw the funds in retirement when you are hopefully in a lower tax bracket. This is why it doesn't always make sense to contribute to an RRSP, especially if your income is low at this point of your life. You'll get the biggest advantage by contributing the most to your RRSP when you are earning at your highest level and then withdraw those funds when your income is at it's the lowest level. Make sense? The money in your RRSP is also sheltered from tax until you take it out, so you won't get any tax slips for earned interest or capital gains every year like for non-registered accounts. 

One exception to the contribute during high income and withdraw during low income is if you are planning to take advantage of the Home Buyer's Plan. This is a program that allows first-time home buyers to withdraw up to $25,000 tax-free from their RRSP to help them buy a house. I like the idea of saving your down payment (at least the $25,000 of it) in your RRSP because then you can use the tax refund to get you closer to your savings goal. You do eventually have to pay the money back into your RRSP over the next 15 years (and there's no additional refund on the repayment amounts), but I know from my own experience saving up to buy a house that every single penny counts. If you're buying your first home with someone else you can use the HBP for each person. 

How much will you get back?
The refund you will get on your RRSP contribution is based on your income and marginal tax bracket. How it works is that your income for the tax year will be reduced by the amount you contribute, therefore lowering the amount of earned money you have to pay tax on. Take a look at the table below to figure out which tax bracket you fit into (these are Alberta rates but you can find other provinces here, and you're looking for the federal/provincial combined rates).

Let's say your income is $94,000 and you want to make an RRSP contribution of $5,000. Because you are in the 36% tax bracket, you would get a refund on the contribution of $1,800 (or lower the amount of tax you owe by that much). If you want to do a quick estimate on what you may owe (or get back) on your taxes and see the impact an RRSP contribution would have, you can check out the calculator from TurboTax. 

Spousal RRSP's 
You may have heard of income splitting and making use of a Spousal RRSP for that purpose. For a Spousal RRSP plan to make sense for you, you first need to have a spouse (obviously), and then one of you needs to have a higher income than the other. Sound like you? If so then keep on reading...How it works is a Spousal RRSP will be opened in the lower income earners name, and the higher earner will make the contributions to the account. The higher earner will get to use the contribution on their taxes (hello refund), but then when the money is withdrawn in retirement, it will be in the name of the account holder (the lower income earner). This helps with income splitting by evening out the amount of money that ends up in each person's name. If all contributions were deposited into the higher income earners RRSP, they could end up with a large account and have to pay more tax because of the more significant withdrawals. Taking advantage of Spousal RRSP's and pension splitting can even out a couple's retirement income and lower the overall tax bill they will have. 

The contribution room for a Spousal RRSP comes from the spouse who is making the contributions (the higher income earner), and it's the same limit that counts for their personal RRSP. If their notice of assessment shows $16,000 it would apply to contributions into a regular old RRSP or a Spousal; they could do the full $16,000 in either or split it up between the two. 

One important rule to remember is about three-year attribution. You have to leave the money in the account for at least three years from the contribution date otherwise, the withdrawals will be charged back to the contributor's name...defeating all purpose of the Spousal RRSP. If you are getting close to retirement (and needing the funds), you might want to halt Spousal contributions and stick with your regular RRSP. 

As always, let me know if you have any questions in the comments. Happy RRSP season :)

The Ins and Outs of Using an RRSP

Wednesday, 15 February 2017

Reading Books or Listening to Audio Books?

What's your favourite book format?

I'm a reader, I love curling up with a great book and have ever since I was a child. It's one of my favourite ways to spend a lazy Sunday afternoon, and my vision of reading has always been cracking open a new novel and diving in. Because of this, I was a late convert to the e-book craze and actual books are still my preference. I did get a Kobo as a gift a couple of years ago and like it, but mostly for more hauling heavy books along in my suitcase is a lifesaver! At home, though, I'll always choose a real book to hold and flip the pages. This could also be because I cannot for the life of me get ebooks from the library to load onto my Kobo. I don't consider myself totally inept at computers but when it comes to that process...ugh, if I have to try that again I might throw my computer out a window. And I'm definitely not quitting on the library anytime soon. My free library membership means I haven't spent a dime on books in years. Basically, if you're not a library member, then I'm not sure we can be friends anymore ;)

Are Audio Books Cheating?
This brings me to audio books and my internal debate about whether or not to count them as actual reading. I always set an annual reading challenge for myself on Goodreads, so I need to be able to keep track. I had never actually listened to an audio book before this year, and that's not because I just don't like listening to things. I constantly have headphones in listening to music or one of a bunch of podcasts I keep up on, but audio books were another story. To me, they feel like cheating. I think that one of biggest benefits of reading books is seeing the words on the page and having to interpret them with your brain. Doing so puts those words in your head, and you'll remember what they mean, how to spell them, and what proper grammar looks like. You can be reading complete garbage, but just the mere act of reading those garbage words stimulates your brain and makes you smarter. Audio books take this away from you.

However, after some rather heated debates on the subject, I've been convinced to give them a chance, and I have to admit that I don't hate it. I did make a deal with myself, though, and the only way I'm allowed to count audio books is if they teach me something. This means that I'll be listening to plenty of personal finance and business books but no fiction novels I would read for fun. So far this year I've listened to '#Girlboss' by Sophia Amoruso (just ok) and 'Flash Boys' by Michael Lewis (really enjoyed it) and am starting to get won over. The one issue I have now is that I'm falling behind on my podcasts because audio books are 10+ hours long! That's a lot of valuable listening time I'm now devoting to 'reading.' The one big issue I am having with audio books is the distraction factor. For real books, it's easy to just not flip the page if your mind has wandered but what are the chances you are really going to pull out your phone and hit rewind? For me, not good at all...I'll just catch back up at some point. And this happens to me ALL the time! I'll be at the dog park and get distracted by a super cute puppy or check a Twitter notification on my phone and go down some sort of rabbit hole. Focusing on one thing is obviously not my forte :)

What does the science say? 
Daniel Willingham is a psychology professor who has researched and written books about reading, and he tackles the very question of whether or not listening to audio books is cheating in a blog post here. He argues that reading and listening to books are 'mostly' the same thing. There are two processes involved in reading; decoding (figuring out the words) and language processing (figuring out the story). The comprehension part of books doesn't matter how you get the information as reading and listening comprehension are highly correlated (if you're good at comprehending the written word you'll be almost as equally good at understanding the spoken word), but decoding is unique to reading. Most adults who have grown up reading have already developed a high level of decoding capability, so you're not likely to make significant gains in this department anymore. That's where the 'mostly' the same comes into play...avid readers will absorb 'mostly' the same benefits with either method but if you're a developing reader then building up your 'decoding' skills is important.

I feel like this kind of proves both sides of my internal debate. On the one hand, you lose out on the decoding aspect of reading but on the other, you don't really need that as much anyways. I guess I'll settle with my previous decision to read whatever I want and only listen to 'smart' books.

What do you guys think? Are you pro audio book or loyal only to the written word?

And just because we're talking about books I thought I would share a few of my favourite reads with you, and please feel free to share your favourites in the comments...I'm always on the hunt for a new great read!

'The Art of Racing in the Rain' by Garth Stein

'I Let You Go' by Claire Mackintosh

'Pride & Prejudice' by Jane Austen

'The Language of Flowers' by Vanessa Diffenbaugh

'The Martian' by Andy Weir

'The Brother's K' by David James Duncan

What's your favourite book format?

Wednesday, 8 February 2017

Meal Planning for the Budgeting Win

2 Week Meal Plan

Everyone knows that eating out is expensive and a few extra restaurant meals can really blow your monthly budget. This is something we struggle with in this house ALL the time. I like going out to eat, trying new restaurants and having someone else cook for me...kind of the best right? But do I like it more than being able to pay all my bills and hit all my savings goals at the end of the month? Nope...well, almost always nope. Sometimes a new fried chicken place opens just down the street, and you overindulge a little, whoops. Not only is eating out hard on your wallet it's also not so great for your waistline. I'm more likely to overeat when I'm at a restaurant than if I'm eating at home and make healthier choices when meals are planned in advance than when I'm staring at a menu. 

Everything in Moderation
I'm not saying you can't ever eat out, but you need to have a plan in place to make sure you're not doing it too often. For us, that means we allow ourselves to have one dinner and one lunch out per week. Sometimes that's a fancy dinner if there's a special occasion, but it's more typically a chance to hit up one of our neighbourhood favourites. Dinner out doesn't need to be expensive, but it's always going to cost you more than if you cooked for yourself at home. I actually find lunches out much harder to stick to. The bf is great at this and VERY rarely eats out at work, and when he does it's usually just Subway or something equally as inexpensive. I try really, really hard to be good most of the time but I also have co-workers who are very convincing about going out to grab lunch and sometimes it's just so hard to say no! We've made a once a week deal though and have been pretty good at sticking to it. 

Making a Plan
The one thing that dissuades me from eating out is having a fridge full of food to cook. I HATE throwing out food, it makes me crazy! So if all the ingredients for a recipe are ready to go, you can bet that meal will get made. If I have to run out to the grocery store and buy anything, though, all bets are off and we'll be way more likely to grab some take-out or head to a restaurant. This is where meal planning is a lifesaver. I don't cook; I hate cooking...a lot. The bf does like cooking though and is way better at it than me, so that's his job. My job is doing the organizing part; picking what meals we are eating for the week and putting together the grocery list. Then we have a super romantic Sunday afternoon date at the grocery store to pick up everything we need for the week. Grocery shopping sucks but going together makes it a little bit better and getting everything in one shot saves those mid-week trips that make take-out sound so tempting. 

One thing that has made grocery shopping easier has been to use a home delivery service every so often. We've been using Spud for almost a year and have been really impressed with it. It is slightly more expensive than the grocery store but the quality is excellent and having fresh produce delivered right to your door is so convenient. Most of our grocery shopping is done at Superstore, which is not known for high-quality fruits and veggies and is almost always out of something we need, so Spud has filled a gap. If you'd like to try it out, you can get $20 off your first order by using my referral code CREDM-ERALON (I'll get a credit too). Their customer service has always been fast and friendly, and they guarantee all their products; if you're disappointed in something just let them know and they'll refund you for it ASAP. 

The Eats
Pinterest is an endless resource for recipes and that is where I find probably 99.99% of the meals that we eat. I might as well just get rid of our stack of cookbooks because I never even look through them. Both of us work full time so quick dinners are essential for weeknights and slow cooker recipes are even better. There's not much better than to walk into the house after work to the delicious smell of an already cooked dinner. I also like to choose recipes that have leftovers for lunch the next day. As I said above, I hate food waste, so making sure there is enough for another meal is an easy way to stop myself from going out for lunch. 

To give you a head start on meal planning I'm going to include the recipes we've got on the calendar for the next two weeks. There are 12 meals in total, 6 dinners to make at home plus a freebie day each week. If you want even more suggestions, you can check out my 'Dinner Ideas' board on Pinterest. 
  1. Red Curry Lentils - we haven't made these yet but my mom made them for Christmas eve dinner (curry night!) and they were a hit! I love lentils and am making some progress in convincing my meat-loving boyfriend that they are a real meal. 
  2. Easy Skillet Baked Ziti With Sausage and Ricotta Recipe - this is a brand new recipe for us, but the Serious Eats food blog is a highly trusted source in our house. J. Kenji Lopez-Alt (the recipe creator) is 'the guy' when it comes to cooking. 
  3. Baked Buffalo Chicken Taquitos - cream cheese and hot sauce...what's not to love? Cooking the chicken breasts in the slow cooker means these are really quick to put together for dinner. We just serve them up with a side salad and there are always extras for lunch. 
  4. Kalua Pork Tacos - tacos have become a weekly staple because and this recipe is my favourite. The slow-cooker pork is delicious, and I love the addition of mango to the tacos. 
  5. Creamy Thai Sweet Potato Curry - even though this curry is meatless it's still super satisfying and filling. It's already packed with spinach but we usually throw a couple of handfuls of peas in too. Don't skip the peanuts, they give a nice added crunch. 
  6. 7-Ingredient Easy Zuppa Toscana (Creamy Gnocchi Soup with Kale and Sausage) - this is my all time favourite soup! I'm really fussy about meat and find that the Italian sausage from the grocery store can be a little chewy so we've been using these sausages from Spud and they are so good in this soup. 
  7. One-Pan Chicken Burrito Bowls - Another quick and easy meal for during the week. I actually omit the chicken from my portion, so this is an easy meal to make vegetarian. 
  8. Thai Coconut Curry Shrimp Noodle Bowls - I'm just now noticing that there is a curry trend going on in this meal plan, so my apologies if that's not your thing! These shrimp bowls are so delicious and packed with flavour. Do as the recipe says and keep the noodles separate until serving or they'll get mushy. This goes for packing leftovers too.
  9. Huevos Rancheros - You're right, this is a breakfast recipe but breakfast for dinner is a thing. Eggs are cheap, full of protein and delicious so why wouldn't you want to include them at dinner time. 
  10. Korean Beef and Rice - I can't even count how many times we've made this recipe. It's about as quick and easy as you can get. Usually, we'll toss in some broccoli with the saucy meat to hit the veggie quota. 
  11. Asian Pork Tenderloin with Ginger Glaze - Another slow cooker recipe that will make dinner a breeze. The glaze for this pork is amazing, and you can serve the pork over salad and it even doubles as a dressing. 
  12. Sticky Thai Peanut Orange Chicken - Speaking of delicious sauces...this sweet, citrusy, peanutty concoction is where it's at.
There you have it, two weeks of dinners that will hopefully get you off on the right meal planning foot. Are you guys avid meal planners or are you more prone to winging it? I'm also always on the lookout for new recipes, so if you have any go-to's let me know in the comments! 

2 Week Meal Plan