If you are a disabled person living in Canada, you are eligible for many government benefits. One of these benefits is the Disability Tax Credit (DTC). In order to qualify for these benefits, you will need to apply for them. So let's uncover more about the DTC and how it may help you or people you know who qualifies.

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What is the Disability Tax Credit?

The Disability Tax Credit (DTC) is among the most valuable tax credits available to individuals with disabilities. Canadians with a severe and sustained physical or mental impairment may be eligible for a tax credit that decreases their tax liability but is not refundable. However, why exactly is it one of the most crucial? Due to the fact that being DTC qualified not only gives you access to various federal, provincial, or territorial programs but also enables you to deduct a maximum federal amount of$8,662 plus a maximum supplement of $5,053 for someone under the age of 18 (for 2021). Canadian workers with disabilities get a Disability Supplement, while children with disabilities receive the Benefit.

Registered Disability Savings Plans (RDSPs) are made possible by the DTC as well. You may assist someone who is qualified for the DTC to feel more secure about their financial future by contributing to this tax-free savings plan. If a beneficiary loses DTC eligibility after 2021, there is no longer a temporal restriction on how long their RDSP may stay open.

If you are eligible for the federal DTC, you may also be eligible for a tax credit in your own province or territory. Requesting a change for up to ten years is possible if you did not include these sums in your tax returns in the past.

A doctor's statement on Form T2201, Disability Tax Credit Certificate, attesting to your disability and detailing how it has affected your life, is required to apply for the DTC.

Keep in mind that you may file for DTC benefits for either yourself or a family member who is very ill. You may give the unused portion of the credit to your spouse or another dependent if you don't need it to bring your tax liability to zero.

Applying for the Disability Tax Credit.

If you or your spouse/common-law partner/child has a qualifying disability, you may be eligible for a tax credit.

To apply, either the applicant with a disability or their legal guardian must fill out Section A of Form T2201. If you are applying for the DTC on behalf of someone else, such as a child, you may fill out Part A of the form as the applicant's legal agent.

Part B of the form has to be filled out by a medical professional. This might be done by a doctor, optometrist, audiologist, occupational therapist, psychologist, or speech therapist, depending on the nature of the impairment.

After completing the form, submit it electronically via your CRA My Account or by mail to your local tax office.

To learn how to claim this credit on your TP-1 provincial tax return in Quebec, please visit Revenu Quebec's website through the following link.

The CRA will evaluate your claim when they receive your completed Form T2201 - Disability Tax Credit Certificate.

The years for which you are eligible to submit a DTC claim will be specified in a notification sent to you by the CRA after your application has been accepted. The application for the DTC must be resubmitted at the end of the specified time frame.

If the CRA rejects your request, you may ask for another look by compiling further evidence from supportive medical professionals and submitting it again. If you disagree with the CRA's decision and want to do so formally, you have 90 days from the date the CRA sent your Notice of Determination to submit an objection.

How much can you claim?

The maximum value of the federal disability tax credit for the 2021 tax year is $1,299. The credit's value is calculated by multiplying the disability amount ($8,662 in 2021) by the individual's reduced tax rate of 15%. Inflation adjustments are made each year to this sum.

• The maximum amount of the credit for a resident of Quebec is $1,085 (after accounting for the abatement for Quebec residents).
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• An extra sum is charged for each kid under the age of 18 in Quebec. The maximum amount of the extra credit is $633, after taking into account the abatement for residents of Quebec.

In Quebec, for the 2021 taxation year, the maximum value of the credit for severe and protracted mental or physical handicap is $524 and corresponds to the multiplication of the specified amount for the year, i.e., $3,492 in 2021, by the rate of 15%. Credits for a kid under18 in Quebec might total $2,242 across the federal and provincial levels.

What if a kid or other dependent has no taxable income? Thereafter, under specific circumstances, a parent or other family member may apply for the DTC. See line 31800 – Disability amount transferred from a dependent on the CRA website for further details.

How to obtain Form T2201.

The T2201 Application for Certificate of Disability Tax Credit is available electronically. The fillable and downloadable PDF format should be used. Because of this, you may use a computer to fill out the form and store your answers. There are choices open to you even if you have low vision. It's also possible to print the form and submit a handwritten version.

How to complete the application for the disability tax credit.

To be clear, the form may be filled out either digitally or manually. There are two primary parts to the T2201 form. Information on the individual with the disability may be found in Section A. The questioned person completes this section. It is possible for a legal representative to fill out Section A on behalf of a person with a handicap. Disability specifics are described in Section B. The doctor completes this section. Make sure that there are no blanks in either Part A or Part B of the form before submitting it.

It is your responsibility to pay for any out-of-pocket medical costs incurred while completing Part B. You may write them off on your taxes as a medical cost. Receipts are important, so don't throw them away.

Where can I send the T2201 form?

Parts A and B of Form T2201 must be completed before they can be submitted for review and approval. It may be mailed or submitted online. If you submit online, you may do so via Canada Revenue Agency My Account or Represent a client, if you are a legal agent. If you do it by mail, you may file it at the local tax center.

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What happens if my disability tax credit application is denied?

If you are denied the Disability Tax Credit after submitting a T2201 form, you will not get any money from the government. Investigate the basis for the refusal first. It's worth another go if you think you can correct it and reapply. The DTC may not be available to you if your condition does not fulfill the requirements. If, however, the DTC is beyond your price range, you should look at other possibilities. Then, look into whether or not any further grants or tax breaks apply to your situation. Caregiver tax credits, dependent tax credits, medical expenditure credits, and so on are only a few examples.

Is There a Time Limit on the Disability Tax Credit?

The DTC does expire; however, most applications are accepted for a period of time that is many years away (often 4 or 6 years).The CRA may grant you DTC eligibility for a certain number of years if they believe your disability and/or personal circumstances will improve over time; nevertheless, you will need to reapply for DTC benefits before the end of the eligibility term.

The CRA may provide permanent DTC approval if it determines that the individual's disability and/or life circumstances are unlikely to change.

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How Do I Claim the Disability Tax Credit Refunds For Previous Years?

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Your doctor will inform the IRS in Section B of Form t2201 when your disability first manifested itself. However, the CRA may only evaluate for a period of up to ten years into the past, even if the DTC eligibility period might extend back in time indefinitely.

If you are unsure whether or not you claimed all of the credits for which you were qualified, you should file an adjustment request for all applicable prior years using your CRA account or by mailing in a T1ADJ form.

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What is the Disability Tax Credit FAQ

If I was denied the disability tax credit in the past, can I apply again?

Yes. A person may apply or reapply for the DTC as many times as they choose.

Following a denial, you may either reapply or submit a letter of appeal to the CRA.

The CRA recognizes that many qualifying impairments are progressive in nature, thus just because someone does not qualify at the present time does not indicate their disability cannot advance and worsen further, resulting in a loss of ability to do fundamental, life-sustaining activities. Applying repeatedly without showing any improve mentor offering fresh information is pointless.

The disability tax credit and you.

If you or a family member are struggling financially due to a disability, the DTC may be able to assist. The Disability Tax Credit (DTC) application procedure may seem intimidating, but it is well worth the effort. Get in touch with a pro right away if you need assistance with your personal finances, tax deductions, or forms.

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When you receive your paychecks, you may notice there are a few deductions. Some of the items that's being deducted are federal and provincial taxes. How are these amount determined? How much should be deducted? Are there other mandatory deductions other than taxes? Let's find out more below.

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To what extent does the provincial government of British Columbia take a percentage of each paycheck for taxes?

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Nearly 1.1 million jobs, or 44% of the province's total employment, were provided by small enterprises in British Columbia as of 2017.

If you are a small company owner in British Columbia who handles payroll in-house, you must ensure that your workers are paid accurately. Still, it's your responsibility to know how much money you should send to the Canada Revenue Agency through payroll deductions (CRA).

What follows are the essentials of understanding and remitting payroll deductions from your company's bank account on behalf of your employees.

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AS AN EMPLOYER, WHAT ARE YOUR DUTIES?

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When paying workers, it is your duty as an employer to withhold the correct amount for taxes and other required deductions. Timely transfer to the CRA is also your responsibility.

You can't do anything unless you get the worker's SIN and a properly filled out TD1 form. This info is used to calculate the taxable portion of their salary.

An additional provincial TD1BC (British Columbia) form must be filled out if an employee is claiming more than the federal basic personal amount. The CRA will not get your completed paperwork; you will keep them for your own records.

Social insurance number (SIN) validation issues? Use our SIN verification tool to check the legitimacy of your workers' SINs before using them.

You must also enroll your company in the CRA's payroll service. To register your business with the CRA and submit payroll tax payments, you'll need a payroll tax account.

The next step is to do the math and subtract what you need to.

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WHAT TYPES OF PAYROLL DEDUCTIONS MUST BEMADE?

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As part of the CRA's monthly payroll procedure, you will typically send the money that was deducted from your employees' paychecks to them.

You'll have to figure out:

• Contributions to the Canada Pension Plan (CPP)
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• Costs associated with paying for Employment Insurance (EI)
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• Tax breaks for income

HOW MUCH TAX IS DEDUCTED FROM PAY CHECK?

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Since these deductions are tied to a worker's salary, they will vary from one worker to the next.

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Contributions to the Canada Pension Plan

Those who pay into the CPP not only get a pension in their old age, but their relatives may also receive benefits in the event of the contributor's incapacity or death, helping to replace some of the income they would have otherwise lost.

The table of CPP contribution rates, maximums, and exclusions specifies the precise amount that must be withheld from each employee's pay in order to cover CPP obligations. You, as the employer, are expected to provide a matching contribution to the worker's pension fund.

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Employment Insurance (EI) Premiums

For workers in Canada, paying EI premiums entitles them to government aid in the event that they become disabled and unable to work for an extended length of time if you or a family member were gravely sick and needed your whole attention, for instance.

There is a rates and caps table that is used to determine the premium. You must match the amount taken out of each employee's paycheck plus an additional 1.4 times the amount.

Income Tax Deductions

Payroll tax withholding is another important aspect of employee compensation. Income tax rates at both the federal and provincial levels must be taken into account.

It's true that all Canadians pay the same federal tax rate, but provincial and territorial governments set their own. Incomes up to $131,220 in Alberta are subject to a provincial tax rate of 10%,while those up to $40,707 in British Columbia are subject to a provincial tax rate of 5.06%.

Your CPP payments, EI premiums, and income tax deductions may all be calculated with ease using a payroll calculator like the CRA's Payroll Deductions Online Calculator.

However, each year the CPP and EI contribution and earnings caps are reset. This data must be included in a payroll deduction calculator.

Reviewing the CPP and EI rates and maximum tables every December may help ensure compliance. This will have your company ready for any shifts in the new year and keep your numbers precise.

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Employer Health Tax

Small businesses in British Columbia with annual payrolls of $500,000 or more have been subject to the Employer Health Tax (EHT)as of January 1, 2019. To put it simply, the EHT is a payroll tax levied on wages. Go to the gov.bc.ca website for further details.

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WHAT OTHER TAX DEDUCTIONS ARE OUT THERE?

In British Columbia, there are many types of deductions from employees' paychecks that are legally required. There are more deductions you should be aware of besides CPP, EI, Income Tax, and Employer Health Tax.

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Deductions for Union Dues

You may be required to collect and remit union dues or other payments on behalf of your unionized employees. Bargaining agents determine the number of union dues, which may be either a flat fee or a percentage of the worker's annual income.

If workers have given you permission to do so, you should be ready to deduct dues from their salary automatically. You will send the agreed-upon sums to the negotiating representatives on a monthly basis.

If you are an employer that takes out union dues, you must also list the exact amounts withheld on each employee's paystub. When completing a T4 for a unionized worker, you must include the full amount of the yearly dues paid.

Union payments might have a convoluted tax structure. Get assistance from a payroll expert if your company operates in a unionized setting. Doing so guarantees that your company is properly collecting, reporting, and remitting union dues, union fees, and any applicable taxes.

Legal Deductions and Garnishment

One method for creditors to get their money back is via garnishment. If one of your workers has accrued debt and the creditor wants to pursue collection from you, they may do so via an intermediary. Garnishment is the legal term for what's happening here.

The first step in collecting debt is for the creditor to file a lawsuit and get a judgment requiring the debtor to pay the creditor back.

If you get a garnishing order from a creditor, you must forward a certain percentage of the debtor's earnings to the court, which will subsequently, once confirmed, re-assign the funds to the creditor.

The debtor is safeguarded by monetary demand cap statutes that limit the amount a creditor may request. Collections often cap out at 30% of a debtor's net income. However, if the debtor needs the money for child support, the percentage rises to 50 percent.

Employers in British Columbia cannot terminate an employee or treat them differently because of their debts or because they have been issued with a garnishing order, according to provincial and territorial legislation.

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Mandated Company Deductions

Business deductions are a prerequisite of employment and are mandated by company policy. Even though certain deductions are required by law, you cannot make them without the employee's written permission. You may be able to claim a tax break for some of these expenditures.

The following are some examples of mandatory corporation deductions:

• Health insurance rates at the provincial level
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• Contributions to an RPP(Registered Pension Plan)
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• Payments into a Registered Retirement Savings Plan (RRSP)
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• Premiums for group insurance plans

Voluntary Deductions

Employees have the option of having a certain percentage of their pay sent directly to a charity. Any salaries that have been legally assigned must be sent to the appropriate charity within a month of the assignment request being submitted.

Although membership in the corporate social club does not qualify as a tax deduction, it does offer a deduction for the employee. Deductions are not permitted if the club's primary function is for amusement. Boards of trade and business organizations are two kinds of clubs whose membership dues are tax deductible.

WHAT ARE YOUR END-OF-THE-YEARPAYROLL DUTIES?

As part of the monthly payroll process, you will typically transfer employee payroll deductions and contributions to the CRA.

You need to check your payroll records and make sure you sent the right amount to the CRA by doing a reconciliation. One way to achieve this is by comparing the amount of taxes you paid in the past year to the amount you should have paid in the present using a T4 Summary. The CRA must be reimbursed for any underpayments, while any overpayments will be returned to the taxpayer.

T4 Slips, including each worker's year-end salary and other pertinent data, must also be generated. By the end of February in the year after the year of compensation, this must be completed and sent to all staff. For 2019, employers have till the end of February 2020 to submit and distribute T4 slips to their staff.

For additional information on mandatory payroll deductions and remittances in Canada, check out the government's Employer's Handbook.

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No one likes to pay tax and when you invest in Real Estates or Stocks, you may need to pay capital gains tax when you sell them. Are there ways to avoid paying capital gains tax? Though many require some set up, but there are a few ways where you can minimize your capital gains tax when you sell your investments.

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How To Avoid Canada’s Capital Gains Tax

1. Invest money in a tax shelter

You might think of tax shelters as a canopy for your assets. A tax haven is a place where your investments may grow without incurring any taxes. You are free to acquire and sell stocks at will without incurring any tax penalties. (That said, you can't deduct any capital losses from your overall income either.)

In Canada, RRSPs are among the most used forms of tax deferral. Unlike non-registered accounts, any earnings from an RRSP are not subject to taxation in the year they are made. Since you did not pay tax on your income when you made the contribution, the money you remove will be subject to tax at your full marginal rate.

When it comes to hedging against capital gains, a TFSA performs the same role as an RRSP. You get to retain all of the money you earn from trading inside your TFSA. Since you had paid tax on your donations, the CRA will not tax you again when you withdraw any amount. In other words, if you put away $6,000 a year after taxes, invest it for 30 to 50 years, and it grows to $1 million (which is doable, particularly when you don't pay capital gains tax), you can take out the whole amount without having to worry about paying any taxes on the growth.

A regulated retirement savings plan (RESP) is another vehicle for evading CGT. You should probably invest in low- to medium-risk assets since you will need the money for your child's schooling in the near to medium future. Your kid will have to pay some tax on the withdrawals, but the rate won't be too high, given that their income is likely to be rather modest while they're in school. Please be aware that the account must be closed 35 years after it was started.

2. Balance out your capital losses

If you sell $1,000 worth of ABC stock and $2,000worth of XYZ stock in the same calendar year, your net gain is $0 since the gains from the former are offset by the losses from the latter. There will beno capital gains tax to pay in such a case. Or, say you make a thousand dollars in profit but lose 500. Because of the loss, you were able to deduct, your after-tax gain is $500 instead of $1000. Only $250 of that gain is subject to taxation at your marginal rate.

Or, suppose you've had nothing but losses this year. If that's the case, your losses may be applied to future or previous years. They may be carried back for up to three years to reduce taxable profits or carried forward forever to build up. Capital losses may be offset by other forms of income in certain circumstances; nevertheless, you should consider this possibility with an accountant.

It's important to remember that you can't merely sell some stock and buy it back right away in order to avoid paying taxes on the profit you made on the sale in order to balance your capital losses. The same goes for trying to sell your spouse on a stock. The Canada Revenue Agency does not permit "superficial losses" like that.

However, there is a really ingenious technique to avoid this. Selling a losing investment and reinvesting the proceeds into a comparable but not identical venture is known as "tax-loss harvesting. "To illustrate, suppose you have complete faith in the cannabis market. You invested $1000 in a cannabis startup, only to see your investment shrink to $500. You cash out $500 in losses by selling the stock and promptly reinvesting in another cannabis security or exchange-traded fund. Because of this, you may reduce your taxable income while still having the chance to profit from an industry you believe will rise.

3. Defer capital gains

Only if you received shares from a spouse or parent upon their death or divorce would you be able to avoid paying capital gains tax on those shares. As such, if your husband purchased 100 shares of ABC stock and then gave them to you when you got divorced, neither of you would have to pay capital gains tax. You have to pay the capital gains tax when you sell the stock. Instead of using the value when your spouse or parent gave them to you, you should use the value when they were bought.

4. Enjoy the benefits of the lifetime capital gain exemption

When selling private qualifying shares or farm or fishery property, certain small company owners are eligible for a lifetime capital gains exemption. Eligible stocks are those of a corporation with both Canadian ownership and significant operations in the country. Also, the taxpayer or a close family must have held the shares for at least 24 months before the sale. There will be a $913,630 lifetime cap in 2022. A tax expert should be consulted since the laws are intricate. Stocks do not qualify for a lifetime capital gains exemption.

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5. Donate a percentage of your shares to charity

If you want to help out a good cause, why not give shares instead of cash? One of the benefits is that it minimizes the donor's taxable income. In addition to receiving a tax deduction equal to the shares' fair market value at the time of the gift, the "profit" from the shares is written off entirely.

6. Use capital gain reserve

If you sell an expensive piece of property, you may be able to pay for it with the money over a period of five years. It's true that we pay more in taxes as our income rises, but it's because of Canada's progressive tax system. Let's pretend you just made $250,000 via the sale of an investment unit to your kids. You would be subject to a marginal tax rate of 43.41 percent in Ontario. Alternatively, if you can stretch the gain out over five years at an annual rate of $50,000, your marginal tax rate would peak at only 20.05%, and you'll retain more of your hard-earned cash. There is an increased risk of nonpayment on the part of the buyer if you need them to make installment payments to you over a longer period of time. If you plan on leaving a farm to your kids or grandkids, for example, you may be able to defer the gain on that sale for up to ten years.

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The future of capital gains tax.

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There has been a significant increase in Canada's deficit as a result of the Covid-19 outbreak, with the government borrowing nearly $225 billion to provide emergency payouts. So that it can repay this vast money, many analysts believe that the government will start to hike taxes. A number of experts have expressed the view that the capital gains tax is an area where reform is most needed. There has never been a set rate for capital gains taxation. Ahead of 1972, it was nonexistent. The figure climbed to 50% by 1980, and then 75% by 1990. Since the year 2000 alone, the inclusion rate slipped back down to 50%. If the government needs more money to pay its debts, it would likely raise the capital gains tax again.

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Tips for paying less in capital gains tax.

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While it may be difficult to completely sidestep capital gains tax in Canada, there are a few strategies that may help you payless of it. As long as the funds remain in a tax-deferred account, the investor is exempt from paying capital gains tax on the profits. You may reduce your capital gains tax by offsetting them with capital losses; however, doing so precisely might be challenging. Giving shares to a good cause might also help you avoid paying CGT. If you want to sell a house that has appreciated in value, claiming it as your main residence for as long as feasible will help you pay less in capital gains tax when the time comes to sell.

The best way to avoid paying Canadian capital gains tax.

There are a number of legitimate loopholes one might use to avoid paying capital gains tax in Canada. Putting money away in a tax haven, offsetting gains with losses, postponing the realization of gains, making use of the lifetime capital gain exemption, donating shares to charity, and using the capital gain reserve are only six of the strategies discussed in this article.

How to Avoid Capital Gains Tax in Canada FAQ

How are capital gains taxed in Canada?

Gains in the value of a person's capital, such as stocks and real estate, are known as capital gains. As such, the government prefers to treat some of this profit as taxable income. Half of a Canadian resident's capital gains for the year are subject to income tax. That implies you have to add half of your capital gains to your income before taxing it. Based on your income and tax circumstances, a different percentage of your capital gains will be taxed as taxable income.

What qualifies for capital gains exemption in Canada?

More than half of the company's assets must have been actively employed in a Canadian business for at least 24 months before the sale may take place. In the preceding 24 months prior to the sale, neither you nor anyone linked to you may have possessed the shares.

In Canada, what kinds of income are subject to the capital gains tax?

Income from dividends, the sale of stocks or property (other than your primary home), and gifts of capital that generate income are all subject to capital gains tax in Canada. All of these forms of income are seen as taxable in some capacity, depending on the individual taxpayer's marginal tax rate for the year in issue.

How long must one stay in a Canadian home before capital gains are not incurred?

For as long as the house is used as the main residence, the owner is free from paying capital gains tax on any profit made from the sale of the property. The Internal Revenue Service (IRS) does not specify a minimum period of ownership necessary to qualify for this exemption. The guidelines from the CRA only state that you need to "ordinarily occupy" the space for a "short amount of time," which might be interpreted in a number of ways.

How can I avoid paying Canadian capital gains tax on inherited property?

In Canada, converting an inherited property into principal home is the major method for avoiding capital gains tax. You or the estate wouldn't have to pay capital gains tax if the house was the decedent's principal residence when they transferred it on to you. The principal dwelling exemption is to blame for this. If you turn around and sell the property, though, you'll owe tax on half of the profit.

What is the lifetime capital gains exemption in Canada?

One restriction that affects certain small company owners is the lifetime capital gains exemption. If a person sells qualifying shares in a privately held company or agricultural or fishing property, they may defer capital gains tax on the sale up to a lifetime maximum. Shares in a privately held firm that is both operational and majority owned by Canadians are considered eligible. The taxpayer or a close relative of the taxpayer must have held the shares for at least 24 months before the transaction to be eligible for the exemption. There will be a $913,630 lifetime cap in 2022. A tax expert should be consulted since the laws are intricate. Stocks are excluded from the lifetime capital gains exemption.

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Though it might be exciting to move to another part of the country, the packing, loading and unloading part is never fun. On top of that, depending on where you move, the amount of time and financial resource you need to put into this relocation project can add up. Since you invested your money into moving, you might ask, are those expenses deductible? Well let's find out!

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What is Moving Expenses Tax Deductions in Canada?

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Some of the costs associated with relocating for anew job position in Canada are tax deductible. Leaving behind familiar surroundings and starting over in a new location may be a stressful and expensive experience. Can job-related relocation costs be deducted, though? If you are a Canadian resident who has moved because of a change in work or because of the location of your company, you may be able to deduct some or all of your moving costs from your taxable income. The Income Tax Act stipulates that you must relocate at least 40 kilometers closer to your new place of work or company in order to deduct these costs. This may include relocating to a different province or taking a position in a different division of the same corporation. You may even relocate within the same province as long as it's at least 40 kilometers closer to your new place of business or work to qualify. Whether you are a homeowner or a renter, you may deduct the costs of moving that are discussed in this article as long as you complete the requirements.

Moving costs must be reported to the CRA on line21900. This ling was 219 before the year 2019 began. Deduction for Moving Expenses — Form T1-M also has to be submitted. You are not obliged to maintain a full record of all costs or receipts when making these claims, but the Canada Revenue Agency (CRA) may ask you to do so. Keeping a copy of these documents is usually a good idea.

What moving expenses are tax deductible?

Good news! When filing your taxes in Canada, you may deduct a variety of fees as "moving expenses" under the jurisdiction of the Canada Revenue Agency. The list of permissible relocation costs includes:

1. Storage and transportation of your personal things. There is the option of hiring a moving company or renting a truck alone.
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2. Moving expenses flights. You may get your plane ticket costs back if your relocation requires a cross-country flight. Or, if you prefer to drive, you may figure out
   your deduction depending on the distance you go.
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3. Temporary living expenses. You may earn up to 15 days of reimbursement for lodging costs if you have to stay in a hotel or Air BnB since your new place isn't
   ready yet.
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4. Cancellation fees from your previous lease. For example, if your lease has a termination clause that requires you to continue paying even after you move out, you may use those payments as a moving expenditure.
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5. The expense of obtaining a new driver's license, as well as the fees associated with turning off utilities and turning on new services at your old and new places of residence.
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6. The expense of keeping your old house in good condition while you attempt to sell it. Mortgage interest, property tax, insurance, and heating costs up to $5,000. If you are a renter, however, you cannot write off these costs.
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7. Real estate commissions, attorney expenses, and mortgage prepayment penalties associated with the sale of your current residence.

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Who Can Claim Moving Expenses?

To be eligible for a moving cost deduction, a person must have relocated and established a new residence in order to start anew job or operate a new company. Your relocation must be from your current place of ordinary residence to your new place of ordinary residence, and you must be a considered or factual resident of Canada.

If your new place of residence is at least 40kilometers (km) closer to your new place of employment than your previous place of residence, you may be entitled for the deduction. Moving inside Canada, relocating from outside Canada to a new job site in Canada, relocating from Canada to a new work location outside Canada, and in certain cases, relocating between two places outside of Canada are all included. There is a possibility that full-time students may deduct some or all of their qualifying relocation costs from non-repayable awards such as scholarships, fellowships, bursaries, and research grants.

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What part of moving expenses is tax deductible?

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How much, if any, of your relocation costs are tax deductible? one hundred percent, within the parameters set out earlier in this article. Nevertheless, you are obligated to subtract the amount of any employer reimbursement you received. Let's say, for instance, that your company gave you a $6,000 moving allowance but that your relocation costs came to$10,000. To deduct your relocation costs, you may only use the remaining$4,000.

The following are not eligible for reimbursement as relocation costs:

• Renovation costs before listing your property for sale
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• The possibility of a loss from the sale of your house
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• Coverage of housing and job-related travel costs

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‍How do you claim expenses on your tax return?

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You need to file Form T1-M to be reimbursed for your relocation costs. You must indicate on this form that you are relocating within 40 kilometers of your place of employment or education. Then, it gives you a place to detail all of the money you spent on packing and transporting your belongings.

Receipts are not required to be included with your tax return. But remember to always have some on hand. Also, be sure to note all of the important dates associated with your relocation and the sale of your former home.

CRA moving expenses for the self-employed.

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If a self-employed person has to shift their firm, they may deduct the costs associated with doing so.

No one, whether self-employed or employed, may deduct more in relocation costs than the net business revenue received at the new site. For instance, when Jane relocated her consulting business from Toronto to a smaller town, she incurred $10,000 in relocation costs. She had a net income of $5,000 in December because of her relocation.

Assuming she made $5,000 this year, she would be eligible to deduct as much in relocation costs. She might deduct $5,000 from her taxes next year because of the move.

CRA moving expenses simplified method.

Relocation costs, such as travel and hotel accommodations before moving in, may be estimated in two ways: quickly and thoroughly.

By keeping track of every receipt for every meal, you may get a good idea of how much money you spend on food every week. The streamlined technique allows you to submit a single daily fee per person.

CRA moving expenses audit.

When you include in the cost of hiring movers, paying for legal representation, and selling your current home, you can easily see that relocating may cost several thousand dollars. The attention of the Canada Revenue Agency auditors is inevitably drawn to those who claim big deductions.

It's all right! If you've been doing everything by the book and have all of your receipts, the CRA audit should be a breeze. A receipt copy and a letter from your new school or workplace confirming your relocation will be required. If you have everything in order, the CRA auditors should have a few questions and be able to finish the audit swiftly.

What is Moving Expenses Tax Deduction in Canada FAQ

What Types of Expenses Can You Claim?

Tax deductions are available for relocation costs that meet certain criteria. All movers, temporary storage, packing materials, and insurance coverage are often included in transportation and storage charges. You may claim money spent on getting you and your family to your new home, including gas, food, and lodging. You may use either the thorough or simple way to account for travel and food costs.

You and your family are allowed a deduction for temporary living costs (up to a maximum of 15 days), which includes food and lodging. You may deduct up to $5,000 in moving expenses, as well as any fees incurred to terminate the lease on your former home and keep it up and running while it remained empty after you moved out.

All moving-related expenses are tax deductible, including the fees associated with changing your address on official papers, obtaining new licenses and registrations, and connecting or disconnecting utilities. Advertising, legal expenses, real estate commission, and mortgage penalties, if any, incurred in the process of selling or buying property as part of the relocation are all deductible.

Are moving costs deductible for seniors?

In order to qualify for this deduction, the individual must be relocating more than 40 kilometers from their previous residence for employment or full-time education purposes. Retirees who must relocate owing to downsizing or other reasons are not eligible for compensation.

Should I submit a claim for my relocation costs?

Is it possible to deduct money spent on moving? Absolutely. Depending on your circumstances, the deduction for moving costs maybe useful in lowering your taxable income. To qualify, you must be relocating because you have accepted new employment, enrolled full-time in an accredited postsecondary educational institution, or are self-employed. If you relocate 40or more kilometers closer to your school or workplace, you will be eligible. Keeping detailed records of your move-related expenses and actions is a must. Refer to the CRA form for further information on how to claim relocation costs.

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While filing taxes may seem simple, it may be a time-consuming and nerve-wracking process for those unfamiliar with it. Thankfully, here are some resources that can guide you. So, let's start with the question:

What is Line 10100 on Tax Return?

Basically, all the money you made from a job in Canada will go on Line 10100 of your tax return. Box 14 of your T4 tax form is where most people will find their employment income.

Employment revenue such as salary, commission, pay, gratuity, bonus, and tip should be stated in box 14. Line 10100 is the sum of all the amounts recorded in box 14 of your T4 slips, representing your job income. Employment income is reported on form 10100, although it may not be the whole of your take-home pay. You may locate this sum on your tax return down below line 15000.

A T4 slip is a tax document sent to you by your employer (or employers) once a year. Your income for line 10100 of your tax return will be listed here.

Feel free to contact your company directly if you have not gotten a T4 slip. By the end of February, all businesses must have provided their workers with T4 slips. T4 slips are required for line 10100;therefore, if you are missing any from last year, you should talk to your employer. If your employer still doesn't submit the papers after you've asked them to, you may see your old tax slips via your CRA Personal Account.

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Where Is Line 10100 on the tax return?

If this is your first time filing taxes, you may find it difficult to find line 10100. This input is a crucial portion of the yearly return and is often used to authenticate CRA logins. After you've filled out your T1 General Form in its entirety, you may find line 10100 on the form's third page. If you have a CRA My Account, you may access your T1 and either print it off or fill it out digitally. On Page 3 of your T1 - Income Tax and Benefit Return, Step 2 contains Line 10100. As the "Total Income" portion of the T1, it is also the first line of Step 2 on provincial and territorial tax forms.

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The Tax Detail to Enter on Line 10100.

Line 10100 should include the information from Box 14 of your T4 forms. Salary, earnings, bonuses, and any other forms of work income are all included in Box 14. When determining how much to enter on line10100 of your tax return, you may add any of the following payments from your employer if they appear in box 14 of your T4 slips.

T4 slips, required for figuring out line 10100entries, do not reflect full job income. For example, the T4 does not reflect foreign-earned income, clergy housing allowance, royalties, veteran benefits, net research grants, or wage-loss replacement. Some insurance and workplace payment plans are included in what is called "Other Employment Income" on Form 1040, Line 10400. Supplemental unemployment benefits, medical premium benefits, employee profit-sharing schemes, and tips not listed on your T4 slip are all examples of non-T4 income that should be listed on line 10400.

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Can I Do Something If My T4 Doesn't Clearly Reflect All of My Earnings?

There are situations in which your T4 slips will be accurate but will still fail to account for all of your income. In this scenario, you have to add the omitted income to Line 10400, which accounts for other employment income.

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What If the Numbers on My T4 Don't Add Up?

Get in touch with your company ASAP if you think there may be a mistake on your T4 slip. Also, you should get in touch with your company if you haven't received your T4 before the end of February.

The Canada Revenue Agency (CRA) encourages you to submit your taxes using an estimated amount if you do not get an exact T4slip from your employer before the tax deadline. You may submit an amended return whenever you get the necessary information from your employer.

Any time your employer makes a payment on behalf of the business, the CRA will automatically obtain a copy of your T4 form. In the event that you misplace your T4, you may access copies of prior forms submitted under your SIN by logging into your CRA account. Get in touch with the CRA if you have any trouble locating the specific T4 you need.

Why is Line 10100 Important?

Why is it critical to determine how much money should be sent to line 10100, and why is knowing that amount important? Some of the reasons are as follows:

• Most Canadians' primary tax deduction is their salary or wage from paid work.
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• If you contact the CRA, they may ask you to confirm the number in order to validate your login.
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• In addition, it's needed for the tax return line 31260 to figure out how much of a Canada employment amount you're eligible to claim.

What is Line 10100 on Tax Return FAQ

Is Line 10100 my total income?

Line 10100 consists of all salary and wage revenue. Your total income may be different than this figure if you get money from other sources.

Earnings from all sources should be reported on tax line 15000, which may be found at the bottom of Step 2 of the T1 - Income Tax and Benefit Return.

Are Line 10100 and Line 101 the same?

Yes. The tax forms have been updated for the year 2020. One of the many changes that have been done concerns the alterations to the lines and numerals. Previously 3- or 4-digit lines are now 5-digit ones. For instance, the numbering of Line 101 is now Line 10100.

What's the deal with all the changes? The rationale for this change might be to standardize the numbers or pave the way for the addition of more tax brackets in the near future.

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When you receive your tax returns, either from your accountant or the tax filing software you use, you might be wondering what do all these number lines mean. Each line have different number that's important to declare your income and expenses to the CRA. Many lenders use these lines to determine the amount of loan they can offer you. That being said, let's take a look at what is line 15000 on your tax return and why does it matter to you.

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WHAT IS LINE 15000 ON TAX RETURN?

This is a tax line on your tax return that shows your entire income or gross income before any deductions.

This tax line, previously referred to as Line150, includes all of your earned income, including that from freelance work and other sources, before any tax withholding is taken out.

Nonetheless, not everyone has a Line 15000 income. Keep reading to find out what kinds of income are considered acceptable and what kinds are not.

Line 15000 of your tax return is where you'll figure out how much money you really made after all the deductions were applied, based on your tax bracket and your overall income.

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WHO NORMALLY REQUESTS THE LINE 15000 (LINE 150)?

This line number is required by many organizations, including the government and financial institutions. This standard data is required for identification verification, income confirmation, and credit checks. The following are some more possible groups of people interested in this material:

• For Banking, Loaning, Mortgage, Lending, etc.
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• For Use in Court or for Other Legal Reasons
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• To confirm your identity and income, the Canada Revenue Agency often requests line 15000.
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• Government Scholarships - Free Money for College

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LINE 15000 (LINE 150): HOW DO I MANUALLY CALCULATE IT?

Estimating this sum without the aid of tax software or expert might be a difficult task. Hiring a professional to handle your tax return and calculations is always a good idea. Your line 15000 may be determined independently by adding the following things from your tax return:

1. Earnings from Employment: (Line 10100)
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2. Other Employment Income: (Line 10400)
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3. Income from a Self-Employed Source: (Line 14300)
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4. Workers' Compensation + Net Federal Supplements + Social Assistance: (Line 14700).

Some other factors may also be included in this evaluation. Therefore, one should always consult an expert for assistance with such a computation. It's vital to remember that Line 15000 (Line 150) is not the same thing as taxable income. Income tax computations need additional steps.

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WHAT CAUSED THE TRANSFORMATION OF LINE 150 INTO LINE 15000?

CRA renumbered numerous lines since there are so many more lines on a tax return today. Since its first release, the T1 schedule has doubled in size, going from 4 to 8 pages. Users can quickly find the data they need from their tax returns using the redesigned layout. Canadians who file taxes online have amassed a wealth of new knowledge since the introduction of the online filing system and now expect to be able to quickly access any data they've previously submitted. These figures have grown from three to five digits.

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WHAT CONSTITUTES THE TOTAL INCOME?

As it has been previously explained, your gross income is reported on Tax Return Line 15000.

What does your total income consist of then? These refer to your:

1. Paychecks from a job
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2. Employment commissions
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3. Investments
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4. Job Security Insurance
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5. Bonuses, tips, and other monetary incentives
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6. Profits from retirement accounts (such as Canadian Pension Plan)
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7. Rents Received
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8. Gains on investments
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9. Earnings from Independent Work
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10. RRSP
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11. Partnership
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12. Allowances (such as grants and scholarships)
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13. Universal Child Care Benefit
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14. Compensation for work-related injuries
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15. Federal supplemental funds
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16. Payments for social services

After taking into account any taxes, your net income will be the sum of the aforementioned income sources.

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INCOMES IN YOUR LINE 1500 TAX RETURN THATARE NOT TAXABLE.

You must still report the following earnings, however, they are excluded from your taxable income:

1. GST/HST and the Canada Child Benefit (CCB)
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2. Compensation for victims of traffic accidents and violent crimes from the government
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3. The majority of gifts and inheritances
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4. Death or disability benefits
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5. Strike payment
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6. Gains from Workers' Compensation 
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7. Most lottery winnings
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8. Financial aid for K-12education, including scholarships and bursaries
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9. Awards for postsecondary study such as bursaries, scholarships, and fellowships
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10. Earnings from tax-sheltered savings accounts (TFSAs)

However, you must report any interest or income you get from the foregoing sources on your tax return, using Line 15000.

WHO MUST FILE A LINE 15000 IN CANADIAN TAX RETURN?

Not all Canadians are required to fill out Line15000 of their tax return. The following individuals must fill out this tax line:

1. Tax authorities are charged to file tax returns.
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2. Be subject to income tax for the prior tax year.
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3. Have to pay back a portion of their Social Security or EI income.
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4. They have sold or otherwise gotten rid of their possessions.
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5. Enrolled in the Canadian Pension Plan (CPP)
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6. Failed to pay back a tax-free RRSP withdrawal
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7. Have stockpiles of capital profits or taxable capital gain.
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8. Share their pension with their spouse or common-law partner.
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9. Acquire Financial Support (such as grants and scholarships).
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10. Receive Universal Child Care and Workers' Compensation.
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11. Get help from government welfare programs.
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12. Receive federal supplements.

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WHEN DO I NEED TO KNOW MY TOTAL INCOME?

Your total income or the amount shown on Line15000 of your most recent tax return may be requested by the IRS, a financial institution, or another entity for a variety of reasons. For instance:

• For legal reasons, such as calculating spousal or child support obligations.
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• For monetary reasons, including getting a loan, a Line of Credit, a mortgage, or renegotiating existing terms.
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• To create a CRA My Account or access an existing one.

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WHEN SHOULD YOU FILE YOUR LINE 15000 TAX RETURN?

If you owe taxes, you must typically submit them when they are collected during the year. If you have a job, your employer will withhold the appropriate amount of tax from your paycheck and remit it to the CRA.

In the event that your employer does not withhold a sufficient amount of tax from your wages during the year, you may be responsible for making up the difference.

If your employer withholds more than necessary from your wages before paying taxes, however, you will get a refund when you file your taxes.

Filing income taxes on or before April 30this mandatory for anybody who works for themselves or has a spouse or common-law partner who does.

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WHAT HAPPENS IF I DON'T FILE MY TAX RETURN OR MAKE THE DEFAULT PAYMENT ON LINE 15000?

If you fail to file a return when required or if you make false statements on your return, you may face penalties under the Income Tax Act.

Moreover, if you underreport your income by omitting relevant details, you may be subject to financial penalties.

Furthermore, if you evade taxes or conduct fraud on purpose, you may be subject to criminal penalties.

Paying or filing taxes late incurs penalties.

If you don't file your taxes when you should, you'll have to pay a 5% penalty on top of the total amount due, plus an additional 1% for every month your return is late, up to a maximum of one year.

The government also adds a daily interest rate to any tax bill that remains unpaid.

If you are unable to pay the whole amount due in a single lump sum, you may contact the Canada Revenue Agency (CRA) to arrange a payment plan.

You have the option to file an appeal if it is shown that you have more debt beyond what you estimated.

Tax fraud and evasion are punishable bylaw.

Failure to submit a return for tax purposes may result in summary criminal penalties under the Income Tax Act.

If caught dodging taxes in Canada, you might face jail time and hefty fines.

However, up to 200% of the total taxes evaded may be assessed if you are found guilty of tax evasion owing to deceiving or misrepresenting the CRA.

In addition, you face a possible 2-year jail term for tax fraud and evasion.

As a consequence, the law may be used in response to major wrongdoing. Crimes involving tax evasion are dealt with according to the Canadian Criminal Code's formalities and requirements.

Thus, a tax evasion conviction will result in a criminal record. Any missed payments will be reported to credit bureaus, which might impair your ability to get future loans.

Furthermore, the CRA may seize your salary, assets, etc., until the taxes, interest, and penalties are paid in full.

Voluntary Disclosures Program.

The Voluntary Disclosures Program (VDP) is an initiative of the Canada Revenue Agency (CRA) that aims to recover tax arrears without resorting to individual prosecution.

Therefore, VDP enables taxpayers to disclose previously undisclosed information or information that was either incorrectly reported or omitted from prior tax returns without incurring any penalties.

Nonetheless, those who have fallen into tax arrears must still pay the full amount plus interest. It's worth noting that the CRA sometimes grants a reduction in interest.

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FINAL THOUGHT ON TAX RETURN, LINE 15000

Your total income before tax deductions is seen on line 15000 of your tax form.

The total income shown on Line 15000 of the tax return is used to calculate the amount of tax due and your net income.

Even if you have a non-taxable source of income, you must still report any interest or income from the sources listed above on your tax return using Line 1500.

However, you might face serious consequences if you don't submit your tax returns on time.

If you have any information that was erroneous, incomplete, or left off of previous tax returns, the Voluntary Disclosures Program (VDP) might be your savior.

Finally, if you're having trouble keeping up with your tax debt, see a financial expert for advice tailored to your specific situation.

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As a taxable resident in Canada, you are obligated to file and pay for your taxes every year. Is there a deadline on when you need to pay for your taxes? Does it differ from an employee vs a self-employed individual. What about for businesses? Missing your tax payments can result in hefty penalties you wish you avoid, so let's dive in.

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When are taxes due in Canada?

In Canada, taxes are due every year on April 30.

Additionally, any tax debts must be settled at this time. If April 30 comes on a weekend or holiday, Canadian taxpayers have until the start of business on the next business day to submit their returns for the previous tax year. As a result, the deadline for filing your tax return for the year 2021 is May 2, 2022.

There is a June 15 filing deadline for those who are self-employed or who have a spouse or common-law partner who is self-employed. On May 2, 2022, you must submit your tax payment.

If you don't get your taxes in on time, you'll have to pay interest and a penalty on top of what you owe. Tax returns must be filed on or before April 30 regardless of whether or not the full amount of taxes owed can be paid at that time. Those who cannot do so should contact the CRA to discuss payment arrangements.

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Due dates and payment schedules for personal income taxes.

Learn when you need to file your taxes, when you may expect your refund, and when you can start collecting credits and benefits.

Deadlines for submitting your 2021 tax returns:

• Contributions to an RRSP, PRPP, or SPP must be made before March 1, 2022.
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• Tax returns are due by April 30, 2022 (extended to May 2, 2022, due to the observance of Easter on April 30)
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• If you or your spouse or common-law partner are self-employed, the tax filing deadline is June 15, 2022.
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Scheduled Tax Payment Due Date for 2021:

• The tax payment due date is April 30, 2022.

Is CRA extending the 2022 filing deadline?

When it comes to fulfilling your tax responsibilities, the Canada Revenue Agency (CRA) has your back. The deadline for filing your 2021 income tax and benefit return as a self-employed person or as the spouse or common-law partner of a self-employed person is June 15, 2022.

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What are the consequences of missing the Canadian tax filing deadline?

Tax returns may be submitted after the due date has passed. Late filers risk incurring penalties but may qualify for interest waivers. No late filing penalty or interest will be assessed if you expect a tax refund or do not owe any taxes.

Can you go to jail for not filing taxes in Canada?

It's illegal to neglect to submit tax returns since doing so is considered tax evasion, even if failing to pay your taxes is not a crime. The laws are strict, and the consequences for not paying your taxes may be severe. Section 238 of the Income Tax Act establishes penalties for non-filers including a fine of $1,000 to $25,000 and/or imprisonment for up to one year.

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How long can you go without filing taxes in Canada?

The Canada Revenue Agency states that a taxpayer has until 10 years after the calendar year ends to submit an income tax return. Penalties and even jail time increase the longer you go without submitting your taxes. No matter how long you've been late — a year, 5 years, or even 10 — you need to get your return in as soon as possible.

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In Canada, what happens if you don't pay your taxes on time?

There is a penalty for submitting your taxes late with the Canada Revenue Agency. There is a late filing penalty on tax returns; 10% of the total due, plus 1% every month (up to 12 months) that the return is late.

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Who does not file taxes in Canada?

New Canadians and Canadians who have just entered the workforce may have questions about whether or not they are required to submit a Canadian Income Tax return, and if so, when are they to do so for the first time.

While most Canadian residents are expected to register with the Canada Revenue Agency (CRA) annually, some individuals are subject to different filing and timing requirements.

If any of the following apply to you, you must file a tax return immediately:

1. The Canada Revenue Agency (CRA)has determined that you have a tax debt.
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2. You are required to pay into the Canada Pension Plan (CPP) since you are self-employed.
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3. The same applies to self-employed people's contributions to Employment Insurance (EI) out of their business income.
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4. You and your spouse/common-law partner wish to divide your pension funds.
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5. You have a balance due because you used the Home Buyers' Plan (HBP) or the Lifelong Learning Plan (LLP).
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6. You've gotten rid of some expensive assets. Even if you don't owe any capital gains tax on the sale of your property, you still need to report the transaction on your tax return(referred to as the principal residence exemption).
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7. If you get benefits from Social Security or the Employment Insurance Fund and you receive too much money, you must pay it back.
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8. You have collected advance payments of Canada Workers Benefit (CWB) throughout the tax year if:
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9. You've received a "Request to File" from the CRA.
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10. If you have received a Demand to File from the CRA, the agency is taking action to enforce compliance with your failure to file.
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11. Your revenue came from a source in Canada
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12. You have a financial obligation to the government.
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13. You need to file for a refund or benefit, such as the Canada Child Tax Credit or the Guaranteed Income Supplement.

Income generation in Canada.

While your residence status in Canada has no bearing on whether or not you are required to file a Canadian income tax return, it does have an impact on how you file your taxes, the types of income you must disclose, and whether or not you qualify for certain credits or deductions. You are required to submit a tax return regardless of your resident status if you match any of the CRA's above conditions.

You are required to submit a Canadian income tax return if you are a foreign resident who earns money from a Canadian source (such as a Canadian company, Canadian investments, or Canadian real estate).

No Exceptions, Regardless of Age or Profession.

You have to submit a tax return whether you're nine years old or ninety years old. The CRA anticipates receiving a tax return from you if you satisfy any of the aforementioned conditions.

Even students need to fill out tax forms. Even if they are still in school, your 17-year-old kid is required to file an income tax return if they earned more than $3,500 (after expenditures) operating a small company last summer. When a youngster first begins to work and earn money, they are required to submit a tax return.

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You filed your taxes and received your refunds, do you keep your tax filing information or shred them? It may be a good idea to keep them handy for some time as the Canada Revenue Agency can perform an audit any time and you may wish to have those files handy as proofs. You might ask how long do you need to keep them for? Well this article will answer just that question.

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How Long To Keep Tax Records In Canada?

You'll need to hang on to your Canadian tax documents for a minimum of six years. Starting with the close of the year after the one for which you filed a Canadian tax return, you must maintain all relevant documents.

Each year, the Canadian tax year runs from January 1 to December 31.

Whether or not you utilized a particular piece of supporting documentation for your Canadian tax return, you are still required to keep it.

PRECISELY WHAT DO CANADIAN TAX RECORDS CONTAIN?

Your Canadian tax files should contain copies of your Canadian tax return(s), assessment notice(s), and reassessment notice(s).

Your Canadian tax return is considered complete when it contains all the supporting documentation you need to prepare it. This may include:

1.     T-slips

2.     Documentation of payments made for things like medical treatment or relocation, as well as for any other costs for which you sought a tax deduction or credit.

WHAT IS THE DEAL WITH KEEPING MY CANADIAN TAX DOCUMENTS FOR SIX YEARS?

The Canada Revenue Agency (CRA) might audit your tax return at any point within the six years after you file it, so you need to keep all your documents related to filing taxes in Canada.

Having your tax records in order will allow you to substantiate any claims you make to the CRA, so it's in your best interest to keep track of everything.

However, your Canadian tax records may need to be kept for a longer or shorter period, depending on the specifics of your situation.

You will get written or oral notification from the CRA if they ask you to preserve your tax records for a longer time than six years.

WHAT SHOULD I DO IF I WANT TO GET RID OF MY CANADIAN TAX RECORDS BEFORE THE SIX-YEAR PERIOD IS UP?

The CRA must provide its approval before you may destroy your tax records earlier than the specified retention term.

You should not dispose of your tax documents without first obtaining clearance from the CRA. You might risk criminal charges if you get rid of your tax records without first getting approval from the CRA.

You may submit a request to dispose of your tax documents in one of the two ways highlighted below:

1.     Send your completed Form T137 to the Tax Services office.

2.    Apply in writing to the Tax Services department.

HOW DO I KEEP TRACK OF MY CANADIAN Tax Records?

Your primary place of residence or company operation in Canada is where you have to keep your tax records.

When relocating, it is important that all of one's personal documents be taken along for the ride. Informing the CRA of a change in address is mandatory.

When it comes to your company's records, you'll need to get authorization before packing up and leaving Canada.

You may accomplish this by submitting a written request for approval to Tax Services. In the event that the CRA grants your request, you will be required to make your tax records accessible for auditing.

If you travel out of Canada and keep your Canadian tax records at a place outside of Canada from where you can access them electronically, such records will not be treated as records retained in Canada.

WHY DO I NEED TO KEEP MY INCOME TAX RECORDS?

You should keep all of your previous tax documents since the CRA may want to examine them.

In this situation, they will write you a letter asking for evidence to back up your claim. The events that follow are straightforward and not frightening at all. The CRA need only compare these records to the data you included in your tax return. Consider it a random audit of your reports to make sure they add up.

For the very slight possibility that the CRA decides to audit you, your prior tax returns will play a vital role. Again, having everything in one convenient location will help things go a lot more quickly and easily.

CAN I GET RID OF MY INCOME TAX RECORDS AFTER SIX YEARS?

After six years, you may safely dispose of your documents if you're sure you won't need them for anything else. You may want to just throw everything in the recycle bin and move on, but you shouldn't. Your files include sensitive information that identity thieves would want to access, such as your Social Security number and details about your place of work.

Shredding is your greatest option for safely discarding old tax documents. Make sure your computer is secured with a password if you want to file electronically and preserve digital copies of your tax data.

Having your privacy exposed is far more upsetting and difficult than having to keep outdated tax documents.

HOW TO MAKE SURE YOUR RECORDS ARE INORDER

It's one thing to maintain records, but quite another to keep those records in order. Data organization and filing are more difficult than simple paper stacking. Well-organized storage space is a valuable asset. Keeping things in order is not just recommended by CRA; it's mandated. Let's talk about how to tackle those mountainous stacks of paperwork.

Don't throw away any of your receipts. It would be best if you thought about grouping them into headings that make sense for your company.

Provide a summary of your expenses. Unfortunately, not all receipts have clear explanations. It would be best if you took the time to briefly describe the circumstances under which each receipt was created since you may forget after a few months.

Documents should be stored both digitally and physically. Keep both electronic and paper copies of any documents you need to prove anything. Having both on hand will ensure that you are always ready for anything and will prevent you from having any serious issues in the future.

Knowing what to retain, why to keep it, how to keep it, and for how long will help you save money when it comes to dealing with the mountain of paperwork that inevitably builds up as a result of doing business and paying taxes in Canada.

When in doubt, retain it. That's a rule of thumb for efficient record keeping. In this case, keeping records for too long is nota problem, but getting rid of them too quickly might have serious consequences. We hope you find this information useful in determining how long to keep your Canadian tax records.

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Did you know you can withdraw money from your Registered Retirement Savings Account tax free? If you are someone who likes to save taxes and would like to learn how to utilize these withdrawal methods, we have some great information for you! Let's dive in!

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How to Withdraw RRSP Without Paying Tax

1. Home Buyers Plan.

To help people get into homes they can't otherwise afford, the government has created the Home Buyers Plan (HBP), which allows people to borrow money against their retirement savings account (RRSP)without paying taxes or interest. Up to $35,000 in down payment assistance is available for first-time homebuyers. To submit an application, you must be a Canadian citizen or permanent resident.

The HBP scheme has a $35,000 yearly maximum. You and your spouse may each take out $35,000, for a total of $70,000, to put toward the down payment on a property.

Before you may withdraw money from your RRSP, you must provide written proof that you will be using the funds to purchase or construct a house. The individual using the residence must be either you or a family member who is disabled.

A minimum of four years must have passed since you or your spouse/common-law partner owned property in order to qualify as a previous homeowner. You can't utilize the HBP until 2018 if, for instance, you purchased a home in 2010 and sold it in 2013.

You'll need to pay back the loan in full before you can apply for a new HBP. Any RRSP withdrawals made must wait 90 days in your account before being used for an HBP.

The loan has a 15-year repayment schedule, beginning in the year after the HBP's completion. The annual payments will be split in half. For example, if you borrow $25,000 and pay it back over the course of 15 years, your yearly payment will be $1,666.67. In this case, if you owe more than $1,666.67 from your HBP from the previous tax year, the CRA will consider the difference to be part of your taxable income for that year.

2. Lifelong Learning Plan.

Consumers may access their RRSP funds tax-free under the Lifelong Learning Plan (LLP). You or your spouse/common-law partner must utilize the money for educational purposes. The common-law spouse must be the parent of your kid or have legal custody of your child and have managed to live with you for at least 12 months. An LLP can't be used to pay for your or your common-law partner's kid's college tuition.

The program must last at least three months and include at least 10 hours of weekly study (not counting homework or travel time). Additional withdrawals may be made at any time within four years after the first withdrawal. Those who begin withdrawing in 2020 will have until 2024to completely deplete their account.

Withdrawals are capped to $20,000 over the course of two years, or $10,000 each year. An LLP may be used by you and your spouse or common-law partner simultaneously without reducing either of your individual contribution limitations.

Withdrawals from an LLP must be reimbursed to the RRSP within ten years and in even-numbered years. In other words, if you pay more than you have to one year, you may have a lower payment the next.

You may enjoy the benefits of the LLP numerous times, but you must refund the cash before you borrow out of your RRSP again. You might take up to ten years to pay back the money. Once you are no longer an eligible student upon your first LLP withdrawal, repayment will begin regardless of when you took out the loan.

Withdrawing RRSP contributions for an LLP requires that they have been in the account for at least 90 days. 

3. Having a poor or nonexistent income.

Withdrawals from a registered retirement savings plan (RRSP) may be subject to a reduced tax rate or even be tax-free if your taxable income for the year is minimal or nonexistent. Although you can't withdraw the whole amount tax-free as you may with HBP or LLP, you will get your money back after submitting your taxes for the RRSP withdrawal tax that was levied at the time of withdrawal.

In 2022, the standard deduction for an individual is $14,398. For the sake of argument, let's say you take $10,000 out of your RRSP in 2022 and have no other means of support. Your banking institution will withhold taxes on your behalf and send them to the Canada Revenue Agency (CRA). If your yearly income was less than $14,398 and you submit your taxes in a timely manner, you will be eligible for a tax refund.

If you earn zero income and your RRSP withdrawals are less than the provincial basic amount, your provincial tax will also be $0. For the 2022 tax year, the basic personal amount in British Columbia is $11,302. You may expect reimbursement of the RRSP withholding tax taken from your withdrawal when you file your taxes. Besides that, you could be entitled to federal and provincial tax credits and deductions that might enhance your tax refund.

It's best to cash out your RRSP during relatively low or no-income years if you intend to minimize your taxable withdrawals.

What early withdrawal means

By participating in either the LLP or HBP programs, you may put your money to work without paying taxes or incurring interest charges. Using your RRSP to pay for things like tuition or adown payment might have some unintended consequences.

When you take a loan from your RRSP, the borrowed funds are removed from your taxable account and cannot accumulate interest. Withdrawing money from a retirement savings plan reduces the compound interest and growth of that money. While you won't have to fork up any interest when you take money out of your RRSP, you also won't be able to earn any on it in the future.

Problems arise if you cannot afford to return the RRSP. Borrowing $10,000 from an RRSP to fund an LLP or HBP would need $1,000per year in payments for ten years. If you owe $1,000 in taxes but can only afford to pay $500 this year, the government will count the remaining $500 as income.

Make sure you can afford the payments before taking out a loan from your RRSP. Try making those payments every month to determine whether they fit into your budget.

You may use money from a savings account, such as a Tax-Free Savings Account, to make up for missed RRSP contributions if you find that you either can't afford them or don't want to intentionally undermine your retirement savings (TFSA). You may access your TFSA funds whenever you choose, tax-free. You have complete access to your funds and may withdraw as much as you want.

TFSAs have a maximum yearly contribution limit of $6,000 for 2022. Withdrawing funds from your TFSA will increase your annual deductible contribution limit for the following year by the amount removed.

Weigh the benefit and drawbacks of enrolling in an HBP or LLP before making a commitment. It's possible that you'll have to renounce retirement benefits, which might delay your retirement date. You'll be taking out another loan at the same time. Be sure to do the math and thoroughly understand the commitment you're making.

How to Withdrawal RRSP Without Paying Tax FAQ

When can you withdraw from an RRSP?

RRSPs are tax-deferred savings accounts that maybe accessed at any time. There are instances when you need to withdraw money because you're just out of the fund. You may withdraw money as long as you pay the required withholding tax.

Can you use your RRSP funds before you turn65?

Yes. You are not obligated to leave your job when you turn 65. At a younger age, you may start withdrawing your retirement money. If you choose, you may remain working and let your RRSP savings grow with interest and dividends. The sole requirement is that your RRSP be settled by December 31 of the year in which you turn 71.

How much tax is there on an RRSP withdrawal?

To be more precise, the amount of money you remove from your RRSP determines the percentage of tax that must be withheld.

The withholding tax is:

• Withdrawals up to $5,000 are subject to a 10% penalty.
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• 20 percent on sums between$5,001 and $15,000
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• Withdrawals above $15,000 incur a 30% penalty.

You may reduce your tax burden by making several withdrawals. For instance, let's say you need $9,000 to replace the roof on your home. You may make two withdrawal requests, each for $5,000. There will be a $1,000 withholding tax deducted from the $10,000, leaving you with $9,000 to spend on the roof.

Withdrawals of up to $5,000 per spouse from a joint RRSP account are permitted. Once again, this reduces your taxable RRSP withdrawals.

However, you should weigh the consequences of withdrawing carefully. If you often remove money from your account, your bank may start charging you a fee. Therefore, to calculate the whole price, the charge and the withholding tax must be added together.

The money taken out of your RRSP counts as income, so be sure to include it when you submit your taxes. The tax that is withheld from your RRSP contribution is refundable. But it's possible that your tax bill may increase. In the above example, if you are in the 20.5 percent tax bracket, a 10 percent withholding tax on a withdrawal of $5,000 is unlikely to be sufficient to meet your tax liability.

How to withdraw RRSP early?

Contact your RRSP provider to find out whether your funds are locked in. Unrestricted RRSP funds may be withdrawn whenever needed. Any time prior to retirement, you may take money out of your RRSP, but doing so will result in a tax penalty. On your tax return, enter the amount you received from an early RRSP withdrawal on line 12900.

Under what circumstances may RRSP funds be withdrawn without a financial penalty?

You may start taking money out of your RRSP whenever you choose, but remember that you will owe taxes on that money. The assets in your RRSP must be withdrawn in a lump sum when you reach 71 (on December 31 of the same year), or converted to a Registered Retirement Income Fund (RRIF), or used to buy an annuity.

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If you are from the US, you most likely have heard of 401K. Is there something equivalent or similar in Canada? Here we will share whether similar programs exist here in Canada.

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What is a 401K in Canada?

There is no 401k in Canada… let me explain.

When it comes to investing for your golden years, the earlier the better, even if all you have is a few hundred dollars. For the sake of increasing long-term earnings, while decreasing long-term losses, a special kind of account would be helpful. Of course, you're well aware of this fact. The 401(k) has become synonymous with retirement savings accounts in the United States. A 401(k)-retirement plan is not available to Canadians, but we do have a comparable framework in many better alternatives. For more information about the Canadian alternative to 401(k), continue reading.

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What is the equivalent of a 401k in Canada?

In Canada, RRSPs, also known as registered retirement savings plans, are the typical method to save for retirement. Employers continue to be the primary managers and providers of these programs, but individuals may also open their own private accounts. Contributions are tax-free up to a set annual maximum, and if you don't spend it all, the remaining money may be carried over to future years. In 2021, you are permitted to contribute a maximum of $27,830 into an RRSP, which is equivalent to 18% of your preceding year's earned income. It's illegal to keep more than that amount of money in any one account or investment vehicle, so diversify your holdings if you wish to save more for your golden years.

Savings accounts aren't the only use for RRSPs, though. It is up to you to decide how your money will be invested after you've put money into your account. For example, many RRSPs provide target investment plans, which means that if you aim to retire in 2035, the mix of stocks, bonds, and Exchange Traded Funds (ETFs) will be aligned with your tolerance for risk before retiring. In the next five years, you don't want to have a portfolio of equities that fluctuate widely in value if you're planning on retiring.

One of the great advantages of RRSPs is that you can set it and forget it in many respects. When an RRSP is offered by your company, you may simply choose to have a percentage of your income deducted each pay period in order to put money into the account you've set up. Once you've got the account set up the way you want, just let it go! Even while it's a good idea to keep an eye on the account to make sure your objectives are still being met, it's possible to keep putting money into it and see it grow, particularly if you're young.

It's also possible to control precisely how that money is invested in terms of the stock, bond, ETF, and other asset allocations. It's entirely up to you based on your prior experience in managing financial assets.

Is it free?

Usually, no. Some financial companies that provide retirement savings plans may charge you for the privilege of opening an account with them. In most cases, you will be able to influence the amount of money you pay by purchasing funds that have minimal administrative expenses.

What is the difference between 401k and RRSP?

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1. 401(k)s are far less portable.

401(k)s are only available to Americans via their employers. For those who don't have access to a 401(k) plan via their place of employment or are self-employed and want to save for retirement, there are many options available.

2. There is no "catch-up" for RRSPs.

Americans over the age of 50 are given an additional $5,000 in 401(k) contributions when they reach the age of 50. Canadians, on the other hand, don't. You're trapped with what you can provide since the constraints stay the same. Although this is a concern, the Canadian Pension Plan and other retirement choices provide some relief.

3. 401(k)s charge hefty fees for early withdrawals.

In addition to paying taxes on their 401(k)withdrawals, Americans must incur a 10 percent fee if they do so before the age of 59. In the event of a financial crisis, 401(k)s are the last source you'd want to draw from. Although there are no early withdrawal charges for RRSPs, but taxes must be paid.

4. It is possible to carry over the contribution limits of an RRSP.

RRSP restrictions may be shifted to future years, which might have a significant effect. Capped at $27,830 in 2021.Consider donating $20,000 this year instead of the usual $250,000. This $7,830 may be rolled over to future years, thus raising your annual salary ceiling to $35,660 in 2022.

5. Are RRSPs in any way insured?

RRSPs, like many other investments, are protected against the failure of the bank holding them. It's crucial to keep in mind that they aren't protected against market fluctuations. What this implies is that even if the stocks you've chosen fall in price, you might still lose money. Your losses will be compensated if you should lose all your money due to the financial company that handles your RRSP closing down.

Do 401(k)s and RRSPs have any similarities?

Both of these accounts are for the purpose of saving for retirement. I'm going to say it anyway, even if it may seem self-evident. Your objective is to create a retirement fund in both scenarios. Once you've deposited the funds, your ultimate objective should be to not touch them again until you begin drawing on them in your golden years.

Both accounts are exempt from federal and state/provincial income taxes. Deductions for 401(k)s and RRSPs are taken prior to paying taxes. To put it another way, if you choose to donate 5% of your paycheck, you'll get that amount out of your gross income, not the portion you'll see on your paystub.

There are annual limits on contributions to 401(k)s and RRSPs. If you want to save additional money for retirement, you'll need to open a new sort of account and make the right investments, most likely without the benefit of tax advantages.

Do Canadians have access to any other sorts of retirement accounts?

That's for sure! Many alternative retirement choices are available to Canadians, especially through their employer. Some examples are: Registered Pension Plan (RPP), Deferred Profit Sharing Plan(DPSP), Defined Contribution Pension Plan (DC), and Defined Benefit Pension Plan (DB).

A TFSA, or Tax-Free Savings Account, is another prominent retirement investment type. To encourage citizens to save more, the Canadian government set up these accounts. These accounts are tax-free when money is taken from them. Many Canadians will benefit from this.

Finally, regular investing accounts are an important tool that Canadians may utilize to save for a variety of goals, from retirement to education and everything else in-between. These, on the other hand, are not tax-favored in any manner. Furthermore, you'll almost certainly owe taxes on any profits you make from investing in these types of vehicles. A well-rounded financial plan should include them, though.

Our southern neighbors have their own unique system of retirement funds, while we have our own. RRSPs, on the other hand, may be established and maintained individually or via an employer. RRSPs let you roll over any unused tax-free money from one year to the next, but TFSAs do not. It's evident that governments want their people to prepare for retirement and offer opportunities for them to do so, but there are a few important variances and similarities. Employers may also utilize 401(k) or RRSP matching to recruit high-quality employees as an additional perk of employment. If you haven't already started contributing to an RRSP if you live in Canada, now is the time to get started.

The advantages of having an RRSP.

The RRSP in general has a number of advantages, and in addition, each distinct form of RRSP carries its own unique set of advantages. The following is a list of several RRSP advantages:

1. You may deduct your contributions to an RRSP. That is, you have the ability to include them as tax deductions on your return.
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2. You won't be paying taxes on funds in your savings account if you don't withdraw any of them.
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3. The Property Buyers' Plan allows you to take out a loan against the RRSP you have already established in order to cover the down payment on your first home (HBP)
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4. The Lifelong Learning Plan allows you to put it toward the cost of higher education for either you or your spouse (LLP). As long as the required payment is made within the allotted timeframe, these withdrawals do not incur any taxes.
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5. Because everyone wants their future to be secure, the GRSP can assist firms in luring some of the most skilled workers in the nation to work for them.
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6. The Group RSP makes it easier for workers to meet their retirement objectives in a timely manner.
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7. The Common-law or Spousal RRSP lowers the aggregate tax burden.

Canadian 401K Conclusion

In Canada, a Registered Retirement Savings Plan (RRSP) is equivalent to a 401(k) plan in the US. Both of these options are retirement plans, each with its own set of similarities and distinctions, despite the fact that the RRSP looks to offer more benefits than the 401(k)(k). You may get additional information by getting in touch with a financial advisor.

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Are you saving for retirement and aren't sure where to begin? Well, it will be helpful if you know what options are available to you and the tax benefits for each. This article will help you learn just that, if you are interest in learning how to save for retirement, just read on.

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RSP Meaning

RSP basically means retirement savings plan. It is a savings plan that everyone is advised to make in preparation for when they retire. There will come that time when you are no longer agile and cannot be active all day to earn income, this is when the monies you have saved and invested over the years will come in and serve you. Financial advisors encourage their clients to start this early so that they can have enough money to take care of them during retirement. RSPs vary depending on the individual and the income strength. There are other factors that come into play when running a RSP account.  First, let us take a look at some of the top RSPs in Canada.

Registered Retirement Savings Plans (RRSPs)

A Registered Retirement Savings Plan(RRSP) is a retirement savings strategy that will help you with retirement planning. RRSPs provide tax advantages while assisting in the growth of your funds in the account. Depending on your salary and the amount you contribute to your RRSP, you can be eligible for a deduction on your income tax return. In addition, as long as the funds remain in the plan, you are not required to pay taxes on the money you earn within your RRSP.

For RRSP contributions that is equivalent to your maximum RRSP deduction, you may deduct them on your income tax return. This is typically 18% of your previous year's earned income which is up to the maximum set by the federal government. Since withdrawals from RRSPs are typically regarded as income, taxes may be due. The amount of government pensions and benefits that are based on your income may be affected by withdrawals from RRSPs.

There are programs that may allow you to use the funds in your RRSP to help you pay for your post-secondary education or the education of your spouse, or to purchase a home. When you take a withdrawal, you can use this money without counting it against your taxable income, but you must put it back into your RRSP within a set time frame.

Tax-Free Savings Accounts (TFSAs)

One RSA that is frequently used to save for retirement is the Tax-Free Savings Account (TFSA). Numerous financial items can be kept in a TFSA, and your assets can increase tax-free. This implies that any income from investments in your TFSA is tax-free. When you withdraw money from a TFSA, no taxes are due either. Your maximum TFSA contribution is the total amount you are permitted to contribute to your TFSA throughout a calendar year. When dealing with an unforeseen expense, such as a health issue or house maintenance, the no tax charge can come in handy. However, you might have to wait until the following year to refund such money.

RSP Meaning FAQ

What is the difference between an RSP and an RRSP?

The major difference between RSP and RRSP is mainly in their description. The Retirement Savings Plan is the umbrella name given to all retirement savings plan in Canada of which the Registered Retirement Savings Plan is a type. In other words, RRSP is a type of RSP. So when you come across the RSP, it could mean any of the retirement plans.

How does an RSP work?

Depending on your preference, income and the advice of your financial advisor, you can pick from the several RSPs. It is important to weigh the pros and cons before deciding on the one to go for. The types of RSP s include RRSP and TFSA.  

What does RSP mean in Canada?

RSP in Canada means Retirement Savings Plan. It is a program that ensures that people save towards their retirement. There are various plans one can subscribe to with each plan having its pros and cons. Most of the RSPs available have one or more tax benefits that subscribers can enjoy.  

Is RSP a pension?

An RSP is different from a pension. A pension plan is an employer-based retirement savings account that the employer opens on behalf of the employee so that employees can contribute to it with pre-tax income. On the other hand, an RRSP is an individual account that is managed by a financial service provider chosen by the employee.

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Have you heard of a DPSP? To many people it is quite confusing the type of retirement planning account you have. This article will help you learn more about DPSP and the difference compared to a RRSP.

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What is a DPSP?

The term "deferred profit-sharing plan" is abbreviated as "DPSP." Employees' DPSP accounts are used to share the company's earnings. You're free to contribute on a regular or irregular basis since you may or may not have a profit each year.

Contributions to DPSP plans may only be made by employers. As a result, they're far from a typical pension plan. Unlike other profit-sharing schemes, workers don't get their share of the profits immediately. If workers aren't compensated fairly, they may find themselves at a higher tax rate than they otherwise would be. The "clawback" from the government then deducts the additional profits.

Employees aren't taxed on their contributions to the DPSP until they take money out of it.

What is an RRSP?

RRSPs, or Registered Retirement Savings Plans, are a kind of retirement savings account that may be set up with the federalgovernment of Canada.

Your funds are "tax-advantaged" if you put them into an RRSP since you don't have to pay taxes on them when you put them in. As long as the funds are kept in the RRSP, any investment income they generate may grow tax-deferred until they are removed.

It is possible to deduct your RRSP contributions from your current year's tax return, so lowering the amount of taxes you must pay.

DPSP vs. RRSP.

DPSPs and RRSPs have a few similarities. To begin with, they aid with the retirement savings of your personnel. Both plans are also deferred tax structures. Until the money is withdrawn, your workers will not be taxed on their contributions, as previously stated.

Since most retirees fall into a lower tax band, DPSPs and RRSPs save your team members money in the long run. As a consequence, your employees are more inclined to leave their money in the account to increase in value on their own.

DPSPs, as previously stated, is entirely paid by the employer. While an IRA may only be financed by the individual contributing to it, an RRSP can be contributed by both the employee and the employer. That means your workers may be the only ones contributing to an RRSP, or you may match their payments.

DPSPs are paid for by the earnings you make. If your company has a profit at the end of the year, you may use the DPSP to distribute that money to the workers.

As a last point of comparison, the contributions to DPSPs are lower than those made to RRSPs. Overcontribution fines may be avoided for both you and your workers if you do this.

How Does a DPSP Work?

A DPSP operates as follows. The business reviews its financial statements for the last year and announces a profit. The frequency with which this occurs is entirely up to you.

They elect to distribute some of the proceeds to their Deferred Profit Sharing Plan payouts. Employers may deduct the money they give away, while workers can avoid paying taxes on it. Contributions must be made within 120 days after the end of the fiscal year.

Investing in mutual funds, stocks, or bonds is an option for workers who receive these monies. With the money, they may also invest in the firm. Taxes are not due until the employee withdraws and claims the income on their taxes.

A spouse or long-term partner is often designated as the employee's beneficiary when they enroll in the DPSP.

How does a DPSP help employer?

Contributions to a pension plan may be made only when the employer wants to make them. In the event of a poor year, companies are not required to contribute to DPSPs. A monthly or occasional donation schedule might be set up by them. DPSP contributions may be made each pay period, or they can be saved and used for bonuses at the end of the year.

There may be a vesting term of up to two years in a DPSP, which can help keep employees from leaving a firm prematurely. The DPSP must be forfeited if an employee quits before the vesting time has expired.

When allocating funds into a DPSP, a corporation may choose which formula to utilize. "Everyone gets an equal part of the earnings," or "workers get a set proportion of their income" are two options available to them.

This is a better alternative to a traditional profit-sharing plan since employer contributions are tax deductible.

DPSP shortcomings for employers.

As an employee-only plan, DPSPs are not available to owners, their families, partners, or anyone else owning more than 10% of the firm. Because of this, top executives may find themselves with less time to spend with their families. A company's ability to attract and retain elite talent may also be affected by this.

Due to the fact that DPSP payments are based on the employer's profitability, they may not be made in a poor year. Employee morale may suffer as a result, and turnover may increase. Every year, the employer should think about how much money it will be able to put into its designated pension savings plan (DPSP).

How does a DPSP help employee?

Employee contributions are the primary source of funding for a DPSP. To get the entire employer contribution, there is no need that the employee contributes any money to a DPSP. As a result, the employee receives money for nothing.

A DPSP has a maximum two-year vesting time. Employees may access their DPSP after only two years of employment with a corporation. This is a brief period of time during which you will be vested. Alternatively, your organization may have a shorter vesting term or immediately vest all workers.

Once you've been vested, you'll have instant access to your money. Taxes will be levied on DPSP funds if they are withdrawn before retirement, at the employee's current tax rate. The employee will be taxed at a rate of 26% on the DPSP withdrawals if the tax rate is 26%. A lower tax rate after you're retired is why experts recommend delaying the usage of your savings until then.

DPSP shortcomings for employees.

Employees may face a drawback if their employer requires them to acquire company shares with their DPSP money. This is feasible. Not all DPSPs are like this, but it is possible. Make sure your RRSP or other retirement funds are well-diversified if you don't have complete control over your DPSP investments.

Employees' DPSPs may be worthless if they acquire company shares and the value plummets. When an employee has little or no influence over the DPSP, the DPSP's value is diminished.

In the absence of sufficient income or profit margins, employers are not obligated to contribute to a DPSP. Workers who entirely depend on their DPSP to fund their retirement face an increased level of uncertainty. It's important to think about what you'll do if your firm can't afford DPSP payments for one year if that's your primary source of investment income.

It's not possible to divide the DPSP money with your spouse since it is an employee-only plan. DPSPs and RRSPs vary greatly in this regard.

Can I transfer my DPSP to my RRSP?

The DPSP may be transferred to an annuity, RRIF, or an RRSP by a departing employee. Workers have the option to withdraw their earnings. As a result, individuals must pay income tax on the amount they receive in the form of a check or cash.

If you have a considerable amount of money in your DPSP, it is always advisable to move it immediately to an RRSP in order to avoid taxes.

To get the funds into your RRSP, speak with your DPSP provider and find out how to do so. Set up an RRSP account if you don't already have one. A significant tax burden may be avoided by performing a straight transfer from your DPSP to your RRSP. There is a limit on how old you may be in order to move your DPSP into your RRSP. A person cannot contribute to an RRSP if they are beyond the age of 71.

If you inherit your spouse or partner's DPSP after his or her death, you may transfer it to your RRSP. Transferring your ex-DPSP spouses to your RRSP is possible if the divorce agreement grants you part or whole ownership of the account.

Can I withdraw from DPSP?

As previously stated, you may be unable to take any withdrawals for up to two years under your plan. Make sure you know the specifics of how to "vest" your money in your company's profit-sharing plan.

It's possible to withdraw money after your funds have been vested. When you withdraw money from a Canadian bank account, you will be charged a withholding tax. As a result, having a TFSA, which may be used for unexpected expenses, is preferable. There is no tax withholding with a TFSA.

Your choices for withdrawing money from your RRSP after you're retired are quite similar. You have the option to withdraw the whole amount, but you will be faced with a large tax bill. Choose between a registered retirement income fund (RRIF) or purchasing annuities for your golden years instead.

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Did you know you can only contribute to RRSP until a certain age? What happens after? This article will help you learn more about the ins and out of RRSP program.

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Age Limit For RRSP

A Registered Retirement Savings Plan (RRSP) is an account you create in which you, your spouse, or your common-law partner make contributions. The federal government permits you to contribute to your RRSP up to an annual limit based on your contribution room until the year you clock 71 years of age, regardless of whether you are receiving an income in your retirement years. You have until December 31 of the year you turn 71 to deal with your RRSP. The sum in the plan will become taxable if nothing is done. Most people move the remaining funds into an annuity or a Registered Retirement Income Fund (RRIF).

If you decide to convert your RRSP into an RRIF, you will need to determine how much income you will require in retirement and create a withdrawal strategy. You must make minimal withdrawals, so bear that in mind (which can also be based on the age of a younger spouse).  Withdrawals from RRIFs must start the year after the RRIF is created. The earlier you convert, the greater the risk of running out of money. RRIFs are available as early as age 55, but you cannot convert them back to an RRSP.

You should assess the long-term tax consequences of your withdrawal against your (and your spouse's) other retirement income sources when earning money in your retirement years and considering additional RRSP contributions. Alongside your regular sources of income, you should also consider pension incomes like the Canadian Pension Plan(CPP), which kicks in between the ages of 60 and 70, and Old Age Security (OAS) (which begins between 65 and 70 years old). You run the danger of being classified into a higher tax bracket and paying more tax with your extra RRSP withdrawals because CCP and OAS are combined as net income on tax returns. Asan alternative, you may put that money toward a TFSA, where future withdrawals are tax-free, instead of an RRSP.

Any Canadian is eligible to make a contribution to their RRSP each year. The amount to be contributed is the lesser amount of these two:

• 18%of your earnings from the previous year; or
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• The highest amount allowed by the CRA for the relevant year.

Any unused contribution sum is not lost but transferred to subsequent years, so you do not lose the opportunity of maximizing your contribution limit. Bear in mind that any contributions from a group or employer pension plan must be deducted from the amount you can contribute to an individual RRSP account. Canadians are informed of their annual contribution room by the CRA on their notice of assessment. Contributions must be made during that year's taxation or during the first 60days of the following year in order to qualify for a tax deduction for taxes paid the prior year.

Making an RRSP withdrawal before retirement has tax implications. The following taxes must be paid if you withdraw funds from your RRSP before it’s time for you to retire:

Withholding tax

10–30% of the withdrawal you make will be withheld by the financial institution where you have your RRSP and paid to the government. Where you live and how much you take out will affect how much is withheld.

Income tax

The CRA considers money taken out of an RRSP to be taxable income. You might be charged more when you file your return depending on the tax bracket you're in (in addition to the withholding tax paid when the withdrawal occurred).  

There are two circumstances in which you can take money out of your RRSP without paying taxes.

1. Home Buyer's Plan

You are allowed to withdraw $25,000 from your RRSP to put as down payment on your first home. Your spouse is likewise permitted to take this amount out of their RRSP for this purpose if you have one. However, you have 15 years to put the borrowed money back into your RRSP.

2.Lifelong Learning Plan

You are also permitted to take out a lifetime loan of up to $20,000 for the purpose of continuing your education and retraining. $10,000 is the maximum withdrawal amount per year, and any borrowed funds must be returned to the RRSP within 10 years.

Age Limit for RRSP FAQ

What is the maximum age to contribute to RRSP?

The maximum age that one can contribute is 71 years of age and the last day of contribution is on December 31stof the year you turn 71 years old.

What happens to your RRSP when you turn70?

The deadline for RRSP maturity is December 31st of the year you turn 71. When the investment reaches maturity, the money must be withdrawn, moved to an RRIF, or used to buy an annuity. After this date, you won't be able to contribute to your individual RRSP anymore and you may forfeit any remaining RRSP deduction.

Can you have an RRSP after age 71?

As long as you have earned the money, you can be 71 years old or older and still create additional RRSP contribution room.

Can you buy RRSP after age 65?

Although there is a maximum age limit for RRSP eligibility, there is no minimum age requirement. If a child has earned income and has created RRSP contribution room, they can open an RRSP account with the permission of their parents or legal guardians.

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Do you have RRSP through your employer? If so, you might qualify for RRSP matching to boost your retirement savings. If you qualify and do not partake in it, then you are missing out big time! If you never heard of RRSP matching, read on to learn more and see how you can take advantage of it.

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What is RRSP matching?

One of the features of several group retirement savings programs is RRSP matching. According to a matching program, employers match employee contributions dollar-for-dollar up to some predetermined sum, or up to a certain percentage of the employee's income.

RRSP matching may be based on an employee's productivity or output in certain cases.

Employers have the last say on whether or not to match employee contributions and by how much.

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What is an RRSP matching program?

An RRSP matching program is an employer-funded incentive for workers to save for retirement, much like other employer-sponsored retirement savings plans. Payroll deductions made by employees are matched in whole or in part by their employers when such contributions are made to their RRSPs.

The conditions of the matching program may be tailored by employers in a variety of ways, including the minimum length of employment, the maximum employee contribution, and the percentage of contributions that will be matched. These regulations may aid in cost management and guarantee that the proper incentives are in place. For instance, to add a valuable benefit that corresponds with the first annual performance evaluation, you may limit participation to staff members with at least one year of service. To guarantee that their participation is worthwhile, you may mandate that workers save a certain proportion of their wages in order to get matching funds. In order to keep costs under control, you might limit matching to a certain cash amount or percentage of the employee's compensation.

How do RRSP matching programs work?

To begin, you must first choose to participate in the matching RRSP program offered by your employer.

As soon as you've signed up for the group RRSP, you'll be able to make monthly contributions to it through payroll deductions — either a set cash amount or a percentage of your pay cheque — which your company will then match.

Investment options offered by the retirement savings programs provider or investment management company will normally enable you to choose how to invest your contributions.

For instance, if you make $100,000 a year and contribute $5,000 to your employer's group RRSP, you will have contributed 5%of your income. If your company contributes up to 4% of your income, they'll match your contributions up to $4,000 in total. They'll match the whole amount of your contribution if it's less than 4% of your total annual income, such as $1,000 in this case.

In other words, you won't be getting any extra credit. The "matches" from your company will not be available if you do not participate in the group RRSP or if you do not contribute to the plan in a given year.

It's possible to transfer or withdraw contributions made by workers and employers into a group RRSP if you're no longer employed by the same firm.

The employer's contributions could be subject toa vesting time before you can take them, however, if the plan is structured up such that the employer part goes into a deferred profit-sharing plan rather than the group RRSP.

The group RRSP may also have limits on withdrawals while you're employed by a company.

Benefits of RSP Matching

1. Employer-sponsored RRSP matching is a simple method to boost your retirement contributions.
2. RRSP matching may be a significant component of an employee's remuneration package and serves as an incentive for them to contribute to the corporate retirement plan.
3. Other investments are probably unable to equal the return offered by the assured RRSP match.
4. Joining a team of RRSPs are quite straightforward; workers may benefit from RRSP matching plans at any time after being hired (or when they first become eligible).
5. You may often opt in later if you're uncertain about initially participating in the RRSP matching program.
6. Your retirement savings programs contribution account statements will include both your personal contributions as well as contributions made by the employer at the end of each year. Taxes may be reduced as a consequence of this action.

Downsides of RSP Matching.

Although there aren't many drawbacks to using RRSP matching in a group plan, certain workers may need to carefully examine a few characteristics based on their circumstances.

1. Your yearly maximum contribution limit does take employer contributions into the account.
2. Employer contributions have tax effects since they are regarded as taxable income and are shown on your T4 slip each year during tax season.
   
3. The investment choices available to group RRSP participants will generally be fewer than those available in an individual RRSP.

Do most companies match RRSP?

Not all employers match RRSP contributions. When you are hired, your employer is required to tell you when you are eligible to join the group health insurance plan of the firm (for some workers, this could be on day one, for others, it might not be until after a few months).Additionally, the employer must be transparent about whether and how much they will contribute to the group RRSP in matching funds.

It is essential to get in touch with your HR department or the plan administrator if you have particular queries regarding the operation of your company's group RRSP and if they provide matching.

Major financial institutions or registered insurance organizations often manage group RRSPs.

Group RRSPs vs. RRSP matching

RRSP matching may be thought of as an addition to certain group RRSPs.

Employer matching or contributions are not often available in group RRSPs, but when they are, they are always made inside the company's group RRSP.

Contributions to RRSPs kept outside of the group plan by you personally will not be matched by your employer.

RRSP matching: What is the benefit for employers?

Employers have several benefits from matching their workers' RRSP contributions. As well as making their employees more financially secure, an RRSP matching program may contribute to the long-term success of their company.

Attracting new talent

Given the labor shortages and the rising number of workers searching for better employment opportunities, it is essential to give competitive remuneration packages that go beyond fashionable perks and flexible work schedules. If you can spend an additional 3 to 5 percent of their pay to planning for their retirement, that might offer you an advantage over other businesses.

Retaining existing workers

Many people are looking for new jobs right now due to the competitive nature of the employment market. Give them still another incentive to stay with you by offering the potential of a more stable financial future, in addition to a tax-free pay raise and lower investment costs than those offered by individual RRSPs.

Competing with employers from the public sector or large corporations

Companies who cannot afford to provide extensive(and expensive) stock options and pension plans might adopt an employer RRSP matching scheme that offers many of the same advantages. You may persuade workers to choose your company if a competitive savings plan makes the difference between the two positions.

Encouraging your staff to save

By matching employee RRSP contributions, you're encouraging staff to make investments in their own futures. It is in everyone's best interest that more Canadians plan for retirement.

Increasing productivity and efficiency

Employees are better able to concentrate on their work when they feel more financially secure, especially when they are aware that their employer is contributing to their retirement savings.

Improving business finances by obtaining tax deductions. Contributions may be specified by employers, and tax deductions can be obtained via such contributions.

Does RRSP matching have to be reported as taxable income?

Yes. Contributions paid to your RRSP by your employer are treated as income for tax purposes and will appear on your T4form each year. Nonetheless, you'll receive an RRSP contribution receipt for both your own and your employer's contributions, so the extra income may be offset.

Are RRSP contributions matched by the government?

You won't get governmental matching contributions to your RRSP personal or group accounts, unlike the other registered savings programs (like RESP), where contributions are matched up to a certain level.

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Should you make an employer-matched RRSP contribution?

It is often up to each employee to decide whether to take part in their company's group RRSP and any employer matching programs (unless your employer's group plan is required by law). Despite this, many Canadians believe that RRSP employer matching schemes provide "free" retirement funds that should be used.

Your choice may also be influenced by whether you have RRSP contribution space, which is accumulated over the course of a year, in a particular year. For instance, you may not have sufficient contribution room if you've just recently begun working.

RRSP matching: an effective method to win over the heart of an employee.

Employees prioritize having a caring environment at work. They want their employers to be aware of their aspirations and to actively contribute to improving their quality of life.

An RRSP matching scheme is one method to do this. You may convince potential workers that you're the company they should pick and stay with over the long run by providing them with a method to boost their overall income and get assistance saving for significant life milestones like retirement and house ownership.

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Do you have RRSP or RPP? Perhaps you are confused by these 2 terms and how they come about. This article is to help you uncover the differences and ensure you are aware of the pros and cons for both accounts.

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RPP vs RRSP

RPP and RRSP are both retirement planning tools that you can use to save for your retirement days. However, they have distinct features that differentiates them and depending on your income and other financial situation, you can go for any of the two as your retirement plan. Let us take a look at the differences between these two plans for a batter understanding

Difference Between RPP and RRSP

1. An RRSP is a retirement savings account that is opened and controlled by individuals while an RPP is opened and controlled mostly by your employer. The employer decides the financial institution and investments to be made with the account.
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2. With the RRSP you are required to stop making contributions when you clock 71. At that age, you are expected to do one of 2 things; terminate the account and pay all the outstanding taxes or convert it to a Registered Retirement Investment Fund. The latter is an additional tax-deferred retirement savings vehicle that only permits a portion of income to be deferred. An RPP plan includes instructions on the proper retirement age and the time frame for disbursements.
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3. There is the opportunity for your employer to add their contributions to your RPP and even math your contribution amount. This is not present in RRSP as it is and individual-based account that only you or your spouse or common law partner can make contributions.
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4. To qualify for an RPP, you must be working for an employer and must be earning income after minimum requirement of work hours have been met. This is not required with the RRSP account.
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5. The funds in an RPP account is locked in and cannot be accessed by you until you retire. This is mainly because the account was opened by your employer. You can however access your funds anytime you want with an RRSP account.

What is a Registered Pension Plan (RPP)?

An RPP is an employer-based retirement savings plan. As such, the employer creates the plan with a financial institution so that employees can make pre-tax contributions to it. The institution that manage the retirement plan and the investment opportunities that the fund can be sued for are both under the purview of the employer to make decisions on. To help their employees' savings grow even faster, many employers match their employees' contributions to the retirement plan. After retiring, the employee receives regular payments from the plan and is required to pay tax on the money when that time comes.

RPP is classified into two different types namely; Defined benefit and money purchase RPPs. With no annual investment cap, defined benefit plans specify the precise pension that the retiree would receive and adjust contributions to meet. Employers and workers may make contributions to money purchase RPPs, which are subject to contribution caps, without designating a pension amount.

Pros of RPP

1. Your contributions in your account can be matched by your employer – Your employer has the liberty to make the same contribution amount as you into the RPP.
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2. Your employer will take pre-tax deductions for your contributions from your paycheck– Your contributions into the RPP are not taxed because it has already been deducted directly from your paycheck. Hence, the tag pre-tax contribution.
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3. For as long as they are in the account, the money grows tax-free – Earnings in your RPP are not considered income so they are not taxed. Taxation only comes at the point of withdrawal.
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4. Some RPPs provide a retirement pension guarantee of a specific amount – The defined benefit type of RPP states the specific amount to expect at the end of your retirement.

Cons of RPP

1. You are not in the position to determine the financial institution or plan that is used – With this retirement plan, your employer makes most of the decisions which include the financial institution to open the account with.
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2. To be eligible, you must work a minimum amount of hours each week as a full-time employee – Because the RPP is an employer based plan, it can only be subscribed to by people who have a job and also work the minimum requirement of workhours.
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3. Some RPPs have a contribution cap based on a percentage of income – The money purchase type of RPP has a contribution limit which is either 18% of your income on the CRA annual limit. The lesser one is used and the contribution cap for this retirement plan.
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4. Until you retire, your money will probably be "frozen in" the fund – The contributions in an RPP is locked and inaccessible to you until you retire. This is part of the control exercised over the account by your employer.

What is an RRSP?

RRSPs are individual retirement savings plans that has nothing to do with your employer. You create the strategy on your own with a Canada Revenue Agency (CRA) approved financial institution. In this type of retirement plan, you and your spouse or common-law partner may make contributions up until you both turn the age of 71, after which time withdrawals must be made by converting the plan to a different kind of retirement savings account.

Similar to the RPP, contributions can be made pre-tax which means that when you deposit money into the account, you do not have to worry about paying taxes on it. You do, however, have to pay tax on withdrawals that you make, much like the RPP. Your spouse can also make contributions into your RRSP account and vice versa.

Pros of RRSP

1. You are free to make the choice on which financial institution you want to save money with – Unlike the RPP, you are in charge of major decisions concerning the account including the financial institution you want to open with and the type of investment you want your money put in.
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2. You are not subject to any penalties while making taxable withdrawals – Unlike the RPP where you will be penalized for making early withdrawal, you can make your withdrawal anytime from your RRSP account. However, the withdrawal will be subject to tax.  
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3. You can also make contributions to your spouse's RRSP and vice versa – You are allowed to make contributions to your spouses RRSP and you enjoy tax deductions for every contribution you make.
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4. Contributions that exceed the cap may be carried over to the following year – Where you makeover the cap contribution in a year, it will rollover into the next year’s contribution tax deferred.

Cons of RRSP

1. The employer match is absent in this plan – There is no employer’s contribution in this type of plan. It is an individual-based plan that only you and maybe your spouse makes contributions.
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2. The maximum contribution is capped at a certain proportion of income - There is always a limit to the contributions you can make to this retirement account. In 2021, the limit was 18% of earned income reported in your tax filings for the previous year.
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3. If you also make contributions to an RPP, your contribution cap can be lowered – Having both RPP and RRSP will reduce your contribution limit for your RRSP account. It affects your RRSP because that is the account you control. The CRA will reduce your contribution to your RRSP by what is called a pension adjustment amount which represents the value of the pension benefits you earned in the previous year.
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4. You can only make contributions up until you turn 71 years old – The age limit for RRSP contribution is the December 31st of the year you clock 71 years of age. When this happens, you are expected to withdraw the funds in the account and transfer it into a RRIF or use it to purchase an annuity. Further contributions will be restricted after this date.

RPP vs RRSP FAQ

What is better RRSP or RPP?

This depends on the circumstances of each individual. For those whose employers ware willing to open an RPP account, they may decide to go with that plan. An individual that has an unwilling employer may decide to go with the RRSP. However, the RRSP is slightly better because you get to make all the decision regarding the retirement savings account as against RPP where the employer decides most of it.

Can you withdraw money from an RPP?

Contributions made under the RPP are locked in and not accessible until you retire. You will also be taxed on your withdrawals at that point. It is part of the characteristics of the RPP where the employer holds power for majority of the decisions concerning the account.

Can you move RPP into RRSP?

The RRSP has some transfer restrictions from other retirement savings plan. One of those restrictions apply to RPP. You are not allowed to transfer or convert your funds from your RPP into RSSP. The major reason for this is because RPPs are always locked and inaccessible until you retire. Other restrictions to RRSP include Specified Pension Plan (SPP),Registered Retirement Income Fund (RRIF), and Deferred Profit-Sharing Plan(DPSP).

Is RPP tax deductible in Canada?

Withdrawals made on a RPP after retirement are taxable.

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RRSP and RSP, what's the difference? Have you heard of them? What are the benefits of these accounts? If you want to learn how these accounts can help you retire sooner, please read on.

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What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a retirement savings and investment vehicle that is registered with the Canada Revenue Agency (CRA) and offers Canadians advantages to save for retirement. You pay less income tax since the funds you contribute to an RRSP aren't included in your taxable income. If you invest the money in your RRSP, any income you generate is typically tax-free but when you make withdrawals from the account, you typically have to pay taxes.

RRSPs encourage long-term savings and it is flexible enough to allow for emergency withdrawals. You can withdraw money from your RRSP tax-free under the Property Buyers' Plan (HBP) in order to purchase a home. You can also withdraw money from your RRSP through the Lifelong Learning Plan (LLP) if you or your partner is enrolled in full-time training or education.

You can open your RRSP account with a financial institution such as a bank, trust or insurance company, or credit union. Your financial institution is obligated to advise you on the types of RRSP and the investment portfolio you can spend you plan on.

You may decide to create a spousal or common-law partner RRSP. This kind of strategy can aid in ensuring that your retirement income is distributed more fairly among the two of you. The advantage of this is greatest if an RRSP is funded for a lower-income spouse or common-law partner by a higher-income spouse or common-law partner. While the annuitant, who will likely be in a lower tax rate in retirement, receives the income and declares it on their income tax and benefits return, the contributor benefits immediately from the tax deduction for the contributions.

As long as your money is still in your RRSP, most of the income you earn from investments is typically tax-free. When you withdraw money from the plan, or receive payments from it, you will have to pay taxes. Generally speaking, you won't be able to withdraw money from locked-in RRSPs if you own one. Contact your RRSP issuer if you are unsure whether your RRSPs are locked in. You can take money out of your RRSPs whenever you want if they are not locked in.

The eligibility requirement for RRSP is straightforward. You must be a Canadian resident with a record of tax filing in Canada. You must be under 71 years of age with steady income. Fulfill all these criteria and you are eligible to open an RRSP account.

What is an RSP

A Retirement Savings Plan (RSP) is a type of retirement savings account designed to provide you with income in retirement. The Registered Retirement Savings Plan, sometimes known as the RRSP, is the most well-known of these accounts. The other type of RSP is the Tax-Free Savings Account (TFSA). Retirement planning also includes the possibility of converting your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF). Your workplace may provide a Registered Pension Plan, and you may want to consider including it in your retirement planning. The term Retirement Savings Plan (RSP) can therefore apply to a variety of accounts connected to retirement preparation.

Other Types of RSPs

Tax Free Savings Account (TFSA)

TFSA is a retirement savings option that was introduced to Canadians in 2009. Unlike RRSPs (barring its 2 exceptions and the option of shouldering tax consequences), you’re not limited to retirement with this account. Since contributions made to your TFSA are made using after-tax money, they cannot be deducted from your taxable income. However, any income made within a TFSA is tax-sheltered (you don't have to pay taxes on any income you make), and withdrawals are not subject to income tax reporting. You pay taxes now in order to avoid having to pay them later, which is exactly the opposite of RRSP.

The CRA sets annual contribution caps, which you can carry over if you don't utilize them all. Your annual withdrawal cap will be increased by any withdrawals you make. The CRA's contribution cap for 2022 is $6,000 per person. You'll be charged an overcontribution fee, much like the RRSP, so it's a good idea to be aware of your limit and make sure you keep within it. You can find out how much room you have to contribute this year in your CRA online account.

Registered Pension Plan (RPP)

If your employer makes retirement contributions on your behalf, they are probably made through an RPP. These can be fully or partially funded by your employer and are also known as employer-sponsored or corporate pensions.

It is crucial to keep in mind that any payments you make to an RPP will count against your allotted RRSP contribution amounts. This is known as Pension adjustments. Your employer or the province you live in may have an impact on key aspects of your RPP, such as when you can start seeing withdrawals or what happens if you quit your work early. For the most up-to-date information on this, it might be preferable to speak with your contact at work.

What Is The Difference Between RRSP And RSP

The abbreviations RSP and RRSP are frequently used interchangeably. Both terms are typically used to describe RRSP accounts. Just keep in mind that while an RSP might be either an RRSP or another sort of RSP. It is comparable to how not all fruits are apples, despite apples being a sort of fruit.

While both accounts can be used to save for retirement, the main distinction between a Registered Savings Plan (RSP)and a Registered Retirement Savings Plan (RRSP) is that an RRSP allows accountholders to contribute up to 18 percent of earned income from the previous year ($29,210 maximum for 2022) in a tax-free account that can be shared by a spouse or common law partner.

Your workplace may provide a Registered Pension Plan, and you may want to consider including it in your retirement planning. The term Retirement Savings Plan (RSP) can therefore apply to a variety of accounts connected to retirement saving.

Difference Between RRSP and RSP FAQ

Which is better RRSP or RSP?

The answer to this is subjective because both have their benefits and depending on your situation, one may prove more beneficial than the other.

For Canadians wishing to save money for the future, an RSP can be a useful retirement account to achieve this. With an RSP, you are still eligible to contribute up to $2700 yearly if you are over 70and have one that hasn't been cashed out yet.

RRSP is a good way way to save money and defer taxes. This is because you can deduct your contributions from your income, which lowers the taxes you have to pay on your profits. Also, all investment gains will be taxed at a reduced rate when you withdraw them in retirement if you invest inside an RRSP.

Can I transfer RRSP to RSP?

An RSP is a more inclusive retirement savings plan that includes other types of retirement savings accounts like Registered Retirement Income Fund (RRIF), Specified Pension Plan (SPP), and Registered Pension Plan (RPP).  RRSP is also a retirement account included in an RSP. Therefore, you can transfer RRSP to other types of accounts under RSP.

Is RSP tax-deductible?

An RSP is a tax-advantaged retirement savings account that helps you save money for retirement.  Your income determines your RSP contribution cap. You will not be taxed on the money you deposit into your RSP until you withdraw it since your contributions are tax deductible. RSPs are created with long-term savings plan in mind. RSP withdrawals are subject to tax and the rules of the investment you choose, even though you are free to take any amount of money out at any time.

Can I withdraw money from RSP?

Depending on the type of RSP account you have, you can make withdrawals from the RSP account you have as long as it is not locked in.  

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If you have missed payments on your debt, chances are you might have come across debt collectors calling you to ask about your payment plans. Have you ever wondered how long they can go after you? What are some measures they can use to try to collect the debt you owed? Do they just go away after a certain period of time? This article will help answer some of these questions and will help you prepare better in case you ever fall into this situation.

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How Long Can Debt Collectors Try To Collect In Canada

Debt collection calls can be embarrassing and frustrating especially if it is recurring. Unfortunately, there is no limitation on the duration for your creditor to keep asking for their money. They have the right to keep calling you until you pay up.

How Long Can Debt Collectors Try To Collect?

The simple answer to this question is forever. A creditor has the right to the repayment of his/her money and can keep on requesting for the repayment for as long as possible until it is paid. As long as nothing illegal is done or no rule is broken, a creditor can keep asking for his/her money indefinitely, till it is paid.

However, there are periods when you may not hear from the creditors again. This does not mean you are out of the woods yet. Sometimes, creditors, which may include individuals and financial institutions, may sometimes transfer the responsibility of debt collection to an institution/debt collection agency. These third parties will continue to attempt to recover the unpaid debt from you and you should expect to receive debt collection calls. Some debt collection agencies may even further transfer to other debt collection agencies and the process starts up again.

While there is no time limitation on the duration of which debt collectors can try to collect the debt, there is a limitation on the duration if they want to take you to court to collect their debt.

What Are The Limits To Debt Collectors In Canada?

Debt collectors are third parties that are employed by the original creditor to help with the collection of debts from the debtor. Creditors usually place the account of a debtor with a debt collector agency for a specific period, usually between 6 months to 12 months. If after awhile, the debt collector was not successful in the collection of the debt, creditors may recall the account and place it with another agency.

The general rule is that provinces and the federal government do not have legislations that regulate the activities of a creditor or their debt collectors. This means that the law does not protect you against your creditors who are trying to collect their own debts. It also does not apply to debt collectors directly hired by the creditor. This means that if you are receiving embarrassing phone calls from the creditor or the debt collector hired by him/her, there is nothing you can do about that.  

However, the Federal Government has enacted some laws to protect debtors that owe money to federally regulated financial institutions. In other words, if you are receiving debt collection calls from banks or credit card companies, regardless of who employed the debt collector, you can approach a federal regulator to file a complaint.

It is also illegal to be receiving debt collection calls from two separate debt collectors simultaneously. This means that it is illegal for a creditor to place an account for collection with different collection agencies. This occurs if the creditor does not cancel the account of the debt or with the first debt collector. It is also illegal for a debt collector to try and collect debt for an account it will not be compensated for. All these occur on rare occasions but it is important to know what the limitations of debt collectors are.

What Happens When Limitation Period Passes?

If you have been owing for a while and you keep wondering when the creditor will stop requesting their money, you may be in for a long wait. As discussed earlier, creditors can request their money indefinitely. There is no statute of limitations on how long creditors can try to collect their money. What there is a limit to is the duration of time in which the creditor can sue you. This duration depends on the province you live in Canada and they are contained below:

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• New Brunswick - 6 years
• Ontario - 2 to 6 years
• Prince Edward Island - 6 years
• Quebec - 3 years
• Saskatchewan - 2 years
• Yukon- 6 years
• Newfoundland and Labrador - 2 years
• Nova Scotia - 2 years
• Northwest Territories - 6 years
• Alberta - 2 to 10 years
• British Columbia - 2 years
• Manitoba- 6 years
• All of Canada (federal regulation) - 6 years

It is not uncommon to have some debt collectors that continue to harass debtors with legal action well after the limitation period has passed. If you find yourself in such a situation, you can do any of the following:

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• ‍Inform the Agency – It may be a lapse of judgement on the part of the debt collector. Therefore, you can inform the agency and let them know that the statute of limitation has passed for your debt. You can do this via e-mail and keep a record of the correspondence. If you can do this, this will deter the agency from continuously harassing you, especially if it is intentional.
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• Report the Agency - If the harassment from the agency persists even after informing them of the statute of limitation, you can proceed to report them. You can file a complaint with your province’s Consumer Affairs Office.

All in all, while creditors and debt collectors have the right to continue requesting repayment of the debt, they do not take legal action against you after the expiration of the statute of limitation, depending on the province you live in.

How To Deal With Debt Collection Agencies?

Debt collectors trying to collect their debt are only doing their job as requested by your creditor and the creditor is also on his/her right for asking for repayment. How do you then deal with their persistent phone calls? These phone calls are usually intense but it does not have to be filled with hate and recriminations. Here are a few tips you can adopt when next the debt collector reaches out to you:

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1. ‍Keep Calm – This is the first rule. Debt collection discussion can be quite intense because both sides are trying to make their points. These calls may be used against you if you act violently and it is to your disadvantage. Therefore, it is important to always be calm when speaking to the debt collector. Keep your temper and emotions in check.
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2. Reschedule for A Discussion –When the call comes in, if you are not in a good mood, ensure that you do not rush through the call. If it is not convenient, you can request to discuss another time when you can keep your cool.
   
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3. Record The Call – Most debt collectors record their calls with you, especially if you react violently. The call can be used against you if the matter goes to court. It is in your best interest to also record the conversation. You should pay particular attention to the following information:
   
   a. The original creditor
   b. Date and time of the call
   c. Caller’s full name and contact number
   d. Name and address of collection agency
   e. The amount they say you owe
   f. Frequency of calls (including the number of days between calls)
   
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4. Do Not Admit Liability –This is important, especially during the first few stages of debt collection. You need to confirm the said original creditor and if the debt is indeed yours. Request proof and make sure you do not admit to owing these debts until you seethe proof. Always have it at the back of your mind that these calls are recorded and it may be difficult if you have already admitted to owing.
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5. ‍Do Not Share All Your Personal Details – Make sure you do not share important information with the debt collector. Information like income, investments, assets and employment are what you do not want to reveal to the debt collector willingly. This can be used against you to prove that you are capable of paying the debt you owe. They may have some of your personal details from your credit report, avoid confirming the details. Request a copy of the report before you confirm. ‍

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Also, always be on the lookout for calls after the limitation period. If the debt collector threatens you after this period, you may consider reporting the agency to the appropriate authority. Dealing with debt collectors requires smart maneuvers.

Exceptions To Debt Collection Limitations

The statute of limitation on debt collection as discussed above is dependent on the province you live in. However, there are some exceptions that this statute of limitation does not apply. In other words, if you owe the following debts, the creditors can bring legal action to retrieve the debt anytime.

1. Child support or spousal support;
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2. Debts arising from fraud;
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3. There is an ongoing lawsuit initiated by the creditor regarding an unsecured debt against the debtor before the expiration of the relevant limitation period;
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4. Court fines;
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5. Student loans;
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6. Secured debt (i.e., mortgages and car loans);
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7. Unsecured debt where the creditor has obtained a judgment against the consumer;
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8. Monies owed to the government.

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When you have multiple debts, such as mortgages, lines of credit, car loans, student loans, credit card debts etc., it may come to a point where it is difficult for you to track every single one of them, let alone coming up with a strategy to pay them off on time. What you can do is consolidating your debt, meaning putting all your debts together to one source to help you manage them better. You might be wondering how to do that, this article will answer many of your questions on debt consolidation.

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How To Consolidate My Debts

Consolidation of debts can be used by people who have more than one creditor. Consolidating your debts simply means merging them into one and paying them off as one debt. This will help you simplify your finances by having just one monthly payment instead of having multiple payments. To achieve this, you will need to approach your creditors and discuss a debt consolidation option.

Ways To Consolidate Your Debt

If you have a high debt profile, it will be good for you to consolidate your debt into one to make it easier and faster to pay off. It doesn’t matter if the debts are different or not from the same creditor, there are ways to go about consolidating them. If you have a stack of credit card debts with high-interest rates, school loans, car loans, and high-interest loans, all of these can be consolidated into one debt with are negotiated interest rate. You can manage your debts, pay less in interest and minimize your monthly payment while you ultimately eliminate all your debts. Below are some of the ways you can consolidate your debts.  

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1. ‍Get A Debt Consolidation Loan –Some banks, credit unions and other financial institutions offer debt consolidation loan options. You can check with your bank to know if this is possible. When you approach any of these institutions, the consolidation loan they grant you may be a secured or unsecured loan.
   
   For an unsecured loan, most banks and credit unions are only willing to lend you around 10% of your net worth which is your total assets minus your total debts. So for example, if you request a consolidation loan of $10,000 but you have a net worth of $10,000,your creditor may only be willing to offer you a consolidation loan of $1,000,which is only 10% of your net worth. Depending on the circumstances of the economy, some creditors may be willing to give you more but it is usually on rare occasions.
   
   For secured loans, what will determine how much consolidation loan you get is the value of your collateral. This means that the creditor may lend you the maximum money to the tune of the value of your asset. So if you have a brand new car without a loan on it or you just bought a house without a mortgage on it, then the creditor may lend you up to the tune of the value of the asset as a debt consolidation loan. You can always combine assets and use as security for the loan.
   
   One important thing to note about a debt consolidation loan is that you should have a monthly spending budget so as to avoid getting into further debt while trying to settle an existing debt.
   
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2. Credit Card Balance Transfer – Credit card accounts are known to offer attractive promotions that you can maximize to consolidate your debt. This is usually suitable for credit card debts. You can pay off your credit card debts with a new credit card. This also amounts to consolidating your credit card debts. The catch with this is that if you are able to do a credit card balance transfer into your new credit card, if you are lucky, with a low-interest rate, this new interest rate will not apply to any new purchases you make off the credit card. Also, this low-interest rate is usually for a promotional period. Therefore, if you are not able to complete your debt payment before the end of the promotion, you may be stuck with the normal credit card interest rate. If you are sure that you will be able to make the total repayment on time before the end of the promotional offer for a low-interest rate, a credit card balance transfer is a good way to consolidate your debt.
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3. ‍Home Equity Line Of Credit – First, to define home equity, it is when you subtract what you owe on your house from its total value. The common misconception is that home equity is the amount of money you have paid off from the value of the property. Your home equity can also be used to settle your debt situation. Depending on how much equity you have in your home, you can borrow against it and use the money you get from it to pay off your debts. The mortgage rules of each province vary. Make sure you know what applies in your province. However, before you increase your mortgage in order to consolidate it with your debts, you can take out a second mortgage at a higher interest rate or you can apply for a home equity loan.
   
   The advantage of exploring the home equity line of credit to consolidate your debts is that mortgages offer a lower interest rate compared to other loan interest rates. Mortgages can also be amortized over a long period, some as long as 25 years.
   
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4. Refine Your Debt Payment Strategy – This can be used to support your debt consolidation. Once you have been able to consolidate your debt payments, if they are still in more than one payment, you may have to prioritize which of the debts you can afford to pay first. You can use any of these strategies:
   
   Pay off the smaller loans first– This will enable you to reduce your overall debt load. The smaller loans are usually easy to clear and clearing them will also give you a sense of accomplishment of some progress and initial success.
   
   Pay off the ones with the highest interest rates first – This is another strategy you can use. It is advisable to tackle the loans with higher interest rates first and get them off your neck. This is because when debts with higher interest rates accumulate, it makes it difficult to finish paying off a loan. However, debts with higher interest rates are usually the largest debts. Therefore, before you can use this strategy, you must ensure that you can pay off the debts as soon as possible so that they will not be a burden in the long run.
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5. Discuss With Your Creditors – Most debtors are scared of discussing with their creditors. However, this maybe a solution for you. One thing that should encourage you to speak to your creditors is that it is in their best interest to help you find a way to payoff your debt as early as possible. If you are struggling to make the minimum payments on your debts (line of credit or credit card debts), you can always try the option of talking to your creditors. Creditors in Canada usually have programs that can grant you a payment break or lower your minimum payment. Ensure that you fully understand the financial implication of whatever agreement you reach with your creditors.
   
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6. ‍Speak To Your Family Members -After exploring other options and you are not able to make any headway, talking to friends and family is an option you can consider. Friends and family may be able to rally round to raise the money you need to pay your consolidated debts. However, don’t go asking with an entitlement attitude as everyone has their financial obligations. Besides, loaning money to a family member has its risk because anything can happen such as the family member losing his/her job and making it difficult to pay back. This may not encourage your family members to loan you the money you need. If you are lucky to get a friend or family member that will loan you money to pay off your debts, ensure that you honour your agreements with them.
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7. Talk To a Financial Expert –Speaking to a financial expert can go a long way in giving you a clearer picture of the options you have in consolidating your loan. A reputable financial expert will explain all the options available and give you and tell you the financial implication of each decision. In Canada, the first meeting with a financial expert is usually confidential, objective and free.
   
   ‍Financial experts also know about debt management and orderly payment of debt programs that can help you inthe consolidation of your debts. These programs vary between provinces and theywill help you consolidate your debts into one monthly payment or creditreducing interest rates in order to enable you to pay your debts faster. Whenhearing about these programs from financial experts will improve yourunderstanding of how to manage your money and avoid putting yourself in thiskindof situation again.
   
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8. ‍Other Options – If you have tried the various options above but to know success, you can also try some other options to help you pay off your debts. You may consider selling off some of your assets like your car, vacation home, boat, etc. the money you make from the sale can be used to service your debts. You can also consider downsizing your lifestyle in order to save money and have the extra cash you can divert into paying off your debts. No more window shopping, eating out and luxury items. You can also take extra jobs and gigs that will give you extra cash you can use in paying for your debts. Increasing your income will go along way.

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Have you ever heard of unsecured and secured debts? What do they mean? How do you get them? Are they beneficial for you? You can find answers to all your questions on these type of debts below.

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What Is Unsecured Debt?

Unsecured debt is generally referred to as monies borrowed without the requirement of collateral to secure the debt. The way it works is that a creditor extends the funds based solely on the creditworthiness and a promise to repay by the borrower.  The most common type of unsecured debt is credit card debt. The credit card issuer grants an overdraft based on the credit score of the user. If you fail to repay your credit card debts, there will be interest on the amount owed which further makes it difficult to settle the debt. Other types of unsecured debt include Personal Loans, Overdrafts, Payday Loans, Lines of Credits, Student Loans, and Department Store Cards.

Advantages Of Unsecured Debt?

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1. ‍No Collateral – This is the number 1 advantage of an unsecured loan. The fact that there is no obligation on the part of the borrower to provide an asset to secure the loan is what makes an unsecured loan desirable for most people. This gives the borrower access to the funds without having to look for an asset to use as collateral.
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2. Less Risky – An unsecured loan is typically less risky because you are not using an asset to secure the loan. There is no risk of losing the property you have used as collateral in case you default. This is particularly favourable to a person who might have to use his/her asset as collateral. Unsecured loans are based on trust.
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3. Quick Application Process – Most unsecured loans have an easy application process. A good example is a credit card account. A major reason for the easy process is the absence of collateral which eliminates the need for documentation.
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4. Your Property is Safe – Asides from the fact that you do not need to have collateral to secure a loan, the lender also does not have the right to take your property to offset the loan. At least, not right away. Unsecured loans are extended on the credit worthiness of the borrower. Therefore, there may not be a need to take possession of the borrower’s property because he/she has defaulted.

Disadvantages Of Unsecured Debt?
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1. ‍High Risk Higher Interest Rate – In an unsecured loan, the lender takes all the risk which naturally means that the interest rate will be high to cover for the risk and the absence of collateral. This may not be favourable to the borrower because it makes it more difficult to pay back.
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2. Stricter Condition To Qualify –Due to the nature of unsecured loans, the criteria for qualification is usually stringent. They are given to people who the lender is certain will be able to repay the loan. The credit worthiness of the borrower is a very important criterion. The borrower must also show that he/she has a stable job and a steady income that will be able to repay the loan over a specific period.
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3. Limited Funds – Due to the high risk involved in an unsecured loan, lenders are usually not predisposed to extend a high amount of funds as a loan. The amount extended may not sufficiently cover the need of the borrower.
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4. Probability of Incomplete Repayment –There is always the risk that the lender may not recover the full money borrowed in the event of default from the borrower. This is the peculiar thing about an unsecured loan. There is no asset to be that can be used to replace the money borrowed. A lender of an unsecured loan must always be ready for this eventuality.
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5. ‍Controversial Ending – Sometimes, an unsecured loan transaction may lead to litigation or a controversial end. The fact that there is no collateral and the lender does not have the right to seize the borrower's property when there is a default may lead to controversy. A lender may extend funds to a person he/she thinks is creditworthy, but turned out to be wrong. Getting a repayment of the loan may be difficult, especially if the borrower is not being honest. This may lead to threats, controversy and sometimes litigation.

What Is Secured Debt?

Secured debt is the opposite of unsecured debt. In other words, when you take a secured loan, you will be required to provide collateral to guarantee the loan in case of default in payment. When there is a default, the creditor can begin a process to seize the asset used as collateral to offset the loan. The most common example is a mortgage. A mortgage is usually secured against the value of your home and where there is a default, the mortgage provider has the legal right to repossess or foreclose the property in order to recoup the credit extended. Other types of secured loans include car loans and bank loans.

Advantages Of Secured Debt?

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1. ‍Higher Borrowing Limit –The provision for collateral in a secured loan transaction allows for a higher credit facility from the lender. This is because the asset used as collateral must have been assessed and concluded that it is up to or more than the value of the credit extended. This will benefit the borrower and also put the lender at ease.
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2. Low-Interest rate – The collateral provision in a secured loan makes it possible to have a low-interest rate. Lenders are always predisposed to extending credit with low-interest rates once you provide an asset as collateral. A low-interest rate will make it easier to repay the loan on time. The collateral provision in a secured loan is usually to the advantage of the borrower.
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3. Lower Risk – For the lender, extending credit for a secured loan has a lesser risk because of the provision of collateral by the borrower. The lesser the risk for the lender, the higher the credit limit for the borrower. It’s a win-win. It also accounts for the low-interest rate.
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4. Longer Repayment Period –A secured loan also gives the opportunity for a longer repayment period. Because the credit has been secured with an asset and it also has a low-interest rate, lenders can afford to give the borrower an extended period to settle the loan.

Disadvantages Of Secured Debt?

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1. ‍Loss of Collateral –There is usually the risk of losing the asset put down as collateral in the event of a default. In a secured loan transaction, the lender has the legal right to take possession of the asset used as collateral in the event of default of repayment. The lender also has the right to hold on to the title of the asset until the loan is repaid.
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2. For Specific Purposes –Secured loans are usually better suited for a particular project, such as the acquisition of a real estate property, or a major business transaction.
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3. Valuable Asset For Collateral –When taking a secured loan, a valuable asset is usually required as collateral. Such asset must be equal in value or more than the value of the loan. This sometimes makes it difficult for a borrower who does not have valuable property to use as collateral.

3 Ways To Get Out Of Debt

Debt is not an easy hurdle to get over. The best advice anyone can get is to avoid debt if possible. Where you find it impossible to avoid debt, it is advisable to have a plan for getting out of it. What makes debt more difficult to repay is the interest rate. Paying a debt with an interest rate means that you most likely will be paying more than you borrowed, especially if you do not pay it back on time. Here are 3 ways you can get out of debt as soon as possible.

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1. ‍Revisit Your Budget – If you already have a budget that sets aside a specific amount to service your debt, you may have to reconsider the budget. This is so that you can adjust the minimum payment you have set to satisfy your budget. Paying more than the minimum will save you money on the interest and enable you to repay the total debt on time. This is one method you can try to help you get out of debt faster.
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2. Debt Snowballing – Asides from paying more than your minimum payment, debt snowballing is another method you can employ to help settle your debt faster, especially if you have multiple debts. The way this method works is that you will divert all your attention to your smallest debt. After repaying that, you can focus your attention on the next smallest debt. This allows you to pay up your smallest debt and move to the next. It is a snowballing method that will help get rid of your debt quickly and also give you a sense of accomplishment as you settle your debts gradually.
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3. Commit Your Extra Cash – You may have a budget for paying up your debt but there will be times when you come across extra cash. Beit from a remote job, a side hustle, cash gifts, inheritance, work benefits, or tax benefits. It is advisable that you divert the extra cash into paying your debt so that you can get it over with. If you do not want to spend all your extra cash on debt, you can split it 50-50 while you use the rest for something fun or you save it.

You've recently graduated and have started your first and second job. You might be carrying student loans or other types of debt while you were in school. Do you know if the level of debt you are in are higher or lower compared to your peers? Regardless of how much debt you owe, it's important to come up with a game plan to pay it down. Learn how by continue reading below.

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What Is The Average Debt For 18-25 Year-Olds In Canada

18 to 25 is the age when you really begin to feel the pressure of adulthood. Understandably, the debt profile of this age bracket is low but may rise with time if care is not taken. The average debt for people between the age of 18 to 25 in Canada is $8,345.

How Much Debt Is The Average Canadian In?

The inflation rate and the cost of living are on the increase worldwide and Canada is not left out. Most people are taking credit card loans and borrowing cash just to get by with the hope that they will be able to repay over time. Most people are walking around in debt and may never get to pay it off completely. The average individual debt has risen significantly in 2022.

A report by Equifax explains that credit card owners in Canada have spent 17.5% more in the first quarter of 2022 than they did in the same period in 2021. The report puts Ontarians at the top of the list. They spent 20.4% more than the first quarter of 2021. More credit card accounts have been opened in the first quarter of 2022 at a rate of 31.2%more than that of the first quarter of 2021. This has been described as some of the highest credit card spendings ever seen.

Canada is divided into provinces and the cost of living varies between provinces. The average debt of every Canadian will depend on the province they live. Residents in Ontario have an average debt of $22,671. This is a 5.1% year-on-year increase. In Alberta, the average debt is $28,240 with a 1.8% year-on-year increase. For residents of Saskatchewan, the average debt is $24,690 with a 1.7% year-on-year increase. Manitoba is known to have the lowest average debt which stands at $18,536. Overall, in all the provinces in Canada, the average debt stands between $20,000 to $25,000

What Are 5 Ways An 18-25 Year-Old Can Get Out Of Debt?

Debt is an undesirable position that most people would rather wish they are not in. unfortunately, most people have found themselves in debt, some as early as in their early 20s. you may say that is too early to already be in debt. Understandably, the rising cost of living and inflation has made it inevitable for many young adults to take out loans. For people in this age bracket, student loans form a larger percentage of the total debt, followed by credit card debts.  

If you are in the age bracket of 18 to 25 years old and you are in debt, it is advisable to clear up the debt before you clock 30. This is because there are other likely debts that you may still have to take up in your 30s. An example is a mortgage. Clearing up your current debts will go a long way by giving you enough breathing space to take up other loans as you grow older. Below are some tips that can help you get out of your debts.

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1. ‍Have A Plan/Budge
   ‍Debt, while a burden is not necessarily a bad thing if managed well. One of the very first steps to take if you want to get out of debt early is to have a plan. If you have taken student loans and credit card loans, to avoid the interest rates piling up and making it more difficult to pay. When you have a budget, you are able to plan your income and set aside a specific amount to service your debts. When it comes to having a budget, discipline is very important because this is what will ensure that you service the loan on time.
   
   Asides from having a budget, it is important to have a repayment strategy that will ensure that you get out of debt on time. There are different strategies that you can try. One common strategy is the snowball strategy. In this strategy, you will focus on you repay your debts from the smallest to the highest. Although it is one debt at a time, it allows you to focus mainly on one debt by clearing it and saving money on the interest that you would have paid if you settled part of it. It is also motivating if you see your debts disappearing one after the other.
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2. Be Disciplined
   ‍This is an important tip when trying to clear your debt if you are in your early 20s. At that age, there is always the temptation to spend money on luxurious things and live your life to the fullest as they say. By all means, avoid entering more debt while trying to get out of one. It is not the time to shop for luxury items or take more loans to go on a vacation. It will be good to clarify what is on the ground before getting into another debt.
   
   Whatever it takes, try and ensure that you keep to your budget and strategy. The worst thing to do when trying to get out of debt is to get into more debt. You can try dropping your credit card at home so you don’t get tempted to swipe when you are out. You can also try going cash only. There may be a few embarrassing moments, it is the price you have to pay in order to settle your debt.
   
   This is also a time to avoid lifestyle inflation. At your age, you are most likely fresh out of college and maybe in an entry-level job. Trying to finish paying your debt with a minimum payment plan is all that you can muster. It is best you stick to this and avoid any lifestyle that will require you to take out more loans or sacrifice paying your debt to keep up with that lifestyle. It is not the time to move into a bigger apartment, only eat out or buy that fancy clothes.
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3. Make More Money
   ‍People between 18 and 25 are young and vibrant. You naturally have the strength to take on as many jobs as possible. You need the cash, especially if you are trying to get out of debt. In addition to that your entry-level job, take onside gigs and night jobs that will give you the extra cash that can help you settle the debt on time. It is not all about keeping your spending in check. You should also look for ways to maximize your youthfulness and make more money. embrace the suck and take on as many freelance projects as possible. It may not be fun but you will have yourself to thank later when you are able to get out of debt as early as possible.
   
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4. ‍Consolidate Your Debts
   ‍This is usually more suitable for credit card debts. If you have high-interest credit cards, you should consider trying to consolidate all the debt. This makes it easier to settle your debt. You can try getting a balance transfer credit card. A balance transfer credit card is useful when you have existing credit card debt and you want to take advantage of a low-interest rate. A balance transfer credit card can have a promotional interest rate as low as 0%. This low-interest rate can range between 180 days and 1 year. This allows you to avoid high-interest rate charges. You can use this promotional period to payoff your debt faster. However, this may not apply to your new purchases. This means that you have to cut your expenses during this period so you can conveniently take advantage of the balance credit card transfer promotional offer.  
   
   Many Canadians struggle to payoff credit card debt due to high-interest rates and it is all because they are not aware that balance transfer credit cards can help. Now that you know, you should take advantage of this. If you have many credit card debts that you have to pay off, a balance transfer credit card might help you consolidate them all onto one card. You'll simply have to deal with one card bill payment per month instead of several. Balance transfer cards include this as one of their main selling points. You should try it if you want to get out of debt early.
   
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5. ‍Track Your Progress –Getting out of debt is not an easy task. It is a long and arduous journey. This is why keeping track of your progress is very important. It is easy to lose motivation when trying to service your debt. Keeping track of your progress will keep you motivated by showing how far you have gone in servicing your debt. You can do this at regular intervals. It could be weekly or monthly, depending on how often you pay your debts. The motivation along the way goes along way in encouraging you in finishing up the debt payment. You can keep a spreadsheet or a visual chart that shows how much you have paid and how far is left for you to go.

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Interest rate is rising, and it will likely increase the amount you need to pay towards your debt. Do you know how to calculate your debt payments? It's a good idea to learn how to see how it impacts your monthly cash flows. Continue reading to learn how.

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How To Calculate The Cost Of Debt

Calculating the cost of debt is important for individuals and businesses so as to know when the debt can be completely paid off using the current income. You can calculate your total pre-tax debt and after-tax debt. The first step to calculating the cost of your pre-tax debt is to know the annual interest rates of all the debts. Then you go ahead to calculate the following:

1. Do a calculation of the total interest expense of your debts for the year. It will be good to have your financial statements as it will make the calculation much easier. You can break down the calculation to quarterly and then add it up for the whole year.
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2. Add up the principal sum of all your debts. Accuracy is very important. You do not want to under-calculate or over-calculate.
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3. The final part is dividing the total interest rate for the year by the total cost of the principal sum of your debt. This will give you the cost of your debt.

For example, if you have a debt of $100,000 with a 5% interest rate and a $50,000 debt with an interest rate of6%.

Your total annual interest will be calculated as follows: (5% x $100,000) = $5,000 plus (6% x $50,000) = $3,000. This makes it $8,000 in total. The total amount of debt is $150,000.

Therefore, you cost of debt is $8,000 /$150,000 x 100 = 5.3%. The effective pre-tax interest rate you are paying on your debt is 5.3%    

An alternative is to calculate the total average debt for each quarter and add it all up. You should get your cost of debt.

Calculating your after-tax calculation is a bit different. Interest payments are tax-deductible and typically affect how you file your taxes at the end of the year. Most people prefer to calculate their after-tax cost of debt than the pre-tax cost of debt. To calculate your after-tax cost of debt after factoring in your taxes, you multiply your effective interest rate from your pre-tax calculation by (1 – t.) t being your tax rate.      

To calculate your after-tax cost of debt, you multiply the effective tax rate you calculated in the previous section by (1 - t), where t is your company’s effective tax rate.

Using the previous example, your cost of debt is 5.3% and your tax rate is 20%. Therefore, 5.3%(1 – 20%) = 5.3% x (0.20)= 1.06%. your after-tax cost of debt is 1.6%.

What Is Cost Of Debt?

The cost of debt is referred to as the interest rate that a business pays on its debts. It is a concept mostly used by companies and businesses that have a debt profile with different creditors. It applies to all outstanding amounts like bonds and loans owed by the business. Cost of debt is a good way to assess the financial health of the business. Most companies calculate their cost of debt after tax considerations. This is because interest expenses on debts are tax-deductible. Therefore, the after-tax cost of debt is usually less than the before-tax cost of debt.

Cost of debt is also used as a corporate finance metric that investors, creditors and investment bankers use to analyze and assess a company’s capital structure. This informs their decision to invest in the company or not.

How Does Cost Of Debt Work?

Businesses taking out debt is almost like a norm because, for most businesses, it is always necessary to incur these debts before profit can be made. This makes debt and equity part of a company’s capital structure. A company’s capital structure consists of all the finances of its overall growth and operations through different sources of funds which may include debt financing. The measurement of the cost of debt of a company will go a long way in understanding the overall interest rates being paid by the company. This gives potential investors the risk level of investing in such a company. Typically, a company with a high cost of debt has a high risk of investment.  

Companies consider their existing cost of debts and the potential income growth the debts will bring before taking new debts. For example, a company with a low cost of debt may consider taking out another loan of $1,000,000 for expansion in another city, if the new branch is expected to gain at least twice that amount in profit in the first year of operation. This may not be such an easy decision for a company with a high cost of debt will think twice before taking such a loan. The cost of debts of a business is a factor in almost every major business decision of a company, its investors and potential investors and creditors.

How To Lower Your Cost Of Debt

Assessing and analyzing the cost of debt of your business is essential to you taking up further debts and also servicing the existing debts. For a business to thrive, it is essential it always makes sure that it either has a low cost of debt or cost of debt at all. If your business has a higher cost of debt, here are some tips to lower it.

1. ‍Improve Your Credit Score
   For a business, your credit worthiness determines how much you will be able to access credit from other investors and creditors. It also determines your interest rates on the loans you take out. Improving your credit score will go along way to reduce the interest rate your company pays on subsequent loans. To improve your credit score, you will need to reduce your reliance on loans and repay existing debts. It is important you always check your credit report to know where your business stands in its cost of debt and also check for errors that may affect your credit score.
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2. Repay Your Debts Faster
   ‍The principal sum of a loan may not necessarily be difficult to pay. What makes it difficult is the accumulating interest rates. This is what adds to what you will pay and most times makes it difficult to settle debts quickly. The solution to this is to have an aggressive approach toward repaying the debt as soon as possible. This prevents the interest rates from accumulating.  Some lenders allow extra payments on your debt which will help you repay faster. Some creditors charge exit fees for paying down a loan before the repayment terms have been met. You can avoid these extra fees by renegotiating the repayment terms of the loan.
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3.  Negotiate Lower Interest Rates
   ‍For most businesses, the interest rate makes it difficult to fully repay a loan. However, you can always renegotiate the default interest rate attached to the loan. This may not work all the time, but it is good to always give it a try. This will go a long way in reducing your cost of debt. To convince most creditors to lower their interest rates, your company must prove that you are credit-worthy. You can successfully prove this by using your business or personal assets as collateral. You can also get a guarantor to sign for your loan. If you are able to do this, even if the creditor does not lower the interest rate at the initial stage, they may be willing with time. Another trick is paying more than your minimum payment and paying on time may encourage the creditor to lower your interest rate.
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4. Refinancing Your Loan
   ‍Refinancing a business loan is the process of taking a new loan to repay existing ones. This is a dicey way of lowering your cost of debt. If you decide to do this, you should consider what the terms of the new loan are. To make the new loan effective in helping you to reduce the cost of debt, you must ensure that the new loan has favourable terms and interest rates. You do not want to take out another loan that will prove difficult to repay later. You can approach your existing creditors or new ones for a loan to refinance your existing debts. There are other costs that should also be considered before taking out another loan. Legal costs, credit cheques and other fees must be considered before going for a new loan to refinance your existing debts.
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5. Consolidate
   This is preferable if you have a single creditor or you have more than one debt profile with a single creditor. You may choose to negotiate with the creditor to consolidate all your company’s debt into one. This will mean you will be paying a single interest rate on your debt instead of the multiple interest rates you have been paying. This will ensure that you repay the loan on time.
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6. Sourcing Funds From Your Investments
   ‍For a company that has investment vehicles where its monies are tied, you may choose to liquidate some of the investments in order to reduce your cost of debt. Stocks and bonds are usually suitable for this. It helps to clear some debts in your books at the cost of losing some of the company’s assets.  

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Have you ever wondered what happens to the debt you owe when you pass away? Who will be responsible for them? How will the creditors collect the outstanding amount? Do they just magically disappear? Find out below!

What Happens To Your Debt When You Die

Debt is an undesirable obligation that most people live with. The crazy thing about debt is that it does not magically disappear when you die. Your debt obligation passes unto your estate. This means that your assets left behind will be used to service all your debts before it is then distributed to your beneficiaries.

What Happens To Your Finances When You Die?

Death often comes unannounced but life must go on. Your assets and finances must be sorted after you pass on. Depending on whether you have a Will or not at the time of your demise, the power to make decisions regarding your finances is bestowed on a person known as the Executor.

If you have a Will, then you must have chosen your desired executor to administer your assets and finances after your demise. Part of the executor’s responsibility is to create an inventory of all your assets and an inventory of all your debts and liabilities. The first thing is to repay all debts to your creditors before the remaining assets are distributed to your beneficiaries as you have stated in your Will.

If you passed on without a Will, someone has to apply to a court to be the administrator of your estate. An administrator has the same duty as an executor. However, such a person cannot begin to act until the court permits him/her to do so. The administrator will also make an inventory of your assets and debts/liabilities in order to settle your debts first and then distribute the remaining assets to your family members with preference to your immediate family. These may vary depending on the province you lived in. Where nobody applies to be the administrator of your estate, the court will appoint a public trustee as the executor of your estate. Essentially, your finances are handled by the executor/administrator/public trustee when you pass away, depending on the circumstances.

What Is Your Estate?

An estate is a juristic person that is independent of you. In other words, you and your estate are separate entities recognized by the law. It is where all your liabilities and assets are transferred after your demise. The estate is what gives continuity to your assets and liabilities, at least until when they are distributed and serviced respectively. Simply put, your estate consists of all that you have legal and equitable interests in while you were alive.

However, you need to put someone in charge of your estate. This person is known as the executor. The work of the executor is to administer your estate according to your wish after all your liabilities have been satisfied. This is important, especially when distributing your assets among the beneficiaries you have named in your Will. So do not forget to name one or two executors in your Will, depending on how big your estate is.

In the event that you pass on without leaving a Will or instructions on how your estate should be administered, it will be said that you died intestate and the government of your territory or province may set their own terms of administering your estate. In this case, priority is usually given to your immediate family members. If there are no immediate family members, the government will assume responsibility for your estate, including its income and liabilities.

Who Is An Executor?

An executor is an important part of your Will and its execution. He/she is the person you have appointed in your Will to review and execute the terms of your Will. The primary task of an executor is to make an inventory of your assets and liabilities and also ensure that your assets are distributed to your beneficiaries as contained in your Will. Some of the other responsibilities of an executor include:

• Contacting the custodian of your Will – It is the responsibility of your executor to contact your legal representative or the company that you have assigned to keep your Will.
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• Appraisal of your assets – After making inventories of your assets and liabilities, it is the job of the executor to get all these assets and appraise them against your liabilities before distributing the rest to your beneficiaries.
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• Take charge of funeral arrangements – The executor will also be in charge of ensuring that there is enough fund for your funeral arrangements.
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• The executor will also open a bank account for your estate in order to centralize all your income from your assets.
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• Cancel or redirect any membership, license or recurring emails in your name.
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• Apply for probate where required.
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• Sort out all expenses in the administration of your estate in terms of debts and taxes.
  
  

Who Is A Beneficiary?

An important component of a Will is the beneficiaries. They are the people you leave your assets for. It is usually said that they inherit your assets. In other words, your assets become their inheritance. Your beneficiaries are legally entitled to your assets even though it may take the executor months or even years to arrange every aspect of your Will. Your beneficiaries are always entitled to know of the processes involved in your Will, even when it goes to probate. Probate is the legal court process where your Will is validated and the executor is officially chosen. During this process, beneficiaries usually have the right to challenge the terms of your Will and also object to any executor or beneficiary contained in the Will.

What If My Debts Outweigh My Assets?

One of the first duties of your executor is to make an inventory of your assets and liabilities. This is so that there is a clear picture of the value of your assets and your debts. There are primary things that will be taken care of before your debt profile is reviewed and repayment begins. These are things of priority and they include funeral expenses and the cost of administering your estate. After these are taken care of, your debt is the next on the list to be attended to. What happens if your debt outweighs your asset?

It is the duty of your executor to reach out to your creditors in order to settle any outstanding debt you may have left behind. The normal procedure is to take out the money to pay these debts from your estate. However, the process may be different if your debt outweighs your assets. In Canada, your estate may be subject to provincial or territorial laws that give your creditors the right to get a payment of their loan from the total value of your estate. The implication of this is that your beneficiaries may be left with nothing from your estate. Even if your assets could not cover the total debts, the liabilities will not be transferred to any of your beneficiaries except if they are named as a consignor in your Will.

When your debts are more than the value of your estate, it is akin to declaring bankruptcy when you are alive. It only means that your creditors will not be able to receive full payment. When it comes to paying the debts of an estate, it is usually done in order of priority. Some creditors have the legal right of first payment over others. Partial payments will also be paid to some other creditors. Overall, where your debts outweigh the value of your estate, the process known as abatement takes place. This is the process of using the inheritance of your beneficiaries to satisfy the debts until they are fully paid.

Can You Inherit Debt From Your Parents, Spouse Or Common Law Partner?

The answer to this is NO. just like when your spouse or loved one owes a debt, the creditors cannot come to you for repayment. The same thing applies when you pass on. Your debt obligation cannot be inherited by your spouse or loved ones. The whole sum will be taken out of your estate until it is fully paid. Where the debt outweighs the value of your estate, your beneficiaries will be the ones to suffer for it because they will receive no inheritance. Although one may argue that your beneficiaries are also paying the debt if they are denied of your assets because of your debts.

However, there are instances where your debt can be inherited by your spouse or loved ones. These peculiar circumstances include:

• Joint credit card accounts;
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• Consigned loans;
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• Supplementary credit cards;
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• Joint mortgage payments, etc.

How Can I Prevent My Family From Inheriting My Debt?

All provinces and territories in Canada have laws that restrict creditors from transferring the debts of a deceased to their loved ones. However, there are some creditors that may try to collect your debts from your loved ones. To prevent this, you can put any of the following in place in order to protect your loved ones:

• ‍Have A Will – This will prevent the government from taking charge of your estate and distributing your assets according to the law. Having a Will puts you in control of how you want your debts to be paid. It is important to also appoint a trustworthy executor.
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• Get A Lawyer – A lawyer that specializes in Trusts and Estates will go a long way in protecting your loved ones from the harassment of creditors.  
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• Get A Life Insurance Policy –This will cover your loved ones and a portion of the payout can be used to service any outstanding debt also.

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Welcome to our article on helping you understand why planning for your retirement is important. If you don't plan your retirement early, you will end up living in poverty if you just rely on government benefits. If you want to ensure you maintain a good lifestyle in retirement, and want to continue to enjoy life after you have worked a lifetime, then it's vital to plan for your retirement.

Why Retirement Planning Is Important: 10 Reasons

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1. To Be Financial Independent Post-retirement

This is one thing that can never be over emphasized. In retirement, it is easy to become a liability to your loved ones, especially when it comes to finances. Health can be understood because no one can control that. But when you do not have sufficient funds in your retirement savings, you become a liability to your family. This is one important reason why retirement planning is very important.

If you have effective financial planning, you would have grown your savings sufficiently during your active years and that is what will be your income post-retirement. You do not have to depend on your loved ones to achieve your post-retirement lifestyle. Your post-retirement lifestyle will have gone into your retirement planning, therefore you would have saved and invested enough to provide you with the funds for your desired post-retirement lifestyle. Financial independence is very important for retirees.  

2. To Fulfil Your Retirement Goals

We all have goals and we will still have goals when we retire. Goals are not only for the young. It is only easier for the young. The reason is that they are still active and can do what it takes to achieve that goal. However, for a retiree, it may be difficult because most goals require money and if at that point in your life, you do not have sufficient retirement savings, you may not be able to achieve your retirement goals. Retirement goals vary from person to person. It could be to buy a dream car, go on a dream vacation or buy a dream house. The truth is, if you do not have the cash, you cannot achieve the goal.

This is on importance of retirement planning. With a retirement plan that allows you to save and invest the funds in your retirement account, you can grow the funds and make them sufficient for post-retirement. That way, you will be financially independent and buy that dream car or boat that you have been eyeing years back.

3. To provide For Medical Emergencies

Post-retirement is an age where everything seems to be wrong with your health. It is almost inevitable because you are at that age where your body system is now fragile. What will make this period worse is if you do not have enough funds to cover health care during your post-retirement day. This is not negotiable when planning for your retirement. You must make room for medical expenses, at least to support whatever government benefit you are entitled to as a senior citizen.

4. To Hedge Against Inflation

This is another inevitable in your retirement years. The cost of living will not be the same as when you were actively working. It is important to factor it into your retirement planning. As the economy changes, the prices of goods and services also change with it. What is cheap today may be expensive by the time your retirement. This is why it is important to have a retirement plan. If not, you will just be walking in blind to the realities of post-retirement, thinking it's business as usual. The retirement plan will help you account for the rising cost of living considering that you will stop earning regularly. It will help you save and invest your retirement funds in such a way that will cushion the effect of inflation during post-retirement.  

5. Unexpected or Early Retirement Won't Be Scary

There is this shock and fear that comes with having to retire early, either forced or voluntary. Especially for people without a retirement plan or those who started late. Retiring early could be for different reasons such as health issues and layoffs. It is for this reason that experts advise that you start your retirement planning as early as possible. A good retirement plan will prepare you for this and put your mind at ease because you have made provisions for life after retirement. You may not have attained the financial goal you set out to, but with a retirement plan, you can adjust and ease into life after ‘early retirement’.

6. To protect Your Property and Assets

During your active years, you may have bought some real estate, or some other form of property that has become valuable and you could probably sell for money. these are assets you should keep for as long as you can and not what you have to sell off to provide for your post-retirement cost of living. Without a retirement plan, you may be forced to liquidate your assets either to provide for yourself or your loved ones. A retirement plan goes a long way in preserving your properties and assets for as long as possible. You shouldn’t have to sell them to achieve your post-retirement lifestyle.  

7. To Make Better Decisions

A retirement plan gives you a sense of purpose on how you want to handle your income and expenses before you retire. When you are saving towards something, you are inclined to cut off unnecessary spending to save enough for that purpose. A retirement plan gives you this power. You will have to make a budget for your monthly income and decide on how much you want to save every month for your retirement fund. This takes away the unwanted expenses from your budget. You will be better equipped with financial knowledge that will keep your finances in good shape.

You can make better decisions when it comes to investments. Retirement planning is not all about saving. You also invest to grow your funds. With a plan, you can decide on which investments to put your money in to help grow enough funds that will sustain your post-retirement lifestyle. Financial decisions can be tricky because they have both short and long-term effects. A retirement plan ensures that you make smart financial decisions to achieve your retirement goals. You can ask questions such as How can I reduce taxes? When should I take social security? How can I maximize my employer benefits? And so many more important questions that help you plan your finances better.

8. To Enjoy Returns On Investments

Once you start saving for retirement, you also have the opportunity to invest what you have saved in portfolios that will grow your fund multiple folds. This way, you do not have to over-stretch your income to keep up with savings. Yes, you need to save, but the investment is a good way of augmenting your retirement fund. You get to reap the benefit of compounding effects on investment. Retirement planning allows you to sustain your retirement savings plan for a longer period with the returns on investments. This is another important reason why you should have a retirement plan.

9. To Transition Smoothly Into Retirement

Retirement is inevitable which makes it all the more a bitter pill to swallow because it has to happen. Transitioning may not be easy, especially if there is no support system. This is what a good retirement plan gives you. A retirement plan provides for your financial needs post-retirement. It makes the retirement pill easier to swallow. Whatever it is you have planned to do after retirement, be it travelling, owning a real estate, or taking a course, a retirement plan will ensure that you find the transition from active work life to achieving this plan. There is nothing as good as being financially independent, even when you are no longer actively working. That is what you get with a good retirement plan.

10. To Avoid Running Out Of Money After Retirement

This goes without saying. Retirement planning helps you secure your post-retirement lifestyle well enough to sustain you for the rest of your life. If you bank on liquidating your assets and the little savings you could gather before retiring, that may not be enough for you. If you consider inflation and healthcare, you may soon run out of money. A retirement plan includes savings and investments which help grow your savings into a sufficient amount that should last you throughout your life after retirement.

What Is The Most Important Factor In Retirement Planning?

A good retirement plan consists of different moving parts that make it work. All these aspects are equally important. If you are about creating a retirement plan, there are some important factors you must consider to make it work. Some of these factors include:

How Much Is Your Current Income

This is where the planning begins. Experts advise that you always start with making a budget of your current income and expenses to help you determine how much you can save monthly for your retirement plan. This will tell you how far you have to go to achieve your desired retirement savings goal. You should also try and include future salary raises and other sources of income.

What Are Your Retirement Lifestyle Goals

This is another important factor because it determines how much you have to have to save and invest that will be enough to sustain the lifestyle. While doing this, it is good to be realistic with your goals so as not to burden yourself. You do not want to set goals that will require aggressive savings and high-risk investments to be able to rack up sufficient funds.

When Do You Want To Retire

This will tell you how long you have to hit your target. How many active years do you have left that you can earn, save and invest to build a sufficient retirement fund? This is a very important factor in your retirement plan.

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Welcome to our article on how to use life insurance in your retirement planning. You might be surprised that life insurance can actually help you with your retirement. In fact, life insurance is a valuable asset that allows you to build equity over time and can even supplement your retirement income in a tax efficient manner. In this article, you will learn how you can use a life insurance policy as a retirement planning tool.

Can A Life Insurance Policy Be Used For Retirement?

Life insurance plays second to house and car insurance for most people but it is equally an important insurance policy to have. For those planning their retirement funds, it is easy to dismiss life insurance because it is viewed as a legacy for their loved ones. Retirement planning is viewed as a personal plan and not a legacy. The big question is Can A Life Insurance Policy Be used For retirement? The answer is YES. You can use your life insurance for a retirement fund inside through a Cash Value Policy. In Canada, there are two types of Cash Value Policies: Universal Life and Whole Life. 

The cash value within your life insurance policy is the balance remaining after a portion of the premium payment is used as insurance costs. This makes life insurance useful in different ways in retirement. The cash value account of your life insurance policy grows over time and can be withdrawn as a source of income post-retirement. One advantage of cash value policies is that they allow for tax-deferred growth, which means that any money earned inside these life insurance policies is tax-free. 

The most recommended type of life insurance that will benefit you in retirement is known as Term Life insurance. It is the least expensive type of life insurance in terms of out-of-pocket expenses and the amount of coverage you get for the money. This type of life insurance guarantees you a death benefit during a specified period. It could range between 10 to 30 years and when it expires, you can renew again for another term, convert to permanent coverage or terminate the policy.

The structure of a Term life insurance can be useful for a retirement savings plan. It can be useful in the following two ways:

It provides for your family - It provides you with basic financial protection as the breadwinner of the house. It ensures that your family is well taken care of when you are no longer with them. You would not have to worry if you have not accumulated enough savings for your family before your demise. A Term life insurance will cover your loved ones.

Low premiums – The low premium fee will give you the opportunity to free up more cash for other purposes like investment or even taking the cash out for retirement expenses. You can use the extra cash to save and invest for your retirement, pay for college or other financial goals that you may have.

The life insurance policy gives you the opportunity to provide for your loved ones and also provide for yourself post-retirement. You can contact a financial advisor to help put everything into perspective for you.

How To Use Life Insurance In Your Retirement Planning

One way of using your life insurance is to save some money for your retirement. Life insurance is a tax-efficient way to shelter some money. The recent tax law that was passed on passive income has increased tax obligations, especially for side businesses. But life insurance does not fall under this law. You can grow your income in the policy at a tax-deferred rate. The money saved on tax can be used in retirement.

Another way to use life insurance in your retirement planning applies to those that own businesses. If you own a corporation, it allows you to take money out of your corporation tax-free. To give this context, there is a type of account for businesses in Canada known as the Capital Dividend Account (CDA). This is a notional account in Canada’s accounting system that allows business owners to take money out of their corporation tax-free. The only two ways to be certified for a CDA are through Capital gains investments and Life insurance.  

Three Ways To Access Cash From Life Insurance For Your Retirement Income

1. Direct withdrawal

If you have set up a life insurance policy with plans for your retirement embedded in it, one of the ways you can access cash for your retirement lifestyle is through direct withdrawal from your life insurance policy. The money in your cash value grows tax-deferred which makes it possible for you to accrue as many funds as possible. However, even though that money goes tax-free, withdrawal is not tax-free. You and your business/company will be taxed if you make a withdrawal from your policy.

2. Policy Loan

This is another way you can take out money from your life insurance for your retirement expenses. A policy loan is a way of taking a loan from your insurer. You do not need to provide any collateral as your policy will be used for that purpose. With this, you also do not have to go through financial underwriting. It is easy to obtain since you are getting it from your insurer. With your policy being the collateral, if you do not complete the repayment of the loan, the balance payment will be deducted from your death benefits.  One disadvantage is that the loan is obtained at a higher interest rate.

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3. A collateral loan from a private bank

Another option is using your life insurance policy to get a loan from a bank. This is a bit different from getting the loan directly from your insurer. You can use this method to lend money out of your life insurance policy for your retirement expenses. When you approach the bank to use the cash value of your policy as collateral for the loan, you have the opportunity to negotiate for a lower interest rate than when you take out the loan from your insurer. You also have to go through some financial underwriting with this method. One standout benefit of this method is that it works as a line of credit. This means that you only lend what you need to spend on your retirement needs rather than the whole thing and paying interest on the entire collateral loan.

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Welcome to our article on all you need to know about planning for your retirement in Canada. With high taxes and cost of living in major cities in Canada, what are some things you can do to help you plan for retirement? Here are 10 tips to help you:

Planning Retirement For Canada: 10 Tips

1. Have A Budget

This is a very important aspect of your retirement planning. You want to make sure that you are in full control of your expenses. A budget allows you to place your income side by side with your expenses. With a well-planned budget, you can determine what is important and what is unnecessary, that way, you can track your expenses. It is important to note that the budget you are creating is for both your current income and expenses and that of post-retirement. Having a budget for your post-retirement will also help you spend your retirement savings wisely. These budgets must be realistic.

Do not forget that the aim of the budget is to help you with your expenditure, so don’t strain yourself today all because you want to save for retirement. There is no point living broke today and causing health complications that may take your money post-retirement. A budget is to help you make shrewd financial decisions. Your budget during post-retirement will be different from your current budget. You don’t have to commute to work or buy clothes for work, and some of your daily expenses will no longer be required because you are not actively working. Such extra cash can be used to create a sufficient budget during post-retirement.

2. Avoid Debts

Retirement planning requires funds from every source you can get and one thing that stands in the way is debt. Debt is a financial burden for most and it is known to be the root cause of most people not achieving their financial goals both during active service and post-retirement. According to statistics, 1 out of every 3 retirees in Canada owes some form of debt or the other. This is a bad ratio and it simply means that most retirees do not get to enjoy their post-retirement because of debt.

To avoid being among this category of retirees, ensure that you pay off all your debts before retirement. This includes your mortgage, car loan, credit card debts, and any other personal loans. The interest rates of debts make it difficult for your to live comfortably on what you earn. Now imagine that you still have to settle debt with your retirement saving when you are no longer active to continue to earn money. when creating your budget. Ensure that you have a debt payment plan that will see that all debts are paid before retirement. Do not completely neglect this as you will have to pay for it with your retirement funds. There is no fun in that. Once you are free from debts, make sure you avoid getting into another one. If you have to, ensure that any money borrowed is what you can return within the same month you borrowed it, this will help you avoid interest rate payment.

3. Cut Unnecessary Spending

Once you start saving for retirement, you need to cut your spending. Especially on expenses, you can do away with. You need all the cash you can get to build a sustainable retirement savings portfolio. Expenses like eating out, weekly shopping, vacationing every month and other activities that gulp money that you can survive without. This is not to suck the fun out of your life but to make sure you are financially secure post-retirement. That is not to say you won’t do any of these at all, you just have to cut it down significantly. The cash you save from this can be diverted into your retirement savings.

Financial experts advise that you save between 10 to 15 percent of your incoming. An emergency fund should also be part of this percentage. If you can cut unnecessary spending, you will have extra cash at your disposal and you can divert this into your retirement savings.

4. Know How Much You Need For Post-Retirement

This is often overlooked by Canadians in their retirement plan. Most just have a round figure they think will be enough and begin to save. Statistics show that only 47% of Canadians know how much they need for retirement. It is important to know how much you will be needing for post-retirement so that you won’t overwork yourself to save or not save enough. Plan your post-retirement lifestyle, set your post-retirement financial goals and you will be able to have the magic number as they call it. Knowing the number also helps you to plan a budget that will help you save towards the goal. While there is no exact figure needed for post-retirement, it is good to have an estimate to work with.  

5. Make Provisions For Your Health

Ensure you have sufficient health coverage for post-retirement. Health is one of the major expenses during post-retirement due to age. To adequately cover this, make sure you have a plan for health insurance. You can take private cover asides from government health benefits. That way you can have enough for post-retirement living.

6. Work For Bit Longer

Hitting the retirement age does not mean you should stop working. You can still take on a few side gigs or part-time jobs that can still earn you some cash. This will ensure that your retirement savings will be sufficient and will not place a burden on them immediately after you retire. However, you should take on jobs that will not complicate your health later. This will also help you ease into retirement by ensuring steady cash flow, even though it is not up to what you were earning.

7. Learn More About Discounts & Tax Credits

These are ways of relieving the burden on your retirement savings. But you can only enjoy them only if you know about them. Learn more about discounts that travel agencies, stores, and insurance companies offer to senior citizens and retirees. Tax credits can also be used to lower the tax obligations on your retirement earnings. There are tax credits that retirees and senior citizens enjoy in Canada.  

8. Invest Early and Consistently

Savings only will not grow your retirement savings to your desired figure and one sure way to achieve this is through investment. The importance of investment cannot be overstated. Once you start your retirement savings, it is important that you consider investing the funds so that they will grow. The portfolio you invest in will be determined by the number of years you can still actively work. If you have a long time horizon before retirement, you can invest in high-risk investments such as cryptocurrency, and stocks. But if you are close to retirement, it is important to invest in conservative portfolios like bonds and mutual funds. You have to take calculated risks to build your retirement saving.

9. Sign Up For Government Benefits

There are various government programs that can ease the burden on your financial savings and it will be good if you consider some of these benefits. In Canada, you are entitled to government benefits such as the Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS), or you can consider Old Age Security ((OAS). Once you are approaching retirement, you can learn more about these benefits and how you can apply for them. They will help sustain your retirement savings.

10. Get A Financial Advisor

The contribution of a financial advisor to your retirement planning cannot be overemphasized. There is a myth about having a minimum retirement saving before meeting with a financial advisor. This cannot be further from the truth. You can meet with a professional once you decide to have a retirement plan. They will help with planning your budgets pre-retirement and post-retirement. They will also account for inflation in your retirement plan. This will help you avoid short-changing yourself.

How Much Does The Average Person Need To Retire In Canada?

Retirement is inevitable for everyone and depending on your post-retirement lifestyle and goals, you need to have a magic number you are saving towards. There is no industry standard figure you need to retire in Canada, it is all down to the following factors:

• ‍How do you live now & until retirement – This will determine how much you can save while covering your living expenses. Experts advise that you save at least 10% of your current earnings. However, depending on what you want you can increase this number. One thing is for sure, you have to be consistent with your savings;
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• When do you want to retire – This will determine how much you can save and invest until you retire. It will also determine how aggressive you will save and the risk appetite of your investments;
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• ‍Where do you want to retire – This is an important question because the standard of living varies in each province in Canada. Make sure you read about the cost of living in the province you want to retire. This will guide your savings goal.    

There are also retirement calculators that you can use to estimate how much you will need to retire comfortably in Canada. These different calculators will help you with the following:

• ‍Retirement age calculator – This will help you determine the age you will reach your retirement goal;
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• Retirement savings calculator – This will help you calculate how much you need to save every month to reach your retirement goal;
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• Retirement nest egg – This will use your current and future monthly investment to calculate the value of your retirement savings once you retire.  

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If you are someone who likes to save a lot of stress and anxiety, then having a financial advisor for retirement planning can really help!

Retirement planning is an important step every individual must take to provide financial cover for post-retirement. Many components make up a good retirement plan and you may not be able to cover all which is why you may need a financial advisor. In preparing a retirement plan, you need a budget, and investment knowledge, you have to consider inflation, come up with a debt payment strategy, and many other things to do. This may be overwhelming for your, especially if you are not a financial expert. A financial advisor will put everything in perspective for you, cover all angles and make sure your retirement saving plan is in good health. A bonus advantage is that not only do you get advice on retirement planning, but you also get pieces of financial advice that may help your current financial status

10 Questions To Ask Yourself If You Need A Financial Planner

1. Do You Not Know Where To Start With Your Finances?

Finance can be a tricky subject, especially to a novice mind. There are so many things to consider, different calculations to make, and different permutations, especially when projecting a future financial need. If you are confused about getting a financial advisor for your retirement plan, you can ask yourself this question. Do you know where to start with your finance? This will include your income and expenses. How do you come up with a budget that weans out unnecessary expenses to provide for your retirement plan and still get to pay your debts with the income? This is quite essential, especially if your income is on the low side. It is the job of a financial advisor to make everything work, even with limited resources. So, if you cant answer this question, then you need a financial planner.

2. Are You Uninterested In Your Personal Finances?

You will agree that to be successful in anything you do, there must be a conscious effort to be interested in such things. The same goes for finance. Some people find it difficult to pay much attention to their finances for different reasons. For some, they just want to live life without bothering about the future, for some, their weakness for calculus makes them disinterested in financial planning. If you are one of these, or for some other reason, not interested in your finances, then you need a financial planner. A financial planner will put your books in order and make sure you make provisions for your post-retirement lifestyle. Having one will also help rein in some unnecessary expenses which can be diverted towards some more important financial plans like savings and investments for your future. So, take a look at yourself, if you are in this category, then you need a financial planner.

3. Are You Too Busy To Do It Properly?

If you are the busy type. Always on a trip or some project, you may need a financial planner. Financial planning requires a cool head to gather all details and come up with a plan that suits your financial status. If you are the busy type, you may not have the luxury of sitting down to come up with a financial plan with a cool head. Having a financial plan will leave that out of your worry and it becomes the problem of an expert to figure out a workable retirement plan. All you have to do is provide the financial planner with relevant financial documents that will give him a clear picture of your finances. You will also need to answer a few questions on your investment preference and risk appetite. His job will be to marry all these information to give you the best financial plan. You can continue with your busy life, your future is covered.

4. Do You Have A High Income?

This is a tricky advantage that may end up being a waterloo if not planned properly. Having a high income means that you have extra cash to save and invest in a good retirement plan. However, if you do not have the financial discipline to save the extra cash. You may need a financial plan. There will always be a temptation to spend the extra cash on yourself to enjoy the good things life has to offer. While this in itself is not a bad thing, it should not be at the expense of your future. There are so many things you can do with extra cash from a high income. Pay your debts on time, create a trust fund for your loved ones, and create a retirement plan that will be enough for the kind of lifestyle you dream of post-retirement. Your best bet is to have a financial planner that will help you take advantage of your high income.

5. Might There Be A Big Inheritance Coming Your Way?

If you are a beneficiary of a Will or Trust fund, you may be tempted to squander it since it is a gift. If you know you do not have the financial discipline to make good use of your inheritance, you may need a financial advisor. A financial advisor will present you with various options on how to utilize your inheritance other than squandering it. Even if you do not intend to squander it, you can still get important tax tips from a financial advisor which will allow you to maximize the inheritance.

6. Are You On The Path For Growth In Your Company And Big Raises?

The potential of having an increase in your income can be tempting. You may have awaiting list of financial obligations you plan to divert this additional income into. It will be better to have a plan for this. Are you confused about what to use your big raise or increase in revenue for your company for? A financial planner will help put things in perspective for you. Like they always say, there are a million and one things to use the money for, why not let your financial planner determine how best to use these funds. It can be used to increase the savings in your retirement funds, for new investment portfolios with a higher risk but more return, or to offset inflation of the cost of living in your retirement fund. Having the extra cash is not a big payday for the now, it is an opportunity to protect your future.

7. Does Your Spouse Have Different Financial Goals?

There is nothing wrong with having a different financial goal from that of your spouse. Yes, it is commonly said that it is good for couples to be on the same page when it comes to finances. Certainly, there will be some common goals that you can go ahead to achieve together, but where you have a different financial goal, it might be good to bring in a financial advisor to help you with your personal goals. A financial planner will come up with ideas that will help you plan on how to achieve your financial goal in a way that does not affect the joint goals you may have with your spouse. A financial planner will ensure you stay committed to all the joint goals while working towards yours also. This will also go a long way in preserving the relationship with your spouse if you are able to stay committed to the joint goals.

8. Are You Going Through A Divorce?

Divorce is an ugly business that can put you off-balance if you do not get a grip or have a good support system. It is even more sensitive when it comes to finances because in one way, your support system is gone and for some, they also get to lose part of their savings and investment in the final divorce settlement. If you are in this kind of situation, a financial planner may be needed to help you settle your finances. Early involvement of a financial planner will help you define the divorce settlement. They assist you in making the best decisions, reorganizing and taking control of your financial destiny, and appreciating the worth of money in your particular situation. A financial planner will help you understand the financial implication of every decision pre and post-divorce.

9. Do You Know How To Set Yourself Up For Retirement Stability?

This is an important aspect of financial planning because it has to do with providing for your future. We all have the post-retirement lifestyle of our dreams and we have to save now to be able to achieve that. For a more sustainable retirement plan, you need a financial advisor who is an expert in budget, tax, and inflation calculations that will give your retirement plan the stability it needs to grow and be sufficient for your post-retirement lifestyle. There are different calculations involved that will set you up for good in retirement. You may not see all the angles but a financial advisor will.

10. Do You Do Your Taxes Every Year With No Problems?

Tax is an inevitable technical obligation that every individual must fulfill. Taxes are quite easy for some more than others. If you fall in the category of the others, you will need a financial planner to put your books straight. The question is, do you even know all the taxes you are supposed to pay or the tax credit you are supposed to enjoy. The truth is there are so many tax laws in Canada and only a financial expert who is familiar with relevant taxes can help you fulfill all your tax obligations and maximize tax credits.

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Welcome to our article where we will give you the most helpful insight on who you can talk to about your retirement planning. You might be wondering if you have enough for retirement and whether you are ready for retirement. This article serves as a great guide!

Who Do I Talk To About Retirement Planning?

Retirement planning is an important aspect of financial planning that is easily ignored. This is mainly because people view retirement as something that takes decades to arrive at that point. I have many years ahead of me, I don’t have to worry about it for now. That is exactly what some people say. This has made some slack on retirement planning, leaving them to regret it when it is too late. There is no specific age for starting a retirement plan, so you should start today.  

Once you decide to start, it is always advisable to engage the services of a professional retirement advisor. The reason is to be able to deal with the different elements involved in retirement planning. Things like inflation, budget and investment decisions are what make up a retirement plan. Unless you have a good understanding of the financial world, a professional retirement advisor is your best bet. Even if you have your plan, an advisor can help you improve on it and suggest better ways to manage your budget, savings, investment and tax benefits in your retirement plan. Of course, their services are not free. Some charge direct fees for the services, commission on the financial products they recommend and some do both. Find out the one that suits you and offers the best services and engage them today.  

6 Step Guides Before Meeting Your Financial Investor

Before meeting with a professional retirement advisor, you should put your house in order because he can only work based on the information you have. Here are somethings you have to do before meeting with your advisor:

1. Find your ID

Your ID will be needed for any form of registration. It is usually a government issued IDs like Passport or a Driver’s License. This is needed to confirm your identity and address.

2. Gather Financial Documents

Your financial documents are what tell your financial story. It says what you own, owe, and how much you are worth or will be worth. This information is needed to build a good retirement plan. This is what will most likely inform how much you need to save towards retirement and what kind of portfolios you should invest in. some of the documents you will be needing include:

• Bank account statements including savings and chequing accounts;
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• Tax-Free Savings Account (TFSA)statements, if any;
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• Pension plan paperwork, if any;
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• Registered Retirement Savings Plan (RRSP) statements if any;
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• Tax returns issued by Canada Revenue Agency for the last three years or for however long you have been working if less than three years;
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• Other investment statements such as bonds, stocks, and mutual funds.

3. Create a list of current expenses

This is an important assignment that has to be done before meeting your advisor. This helps give you clarity on where your money is going. This way, you can plug leakages in terms of some avoidable expenses you make to divert the money into your retirement savings account. This will also give you an idea of how much you may spend when you retire. Your current lifestyle will give you a hint of what your retirement lifestyle will be. To create this list, you can assess your credit card and bank statements in the last three months to see where your income is going. A three months bank statement will show what are the recurring expenditures which can be assumed to be your basic living expenses. Some of the expenses you are likely to come across include:

• Rent;
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• Property tax;
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• Clothes;
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• Home supplies (toilet paper, paper towel, cleaning supplies, light bulbs, etc.);
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• Transportation (public transit, car, rideshare);
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• Utility bills (hydroelectricity, water, gas, sewage and waste collection);
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• Food (groceries, eating out at restaurants, Starbucks, Tim Hortons);
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• Other bills (phone, cable, internet, Netflix, Spotify, insurance);
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• Entertainment (movie tickets, concert tickets, going out with friends, books etc.);
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• Alcohol, if this applies(store-bought, going to bars, clubs and breweries);
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• Pet supplies, if this applies(food, treats, toys, medical expenses);
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• Vacations.

4. Create a list of debts and loans

Debts and loans are some of the drag-backs of having sufficient retirement savings. You do not want a situation whereby you are using your retirement income to service debts. You may not get to live the retirement lifestyle you dreamed of. That is why advisors encourage people to ensure all debts are paid before retirement. That way, you will not place a burden on your retirement funds. To achieve this, you will need to create a list of your debts and loans to have a clear picture of your financial obligations. Questions like, What type of loan is it? How much do you currently owe? What payment plan do you currently use? will help you know where you stand in terms of figures.  

After creating the list, the information gathered will be used to assess what you can pay off by the time you retire and what you may need to plan for when you retire. Examples of loans and debts you may owe include:

• Mortgage on a primary residence;
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• Mortgage on other property(summer home, cottage, property overseas, rental property);
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• Car payments;
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• Credit line (secured or unsecured);
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• Student/education loans;
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• Loans from family/friends;
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• Credit card debt.

5. Find out how much you want to retire with,

This is more of a personal goal that is guided by your retirement goals and the kind of lifestyle you want when you retire. It is commonly referred to as the magic number. You can use the Government of Canada’s retirement income calculator to determine much you may need in retirement. This will give you clarity on how you can save towards that number. Some of the information about expenses and debts you have gathered will be used to calculate.

6. Checkout what you might get from the government & your employer

This is also important because it also goes into your retirement savings. Any additional money is welcome. In Canada, the government makes provisions to provide some income during retirement. A good example is the Canada Pension Plan and the Old Age Security program. These funds are not designed to fully support you when you retire but rather be supplemented by your workplace retirement savings plan, pension plan and/or personal savings. A very vital tipis that the difference between these supports and what you will need to spend each year in retirement is what you have to save.

How Do I Begin To Plan For My Retirement?

The very first step is acknowledging that you need to start as soon as possible. Then there are certain decisions you need to make to have an effective retirement plan: Some of these decisions include

How much time do you have

Knowing how much time you have until retirement will help you decide on how aggressive you will have to save and invest to arrive at your dream retirement savings goal. It will also help you plan your budget pre-retirement to ensure you save as you are supposed to.

What is your retirement lifestyle goal

This will help you determine your magic number. You need to set your retirement lifestyle goals even before you start saving. Do you want to own a property, buy a car, or go on vacation? All these things cost money and knowing what you want to do in retirement will go a long way in your retirement plan.

Calculate the after-tax rate of the returns on your investments

After choosing the type of investment you want to put your savings into, knowing how much you earn after tax will give you a clear picture of how far you are from your financial goal.

Assess your risk and investment goals

Placing your investment goals side by side with the risks will help determine the level of risk you need to take on each investment. Investments have varying risks and you do not want to place your money in a high-risk investment that allows you to overachieve on your investment goals. You may lose it all.

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What Are The Four Basic Steps Of Retirement Planning?

1. Start Early

This is a very important step that cannot be overemphasized. Starting your retirement plan early gives you ample time to accrue a lot of savings and returns on your investment that will help you live the retirement lifestyle of your dream.

2. Decide on your retirement age

This will enable you to know how much time you have before retirement and how much you can save and invest to achieve your retirement goal.

3. Have a budget

This cannot be overstated. Having a budget helps you align your income and expenses so that you can have a clear idea of how you spend your money. it will also help you cut down on unnecessary expenses and focus on your retirement savings.

4. Enlist the services of a professional retirement advisor

Bringing in an expert will help you maximize all the resources you have at your disposal that you may not know you have. Things like tax credits, government benefits and lucrative investments are what a professional advisor brings to the table.

When Should You Begin Your Retirement Planning?

The simple answer is NOW. The earlier, the better. Starting early allows you to rack up enough money in your savings plan. It also gives you ample time to settle all debts before retirement.

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Retirement planning is an important aspect of financial planning that ensures that your financial needs are catered for post-retirement. To build an impressive retirement fund, it is advisable you start early and also have a varying investment portfolio to grow your retirement savings. Do these things, and you are guaranteed a financially safe post-retirement lifestyle. However, one thing that must be taken into account during your retirement planning is inflation. Inflation is almost inevitable and when you consider the number of years between your pre-retirement and post-retirement, you will agree that the cost of living may have significantly risen due to inflation. Therefore, it is advisable to always put into account, how inflation will affect your retirement funds.

The top two priorities for retirees are money and health. To have a good post-retirement financial life, there must be enough money to take care of your daily expenses and your health. To cover for this totally, you must have a solid retirement fund to take care of your living expenses during post-retirement. To have a solid retirement fund, you must put into consideration inflation when building your retirement plan. The cost of living today will definitely not be the cost of living post-retirement. Your investment portfolios will go a long way in helping you hedge against inflation. A conservative retirement lifestyle will also help you cover for inflation. All in all, it is all about being smart and engaging professionals that will help you with your retirement plan.

To calculate inflation in Canada, the Consumer Price Index tool is used. The year-to-year difference prices are calculated using a range of products and services. While inflation is caused by different economic,  social and political events, the government tries to put it under control. For example, the Bank of Canada, through its special key interest rate regulates inflation by putting mechanisms that will hold inflation at a steady rate of 2% per year. Despite the controlled inflation rate, it has affected the value of savings and investments.

How Inflation Will Affect Your Retirement

Inflation is said to have occurred when the cost of a product or service increases compared to the value in a particular period in the past. It is important to note that inflation is not just the increase in the price of a particular product or service. It is generally the continual increase in the average price of products and services. This decreases the purchasing power of the CAD. When this happens, you will only be able to buy fewer products and services with the same amount of CAD before the inflation occurred. Your purchasing power reduces.

The implication of this is that it eats into your retirement funds budget, which is why you should always put into account the effect of inflation in your retirement plan. Your retirement fund is based on an assumption of the cost of living during your post-retirement days. Some people use the current cost of living to plan their retirement funds. This is wrong as things will most likely be different, goods and services will cost more and if you use the price of today to plan your future, you may end up short changing yourself.

Your retirement plan is your financial protection against your post-retirement years. It is a period in your life where you will no longer be active. You will not be able to work and earn as much as you do now that you are older. This is why it is advisable to always plan for retirement now that you are agile and can earn as much as you can.

Effects Of Inflation

Inflation is a big part of your retirement planning because the cost of living today will not be the cost of living when you retire. All you have as a source of income will be your retirement savings and it won't do you any good if you planned your savings using today’s cost of living. For example, the cost of cereal today may not be the cost of cereal when you retire, how do you ensure you make provision for this potential increase in the price of cereal and every other commodity and service. This is why you should take into account inflation in your retirement planning. You may argue that your retirement savings also grow when you invest but it is important to know how much money you need to set aside to meet your retirement needs. In doing this, you need to factor in inflation. When you meet with a financial planning expert, they help you calculate how much you need to hedge against inflation for post-retirement spending. They do this with a number of formulas that will consider the inflation rate when your post-retirement days begin.

How To Protect Abasing Inflation In Retirement

A retirement plan that fails to consider inflation only gives room for a decline in purchasing power when the time comes. To avoid this, your retirement savings must be outdoing the estimated inflation rate. Here are some tips that will help you account for inflation in your retirement planning:

1. Continue Working

This is based on how agile you are after retirement. If you can, maybe not fulltime, but the money you earn in a part-time job during post-retirement can help hedge against the inflation in the cost of living during your post-retirement days. This is more of a damage control method but it has proven to be effective. Additionally, the salary and benefits you receive for jobs during post-retirement will also rise with the current inflation rate. This will protect you later into your retirement years because your retirement income and benefits will be based on a higher final salary because of the extra years of work.

2. Save The Extra Cash

Generally, during your active years, your salary should always increase annually to keep up with the inflation rate so as to maintain your purchasing power. To provide for inflation post-retirement, you can save a larger chunk of the salary increase into your retirement savings. If you come across any extra cash, asides from a salary increase, you should also put a larger chunk of it into your retirement savings. It will go a long way post-retirement.

3. Keep Investing

Because you have hit post-retirement does not mean you should stop investing. Continuous investment in different portfolios will help your retirement savings keep up with inflation. There is the saying that investments, especially stocks, will out outpace inflation. This is not certain although the fact has been historically proven right. It is advisable to have conservative investments and also diversify them with varying high-risk investments and volatility. This will help protect your retirement savings against inflation.

4. Have A Real Estate Investment

This is another good way to keep up with inflation. Real estate is an investment that may actually help you beat inflation post-retirement. The first step is to ensure that you pay off your mortgages before retirement. This reduces the burden on your retirement savings and can cover for the inflation during post-retirement. You can also diversify your investment in real estate to help beat inflation during your post-retirement days. If you are skeptical about owning a property and leasing it out to avoid dealing with tenants or even a management company, you can consider Real estate Investment Trusts. This is an investment portfolio that allows you to co-own a property with other shareholders.

5. Lower Your Cost Of Living

Retirement, for some, is when you get to do all the things you could not do while you were still actively working. Some decide to travel the world, buy exotic cars they couldn’t drive while they were still working and other flamboyant living expenses that could cost you, especially with the inflation rate in your post-retirement years.

The best way to get around this is to limit your expenses post-retirement to cover against inflation and ensure that your retirement savings plan is enough to cover your post-retirement living expenses. You can cut down on expenses like shopping, cable TV packages, mobile phone plan and so many other things that you may not find interesting after retirement. If you still want to keep all of these expenses, you can negotiate a better rate with your service provider to suit your current status as a retiree. It is the time to get rid of extravagances and be prudent with your retirement savings.

6. Be Wise

Retirement planning takes careful consideration and practicable strategies to ensure that your post-retirement days are covered. It is advisable to engage the services of a financial advisor to help you with your savings and investment strategies for your retirement plan. They always have a good sense of how to take into consideration the inflation rate when building your retirement plan. It goes without saying that you should have a budget and stick to it pre-retirement and post-retirement. If you want to spend money on things you want but don’t need, be patient, and wait till you can get the best price for it.

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You are looking to start planning to retire and you have come to the right article. Let us help guide you down the path of least resistance and help set you up for success for your future.

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How To Start Planning For Retirement At 50: 10 Tips

1. Start A Budget That Prioritizes Retirement

Retirement is an important part of financial planning that ensures your post-retirement days are financially catered for. If you have clocked 50 and yet to have a retirement plan, don’t fret, it is never too late to start a retirement saving account. When you decide to start making contributions to your retirement savings account, one of the first things to do is to make a budget that puts your retirement funds in the driving seat. These will ensure that contributing to your retirement savings account becomes a priority.

To do this, you must take a look at your monthly income and expenditure and plan what you spend and what you save. A budget must be realistic so much so that what you set aside for expenditure must sufficiently cover paying for your required expenses like insurance, mortgage, utility and personal bills, clothing, and food. You must cover the essentials first before you start thinking of saving. After settling this, you must then assess your optional spending. These are expenses that you can cut down or do away with such a seating out, going on vacation at every opportunity, credit card debts and others. The money used to fund these optional expenses can be diverted into your retirement savings account.

It is important to avoid credit card debt in this situation because it is what prevents you from achieving your financial goals. The trick is that you do not put anything on your credit card that you cannot settle within the same month. This way you can avoid paying interest when you start paying back monthly. Ensure that you settle all debt in the same month you borrowed them. This means that you have to assess your potential debt before borrowing it. Stick to this, you will have more money to put into your retirement savings.

2. Start Automatic Savings

‍Automatic savings is a sign of discipline that will help you control your savings and ensure that you keep up with your commitment monthly. For this to work, you must have reviewed your budget to cut down on all unnecessary expenses. This will ensure that your basic needs are covered and your assigned savings percentage is automatically deducted from your account into your retirement savings account. If you have a stretched budget that saps out all your funds, then this plan may not succeed.

Indeed, you cannot control how long you live but an average50-year-old is expected to live another 30 years. So ensure that you make your retirement plans to cater for the next thirty years. Get your calculations right, consider inflation and you are covered during your post-retirement days. Have a budget for expenses and savings and make sure you stick to it.

3. Generate More Income ‍

At 50, you do not have much time before retirement and this should be a motivation for you to generate as much income as you can to meet up with your retirement planning goals. The idea is to have more income so that you can save more and prepare for your retirement. There are so many smart ways to go about this. First, you can ask for a raise at your current job or work towards higher bonuses and commissions or you can even start working overtime to earn more. You can learn digital skills that will also fetch you money. In all of these, it is important to know how you can reduce your taxes with your additional income. You can even sell or rent out some of your unused belongings.

4. Prepare To Work Longer Than You Originally Planned‍

If not for any reason, for the fact that you just started your retirement plan at 50. It is an advanced age that you may not be able to save enough for retirement. This means that you have to start thinking outside the box to meetup with your retirement planning goals. One of such ways is to work longer even after your retirement age. The longer you stay working, the more you earn and the better your retirement savings. Working extra years will help you defer dipping into your retirement savings and keep just for a little while longer for it to grow and be sufficient for when you finally retire.

5. Pay Your Debts

‍Debt is one of the hindrances to having a desired retirement savings plan. If you won a credit card, there is every likelihood that you have debts. Discuss with your financial advisor on ways you can pay your debts as soon as you can while also building your retirement savings portfolio. If you have a mortgage, create a plan for you to settle it all before you finally retire. It will not be good if your retirement earnings are used to pay up debts. Once you can settle all these debts, ensure that you do not go back into that rabbit hole called debt again. If you must, ensure that it is a debt you can pay up in the same month it is owed.

6. Have Diversified Investment Portfolios

‍Investment is one of the key ways of ensuring that your retirement savings multiply. A diversified investment portfolio simply means that you do not have all your investments in one area. In other words, your investment portfolio includes stocks, bonds, real estate, cryptocurrency, and many more. A diverse investment portfolio helps your hedge the risks of each portfolio against one another and ensure that you do not lose all your savings if one of the investments is not performing as it should. Each investment portfolio acts as a fail-safe to the others.

However, do not invest in fixed income assets that yields less than the average expectation that can be compared to the expected inflation rate during post-retirement years. The general inflation estimate is2%. In other words, ensure that your investments yield more than 2% to cover for inflation. Stocks are very good investments that yield incomes more than the estimated inflation rate. Cryptocurrency is high risk but can be rewarding on good days. Whatever investment you are going into, try and play safe as much as possible and be sure that the earnings are more than the inflation rate.,

Another trick for a diversified investment portfolio is when you are approaching retirement, you can divide your retirement savings into pockets, 3 to be precise. the funds in each pocket will be designated to be spent for the next 30 years, 10 years each. You can then invest the money for the first 10 years in conservative portfolios like bonds, and mutual funds, while the remaining 2 pockets can be invested in higher-risk investments like cryptocurrency and stocks. You can take the funds out of the investment when you are closer to needing the money. This will help you balance your investment risks in the different portfolios.

7. Have An Emergency Fund

‍Emergency funds will ensure that you do not dip into your retirement savings. There are times that the unexpected happens and you need money to cover the expenses, you do not want to dip into your retirement savings that are just gathering momentum. Having an emergency fund on the side can help you achieve this. Emergency funds can be in the form of savings, keeping a savings account, and having insurance to cover your home, car and health.

8. Have a Side Hustle

‍A side gig helps you cover the basic expenses and keeps you afloat while you save aggressively for your retirement plan. There are a lot of digital skills and remote jobs that you can take on that will help you achieve this.

9. Be Disciplined With Your Spending ‍

This is an important tip because it is what will ensure that you are on track with your retirement plan. When you create your budget, there will surely be temptations to spend above the budget. The key is to stick to your plan and plan for your future. You can break down your budget into weekly or monthly to track your expenses efficiently. Financial discipline is key in all of this.

10. Start Today

‍Starting a retirement plan at 50 doesn’t exactly give you a lot of time, but once you realize and accept that fact, you are 50% done. You still have a good 15 years of active work in you. That is a good amount of time to build a sufficient retirement fund. It is never too late, especially if you start today.

Can I Start Saving For Retirement At 50?

The answer is a resounding YES. 50 may seem late in life but it is not too late. At that age, if you combine full-time and part-time jobs with side gigs of 15 to 20 years, you can build a self-sufficient retirement fund that will last you for your post-retirement days. Once you realize your disadvantage, which is the age at which you are starting, you need to first, perfect the basics. That is, draw up a budget and savings plan, and stick to it. Cut down on unnecessary expenses and start being prudent with your income. Stop taking debts and ensure you create a plan that helps you pay all debts before retirement, including your mortgage. These are key moments in the next two decades after you clock 50. There is no limit to the age you can start building your retirement savings, you only have to work much harder than a younger person.

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An annuity in Canada is a way to turn your savings into a stream of retirement income offered by insurance companies. For those people thinking about planning for their retirement, an annuity is a potential source of retirement income which can come with many benefits. Today we’ll explore the various aspects of annuities to answer in detail “what is an annuity in Canada”.

What are the types of annuities?

There are many types of annuities in Canada, we will talk about the 3 most common types.

Life annuities

Life annuities are annuities which you know exactly how much money you will receive each year. With a fixed annuity, when you put in your savings, the insurance company will calculate for you how much you would receive in income each year. Most importantly, life annuities last until you pass away, which is a great guarantee for the annuity holder! However, if you pass away before all the money in the annuity is paid out, then your beneficiary or estate would not have access to that money.

Variable annuities

Variable annuities are annuities which depend on the market performance, because after you deposit your money with the insurance company, the money is actually being invested for you. If the investment performance does well, you’ll receive more money. If the investment doesn’t perform as well, then unfortunately you’ll receive less money that year.

Term annuities

Term annuities are similar to life annuities, except there is a pre-determined amount of time which the annuity will pay out. Additionally, with term certain annuities, if you pass away before the end of your life, the money will be able to be transferred to your beneficiaries!

How does an annuity work?

An annuity works by you first consulting with an advisor, preferably one who specialized in retirement planning or annuity products. Afterwards, you will choose the amount of money you would like to contribute into the annuity, and what type of annuity you want, in addition to when you want the income to start.

Is an annuity a good idea?

An annuity is a good idea if it fits into your financial goals. Usually, an annuity should be considered by someone who fits a few criteria:

·      Has lump sum savings

·      Wants a steady income for a pre-determined time frame

·      Nearing retirement

If you fit into at least 2 of the above criteria, then an annuity in Canada is an option for you to think about.

It’s important to be careful though when you consider the kind of annuity you want to purchase, however, because an annuity is a contract that you enter into with an insurance company. It is often a very long commitment with little ability to change anything after the contract is settled.

Is annuity income taxable in Canada?

Annuity income can be taxable in Canada. It really depends on the type of account you want to hold the annuity in. For example, if you keep your annuity within a TFSA account, then you’ll be able to receive all the income annually tax free. However, if you keep your annuity within an RRSP, then just like taking withdraws from an RRSP regularly, the income from an RRSP annuity would also be taxed.

One extra consideration is if you have a variable annuity in a non-registered account, where the annual income is affected by the market performance, then you would be subject to capital gains and losses annually as you make withdraws.

What is the difference between an annuity and an RRSP?

The difference between an annuity and RRSP is quite significant. First of all, the RRSP is a type of registered account. An annuity is a TYPE of investment contract which you can hold within an RRSP account. Likewise, you can also hold an annuity within a TFSA or non-registered account as well. The type of account will determine what sort of tax benefits you may be entitled to, but it has nothing to do with the actual performance of the investment itself.

When you speak to your advisor, have a discussion on which account you want to use to hold your annuity. It’s important to make sure you actually have the contribution room in your account as well, since there is a finite contribution room in your TFSA and RRSP accounts. It may just turn out that you must keep the annuity in a typical, non-registered account!

If you’ve been researching different types of safe, steady, and nearly guaranteed investments in order to generate an income, then you may have come across Canada Savings Bonds. A Canada Savings Bond, or CSB, is one of those things that you often hear about online, through banks, and even investment advisors, but few people actually use it, or even know what it is. So, exactly what is a Canada Savings Bond?

The first thing you need to know is that they are considered a type of fixed income investment. What this means is that the goal of this investment vehicle is to help provide a steady return, rather than aggressive and explosive growth. You can learn more about the different types of fixed income investments.

Do Canada Savings Bonds still exist?

Funny you should ask! The short answer is “yes”, Canada Savings Bonds do still exist, although it’s in a form of purgatory. This is because even though they still exist, newly issued CSBs are no longer available for anyone to invest into any longer!

As of 2017, the declining popularity of Canada Savings Bonds for nearly 30 years resulted in the federal government making a big, yet necessary decision to stop offering anymore savings bonds. The fact of the matter is, the government could only offer a 0.5% rate on a CSB. As of 2021, all the CSBs have “matured” and they now need to be traded back in for cash at your bank.

How do Canadian savings bonds work?

Time for a little history lesson on Canadian Savings bonds work. Bonds were started back during war time, when the government needed to raise a lot of funds for the war efforts. By offering these bonds, they could entice citizens to help fund the war efforts, with the promise of an annual interest. The bonds would mature at different times; the government offered 10 year, 20 year, or even 30year bonds. At the end of the term, you would be able to trade in your physical bond certificate for cash, while enjoying the interest that you’ve been earning.

How you receive the interest from the bonds The first kind of bond is a regular interest bond. What this means is that you would receive the interest at the end of every year. A second type of bond is a compound interest bond, which means you would receive all of the interest at the very end of the term. Yes, for the 30 year bonds, you would be waiting a long while, although typically a compound 30 year bond isn’t offered.

Are Canada Savings Bonds a Good investment?

It’s kind of a moot question at this point, because Canada Savings Bonds are no longer offered by the federal government. More importantly, as of 2021 all issued bonds have matured, meaning that none of them are granting interest any longer. Therefore, there is literally no money to be made on an investment into a CSB, so a Canada Savings Bond is not a good investment for anyone.

How much is a $100 saving bond worth?

As mentioned above, all Savings Bonds have matured, and therefore, in Canada, Savings Bonds no longer offer any returns. If you have a bond certificate that is worth $100, then depending on whether it’s the regular interest type or the compound interest type, it can be worth different amounts, since for the compound interest type all of the accumulated interest would be given to you when you trade in the bond certificate.

Alternatives to Canadian Savings Bonds

As an alternative to Canadian Savings Bonds, there are several options that are available to you. Recall that the main purpose of a savings bond is that it promises a steady income, and is very good at preserving your capital. With these 2 main benefits in mind, here are some alternatives to the Canadian Savings Bond which can achieve the same results:

Guaranteed investment certificates

Guaranteed investment certificates, or GICs, are offered by banks, credit unions, and trusts. They promise a guaranteed interest rate, much like bonds, and they are legally obligated to preserve your capital. The downside is, like bonds, your money is also locked it. You can learn more about GICs in this article here.

High Interest Savings Account (HISA)

These accounts are typically found at most financial institutions, although you should take a look at some online only banks in Canada which typically offer better HISA rates than a retail bank. Typically a bank would offer 0.3% to 0.5% interest rate, but some online banks will offer an interest rate of 2% of even more! Additionally, you won’t need to lock in your money like a GIC, so it offers liquidity which is extremely useful as well.

Corporate Bonds

Not only can the government offer bonds, corporations can offer bonds as well! It works in much the same way as a regular bond, except you would trade in your bond certificate at the end of the term to the issuing corporation in question. Typically only large, well-established corporations offer bonds, and you are essentially loaning money to that company.

Bonds from other countries

This is a little different, but if you want to, it is possible to buy bonds from other countries. Most typically this is done through investment into funds which hold bonds from different regions of our world.

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A mutual fund in Canada is a particular type of managed investment vehicle which is overseen by a fund manager. It is closely related to another common type of investment, stocks. A mutual fund is a bundle of stocks, and when you buy into a mutual fund, you own a piece of the basket, rather than directly owning the stocks themselves. Today, we’ll take a deeper look into mutual funds and how they might fit into your investment portfolio.

What is a mutual fund?

A mutual fund is great investment vehicle which by its nature, has a built-in diversification function. Most financial advisors and investment managers will tell you that having a robust, diversified investment portfolio will be the key for a great financial future.

A mutual fund in Canada is closely linked to stocks, in that mutual funds are a basket, or bundle, of many different stocks. Why is this important? Well, we know that it’s important to have a diversified financial portfolio which can withstand volatility in the stock market. Naturally, because of this idea, many people will want to invest in not one, but many different companies. However, this can be very tough to do, because trying to diversify to many stocks, up to hundreds of different companies, can be very costly.

By investing into a mutual fund, which is comprised of many people gathering their money together, individual investors are able to own one piece of the “basket”, and are able to partake in the performance of up to hundreds of different companies in the stock market.

How does mutual funds work in Canada?

In Canada, a mutual fund itself is managed by a fund manager, who often has a team working with them. If you take a look at your bank, or any other financial institution, you’ll discover that there are hundreds of mutual funds available for your choosing in Canada. Each of these funds have a fund manager, and their job is to make the fund perform as well as possible.

A mutual fund in Canada can have various different focuses: for example, you might see a mutual fund which is focused on the healthcare industry. In this mutual fund, the fund manager would look for the best performing healthcare companies listed on the stock exchange. On a daily basis, the fund manager and their team would seek to buy or sell different stocks to keep the performance of the fund up.

Of course, the mutual fund management team will have a fee, which is commonly called the management fee, or the management expense ratio (MER) for their services. This is something that needs to be considered when you decide to investment into any particular mutual fund.

Are mutual funds a good investment in Canada?

For a lot of people in Canada, mutual funds are one of their first forays into the investment world. The great thing about mutual funds is that there is an incredibly wide variety of them. From low risk bond funds, to aggressive growth-based funds, and everything in between. No matter what kind of risk portfolio you belong to, you’ll be able to find something in Canada that’s within your risk tolerance.

Another reason to invest in mutual funds would be if you were more of a hand-off type investor. Because of mutual funds having a management team actively managing your money, you’ll be able to sit back and allow the professionals to do their job. The flip-side of this, is that this management comes with a price. Before you decide to invest into any particular mutual fund in Canada, make sure you understand what fees are charged by the fund, and look at the performance history, net of fees!

How does a mutual fund work in USA?

A mutual fund in the USA works very similarly to mutual funds in Canada. As a Canadian, you do have access to US mutual funds, but it’s not recommended for you to invest in them as there are a lot of complicated tax implications for cross-border investing. However, you’re not missing out on anything as the structure of mutual funds in the USA is the same as mutual funds in Canada. Both have fund managers, and both have up to hundreds of companies’ stocks.

A good compromise, if you want to access US companies, is use mutual funds in Canada which hold US companies.

Types of mutual funds

There are many types of mutual funds. We will list a few below, but keep in mind that there are many more types to choose from!

Index funds

Index funds are mutual funds which tracks a specific index like the S&P 500 or the NASDAQ. Whichever companies make up that index, that’s what the mutual fund will invest into.

Regional funds

Regional funds are mutual funds which are focused on a specific geographical region. For example, you might see a western Europe fund, South America fund, or East Africa fund. As the name suggests, the fund will focus on companies based in those regions.

Resource funds

Resource funds are mutual funds that focus on a particular resource such as crude oil, precious metals, or even commodities like wheat. These funds will focus on companies associated with those particular resources.

Sector funds

Sector funds are mutual funds that are focused on a particular industry such as healthcare, technology, or finance, as an example. As the name suggests, these funds will invest in companies specializing in one particular sector.

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A segregated fund in Canada is a type of investment offered by insurance companies. You might have heard about mutual funds in Canada, and a segregated fund is very similar. It has similar benefits in that your investments are diversified into many different companies when you invest in a mutual fund, and that there is a fund management team taking care of the daily buys and sells for you. Being that segregated funds in Canada are offered by insurance companies, they do come with some additional benefits to protect your investment, which we will talk about in this article!

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Segregated funds are a good idea for people who want to participate in the growth of the stock market, but who are also wary of the risks, and want to have a way to protect themselves against the worst-case scenarios by using certain stop-loss mechanisms. These protections do come with some costs, so it’s important that you work with the right advisor to help you determine whether or not segregated funds are the right choice for you.

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How do segregated funds work?

Segregated fund work almost exactly like mutual funds on a surface level. You can think of a segregated fund like a mutual fund in that it is a basket of stocks being managed by a team of professionals, with the added features of an “insurance wrapper”.

At its core, segregated funds are a very specialized type of investment product offered by insurance companies called “individual varied insurance contracts”, or IVIC. They are called this way because when you invest money into a segregated fund, you’re actually entering into a type of insurance contract with the insurance company, in which they will offer you guaranteed values on your investment. Yes, that’s right. Segregated funds in Canada come with guarantees on the values, meaning that you won’t be completely at the mercy of the stock market. Instead, you’ll have an idea of the maximum amount you stand to lose.

For the cost of this protection, the management fee(something we talked about in our mutual fund article), will be slightly higher. Compared to a mutual fund, the management fee on segregated funds are usually about 0.5% to 1% higher.

Is segregated funds a good idea?

Segregated funds can be a good idea for a wide range of investors. Segregated funds in Canada come with a variety of benefits that make them a good idea if you want to manage investment risk, bypass probate upon death, and have access to a wide range of investment options in the market. Most important, it comes with different levels of guarantees that protect you from having losing too much money!

What is the meaning of segregated funds?

The meaning of segregated funds mean the invested funds are held separately from the insurance companies actual investment funds. This is a big legal benefit, because behind the scenes, segregated funds in Canada are considered an insurance product. As an insurance product, you are legally entitled to certain benefits which are not present in a typical investment on the market.

For a Canadian who invests in segregated funds, this means they can potentially have better peace of mind, knowing that their investments are better protected than if they were just to invest in a mutual fund.

What is the difference between a mutual fund and a segregated fund?

There are a few key differences between a mutual fund and segregated fund. We know that on a surface level, segregated funds are invested and managed like mutual funds. However, segregated funds in Canada enhance mutual funds by adding some insurance wrappers around it. Here are the key differences which a segregated fund adds on top of a mutual fund:

Maturity guarantees

Maturity guarantees on your principle. By investing into a segregated fund, you actually get to choose your guarantee level. The most common ones are 75% or 100%. There are also time horizons on this guarantee which can be 10 years, 15 years, or even to age 100. At the time of maturity, they would look at the market value of the contract. If the market value is lower than the guarantee value, the insurance company would actually “top-up” your investment.

Death benefit guarantee

For a lot of these segregated funds, they come with a death benefit guarantee, also have 75% or 100%. If you pass away while the segregated fund is still invested, the insurance company will top the value back up to your chosen guarantee level and cut a cheque to your chosen beneficiary.

Bypass probate

Segregated funds are an insurance product at it’s core, which means it will bypass the lengthy and potentially costly probate process when the investor passes away. This makes it a great option for older people in retirement who are concerned about their estate as their eventual time of passing.

Additional management fees

These extra benefits are paid for in the form of a management fee. A segregated fund will typically have higher management fees than a comparable mutual fund.

Can you withdraw from segregated funds?

Yes, you can withdraw from a segregated fund in Canada. There are some things to look out for, because sometimes, a segregated fund offers a limited number of withdraws per year. Or you might need to withdraw a minimum amount for each transaction. Each of these factors will be different, so make sure your advisor goes through this information with you before you decide to invest your money into a segregated fund!

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The Guaranteed investment certificate is one of the most popular investment vehicles in Canada. In fact, millions of Canadians love the GIC so much that every year, there are hundreds of billions of dollars invested into Guaranteed Investment Certificates across Canada.

In our world with ever increasing risk and uncertainty, people are beginning to look for more safe and secure investments, where their principle amount is guaranteed. As risk tolerances get lower and lower due to the state of the world, and an aging population, it’s likely that GIC investments in Canada will only become more and more popular due to its low risk.

What makes the GIC such a popular choice for Canadians? Depending on the person you ask, they may give you different answers. Let’s take a look at the GIC, and find out exactly how GIC works in Canada.  

What is a GIC and how does it work?

AGIC, or guaranteed investment certificate, is a specific type of investment that is available to all investors in Canada. Fun fact: did you know that even a child under the age of 18 can invest into a GIC? The main feature of a GIC is that it is guaranteed. In a later section, you will learn  out exactly how that’s achieved.

You will find that any Canadian bank will offer a GIC, but often times, it can be quite confusing due to a wide range of different associated factors. Generally speaking, a bank will offer a “GIC rate”. This GIC rate is typically a little higher than a savings account interest rate. For example, if a savings account interest rate is 0.3%, the GIC rate might be 0.5%. Another consideration is the length of time the GIC lasts. This is referred to the term of the GIC. In Canada, GIC terms comes in varying lengths. You might find a GIC term as short of 6 months, or a GIC term as long as 5 years.

For the banks, they want to encourage you to keep your money with them as long as possible, so longer GIC terms will offer higher interest rates. Sometimes the banks may even offer to increase the GIC rate every year as you keep your money invested.

Can you lose money in GIC?

Technically, yes, you can lose your money in a GIC, but realistically speaking, this would literally require a type of apocalypse scenario. Barring this situation, no, in Canada you cannot lose money in a GIC. This is because banks are legally obligated to return your principle and your interest. Furthermore, there is a government organization called the Canadian Deposit Insurance Corporation(CDIC) which insures your deposit, should the bank fail.

How GIC interest is calculated?

GIC interest in calculated by giving you the annual prescribed growth rate. For example, if you invest $1000 in a 3 year GIC which advertises a return of  2%, for example, at the end of year one you would have $1020. At the end of year 2, you would have $1040.40. At the end of year 3, you would have $1061.21. Keep in mind that, that you don’t actually have any access to this money until the very end of the 3-year term! Which brings us to the next point.

What are the disadvantages of GIC?

There are some disadvantages to a GIC in Canada, and the main 2 are the lack of liquidity, and the low growth. We know that a GIC in Canada is very predictable and safe, but that can also be a downside, depending on your investment goals.

Firstly, the low liquidity in a GIC can sometimes be an issue. You’ll recall earlier, we mentioned that GICs come with a term. What this means is that you are not able to take out this money until the term is up. If you insist on doing so, then any returns you may have made during this time are forfeit, and go back to the bank or trust.

Secondly, the low growth in a GIC is also a downside, especially if you are a younger investor, still in your working years, you most likely want to have more growth, and you’re probably okay taking on a bit of a higher risk in your investment portfolio. A GIC in Canada would be considered a very conservative type of investment, mainly targeted for retirees or people whose main investment goal is preservation and income, rather than growth.

Where Can GICs be purchased?

GICs can be found in nearly every Canadian bank, credit union, or trust. It is one of the most basic and popular products so it’ll be quite easy to find. Oftentimes you can simply walk into a bank and ask to move your money into a GIC, or you could even do this yourself online without the help of a banker.

Are GICs taxed?

Yes, GICs are taxed as interest. Meaning that every dollar you earn from a GIC will be another dollar of your income on your tax filing that year. However, if you hold your GIC inside a TFSA, then the growth will be tax free!

Are GICs worth it?

This is a great question. Depending on what your situation is, the answer can be very different. GICs are best used for people who are aiming for 2 major goals: the preservation of their capital, and to have a predictable stream of returns. Generally, this would mean people who are no longer working, and rely on their savings for their life expenses. This usually means retirees. It’s no wonder that the people who invest in Canadian GICs skew heavily toward retirees! However, if you are looking for lots of growth, and you still have many years ahead of you to wait out the volatility in the stock market, then it’s probably best to look elsewhere.

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One type of investment vehicles that has received growing attention in Canada over the recent years is the Exchange traded fund, or ETF. The ETF is becoming increasingly popular due to various benefits such as built in diversification, moderate risk with a solid chance of growth, and ease of access for pretty much anyone above the age of majority.

To be honest, “increasing” in popularity is probably an understatement. Many Canadians have actually turned to ETFs as a cornerstone of their entire investment portfolio due to its nature! Why is it so popular, and what is an ETF in Canada? Let’s find out.

What is ETF in simple terms?

‍An ETF, or exchange traded fund, is a relatively new type of investment vehicle. Despite its young age. It has two distinct features. First of all, it is a basket, bundle, or group of shares of companies across a particular index, industry, or even a particular geographical region. For example, a S&P index ETF would be an exchange traded fund which holds shares of all the companies in the S&P 500 index. Yes, that’s right, this ETF would have 500 companies held within it! You might even see a technology ETF, which would hold many companies specifically in the technology sector. In this sense, it is quite similar to a mutual fund, which you can learn more about here.

The second feature of an ETF is the fact that they are on an exchange. What does this mean for an investor in Canada? This allows you to trade this fund during normal stock market hours. Asin, you could buy and sell the ETF multiple times a day as much as you want while the market is open. For the savvy day trader and market enthusiast, an ETF allows you the opportunity to make some quick gains, with the risk of quick losses, of course.

How does ETF work in Canada?

An ETF in Canada is fairly simple. An investment manager, an investment management team, or even a robo-manager, can create an ETF, and list it on a stock exchange. In Canada, that would be the Toronto Stock Exchange, or TSX. The manager would be responsible for selecting the kinds of shares held in their ETF, and they would of course do their best to pick the best companies, based on the tenants of that specific ETF. To continue our example, if there is an ETF focused on technology, the fund manager would want to pick the best performing stocks of that that sector for their ETF.

For index fund ETFs, there might even be a robo advisor, because it doesn’t really require any decision making. Like in our previous example, with a S&P 500 ETF, you could have a computer simply hold equal value of each of the 500 companies.

How does an ETF work when you invest into it? By investing into an ETF, you don’t own those specific companies yourself, but you do get to participate in their performance via this ETF “basket”, along with thousands of other people. An ETF in Canada, or indeed around the world, works the same way.

What is best ETF in Canada?

This is a very tough question to answer, because an ETF can vary so widely in terms of their investment goals. Therefore, depending on your investment or financial goals, the best ETF in Canada can also vary widely.

To pick the best ETF in Canada, you need to first determine what are your own financial goals? Do you want to look for a lot of growth? Or do you want to protect your capital and build a steady stream of income? Perhaps something in between? There are always pros and cons, no matter which Canadian ETF you choose to invest in.

This is also a good opportunity for you to speak to an advisor, or financial planner to determine what sorts of investments in Canada work the best for you personally.

How do I buy an ETF in Canada?

This part is easy. If you like self-directed investments, and are more of a DIY type of person, then you can buy and sell ETFs just like you would buy and sell any stock. For most people, this means opening up a trading account with their bank, or the various trading firms out there such as Questtrade, or Wealthsimple.

Types of ETFs

As mentioned before, there are many types of ETFs in Canada. The most popular type by far are index ETFs. Index ETFs follow a specific index such as the NASDAQ, Dow Jones, or S&P500, the purpose is to buy whichever companies are listed on these indexes, and that’s about it. Since the market, over a long run, moves upwards, index ETFs have become very popular in Canada.

Another type of ETF could be an industry ETF. An industry ETF means the ETF manager is specifically looking for companies of one specific industry. An example could be mining and precious metals, technology, financial sector, or textiles. There are as many ETFs as there are industries, which means that ETFs in Canada are plentiful!

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A savings bond is a type of investment vehicle meant to generate a steady stream of income. Similar to other types of investment with “income” as the primary goal: it is very safe, steady, with predictable returns.

The great thing about savings bonds in Canada is that they are nearly guaranteed for their returns. What is more stable than investing in the government? A huge caveat about Canadian savings bonds, however, is that they are no longer available to be purchased. So, even if you have a financial goal of having nearly guaranteed, predictable returns, you’ll have to look elsewhere for your income generation investments, such as a corporate savings bond from a variety of different companies.

How do savings bonds work?

Savings bonds work by you loaning the government money at a pre-determined, or prescribed, interest rate. In Canada and the US, bonds were first started back during the World Wars. When the government needed to raise funds to help the war effort, they sold bonds, or essentially borrowed money from Canadian citizens. By purchasing these “victory bonds”, the holder is entitled to a certain interest rate for a number of years; usually 10, 20 or 30. At the end of the term, the bond holder would be able to trade in their bond certificate for their initial investment.

There are 2main kinds of savings bonds offered by the government: regular interest bonds and compound interest bonds. For a regular interest bond, you would receive the interest as cash annually, at the end of every year. For example, if you had a$1000 bond at 5%, at the end of every year, you would receive $50 for the prescribed term.

There is also the compound interest bond, in which the interest would be accrued at the end of every year. Although you don’t get to receive the cash, the value is reinvested, so at the end of the term, you would receive your principle plus the full amount of interest that has been compounding throughout that time.

In addition to bonds offered by governments, there are also corporate bonds which function in the same manner as federal savings bonds, although the length of time is quite a bit shorter. Usually, you’ll find terms of 3 to 5 years, and rarely 10 or more.

What is a Canadian savings bond?

A Canada savings bond is a specific savings bond that is offered by the Canadian government. Actually, it was offered by the Canadian government. As of 2017, the Canadian government is no longer offering savings bond due to extremely low demand. Although a savings bond offered a lot of safety and almost guaranteed returns, the returns were tied to interest and as of the last decade or so, interest rates in the country have steadily decreased. For the same kind of safety, people could simply save their money into other fixed income assets, or even just a GIC.

How do I buy a savings bond?

If you want a Canadian savings bond, you can no longer buy these. However, if you want to purchase a savings bond from another country or corporation, you could go through different investment brokers, or your banking institution. However, the chances of most investment brokers, especially online brokers, carrying Canadian savings bonds or even any savings bond are quite slim, because the demand for them is so low.

How do I redeem a savings bond?

You can redeem a savings bond by going to your bank and handing in your bond certificate. If you’re one of the remaining people who still holds federal savings bonds certificates, it’s practically an antique! You can still trade it in for the face value, or if you somehow have a compound interest bond, that might be worth quite a bit of money!

If you purchased your bonds through a brokerage, then you should simple talk to your broken regarding trading in the bond. They would be able to handle it for you. These days, it’s nearly impossible to directly purchase a bond from a federal government or a major corporation.

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Although money can’t buy happiness, it sure eliminates a lot challenges which will allow us the freedom to pursue our own happiness. For those who are nearing retirement in Canada, or thinking about retiring in Canada, an important factor which will determine your lifestyle in retirement is going to be your income.

Your retirement income in Canada will come from many different sources: perhaps you have a private pension, a federal pension, non-registered savings, or registered savings. One you’ll eventually have is a retirement income fund, or RIF. But even a RIF comes in many forms, such as LIRA, LIA, or RRIF. Today, we will discuss what is a RRIF investment, and how it affects a Canadian investor.

What is a RRIF and how does it work?

If you have a registered retirement savings plan, or RRSP in Canada, it’s important for you to learn about the RRIF. Why? Because if you still have funds within an RRSP at the age of 71, your RRSP will automatically become a registered retirement savings plan!

The key difference of what happens when your RRSP changes into a RRIF is that you are now obligated to make annual withdraws at a “prescribed rate” set by the federal government. Technically speaking, you could have a RRIF as early as 65, but there is almost no reason to do this as a Canadian retiree.

Starting the year after you open a RRIF, you MUST start making withdraws. For most people since they’re forced to turn their RRSP into a RRIF, they must make withdraws the year they are 72. See the table in the later section for the RRIF prescribed rates by the government.

As you can imagine, you’re very likely to finish withdrawing most of your money within about 20 years or so, unless your portfolio is performing amazingly well.

What is the advantage of a RRIF?

To be perfectly honest, there is no advantage of an RRIF, as it is a severely limited program put in place by the Canadian government to make sure you take your money out, at which point you will need to pay taxes. So for you, there is no advantage, but the government enjoys the advantage of increasing your income tax.

Can you lose money in a RRIF?

Since the RRIF can still be actively invested, but you just can’t add any more funds, you can definitely still lose money within an RRIF. The performance of your RRIF account depends entirely on what vehicles you’ve chosen to invest into. Like the RRSP and TFSA, 2 other kinds of registered accounts, you can invest within a wide variety of options in an RRIF such as stocks, funds, and ETFs, which you can read about here.

RIF vs RRIF

A RIF, or retirement income fund, is a general term for the various types of retirement accounts. The most common 2 types of RIFs are RRIFS, or registered retirement income fund; and a LIF, or life income fund. For all intents and purposes, both the RRIF and LIF are nearly identical. Thus, what we learn about the RRIF today, you could also apply to a LIF!

How much do you have to withdraw from your RRIF each year?

Take a look at the following table to see how much you need to withdraw from a RRIF each year based on your age:

10 Things to know about RRIFs

• You can no longer contribute to a RRIF. Once you have a RRIF set up, you are no longer allowed to contribute any money into it, even if you have room within your RRSP!
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• You can still manage the funds within the RRIF, and make adjustments to your investments. You just can’t add any new money into it.
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• You are forced to convert your RRSP into a RRIF at the age of 71, then you MUST start withdrawing at the age of 72.
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• Any withdraws you make are fully taxable at your marginal tax rate, which for some people can be very high.
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• If you die with a spouse, the RRIF can be transferred to them tax free, and if they’re younger, it can actually be converted back into RRSP.
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• If you die with no spouse, then the RRIF can go to your beneficiaries, or estate. However, it will be “deemed disposed of” which means your beneficiary or your estate will that amount of extra income in that year.
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• You can have as many RRIF accounts as you want. Just like you can have as many RRSP accounts as you want. Just make sure you keep track of them!
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• If you’re withdrawing a significant amount, there will be a withholding tax. The more you withdraw, the higher the withholding tax.
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• Pension income allows you to split income with your spouse, meaning you could lower your family’s taxes.
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• Because RRIF is taxable income, it could reduce your retirement benefits from the government, so do some careful planning!

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Planning ahead for retirement is an important key to financial security. It's an unavoidable fact that should be recognized regardless of where you are or what you do for a living. As a result, it is preferable for a person to put their money in a plan, which is a collection of funds that may be used in retirement. Canada's citizen retirement programs, such as LIRAs, are among the most extensive, diverse, and equitably dispersed retirement programs in the world.

Read: Investment Planning how to Prepare for your Future

If the acronyms do not really pique your interest, you may simply refer to them as "locked-in retirement accounts (LIRAs)." These are technically referred to as delayed retirement accounts.

In this article, we'll go over all you need to know about LIRAs in Canada.

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What is a LIRA investment?

A locked retirement account (LIRA) is a form of Canadian pension fund which does not permit early retirement unless there are special circumstances. The locked retirement account is intended for an ex-plan member, surviving spouse, or former spouse, to keep pension benefits.

While the funds are locked, no withdrawals are permitted. Pension savings could be used to buy an annuity or moved to a Lifetime Income Fund (LIF) or perhaps a Locked Retirement Income Fund (LRIF) after being moved to a LIRA.

The LIF, life annuity, or LRIF pays a life pension to the fund's recipient after he or she reaches retirement age.

Key Note:

• A locked retirement account(LIRA) is Canadian retirement savings account with money that cannot be withdrawn until the account owner reaches retirement age.
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• Locked retirement accounts are controlled by federal or provincial pension regulations and can be transferred to any other pension fund program or used to buy an annuity.

Read: How to do Investment Planning: Guide for Canadians

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Understanding LIRA

A locked retirement account (LIRA) is a type of registered retirement savings account in Canada. When you terminate your membership in a pension plan and leave the employer that created that plan, you can go ahead and create a LIRA at any age to save assets transferred from that plan.

The locked retirement account was created with the intention of holding pension assets for a former partner, former plan member, or surviving spouse. The LIRA is dubbed "lock-in" since it does not allow you to earn income anytime you desire unlike the Canadian Registered Retirement Savings Plan (RRSP). It's all about saving money for either yourself or someone else until you die or retire.

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Government requirements for LIRA

Federal or provincial pension laws control LIRA programs. There are different regulations for releasing blocked retirement funds, which depend on the province where the plan holder lives. Each blocked pension must adhere to the rules of the province or the federal government.

The funds in a LIRA can be transferred to another pension account by the owner.

Possible bankruptcy, low income, security deposit, first month's rent, eviction from a rental, short life expectancy, significant medical or disability bills, and permanent departure from Canada are all grounds to unlock a LIRA.

In some provinces as well as the federal level, unlocking 50percent of a LIRA may only be performed once if you are at least 55 years old. If the balance falls below a particular threshold, the little balance can be unlocked.

If the amount of money involved is significant, it is prudent to get advice from a financial expert.

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When can you withdraw from LIRA?

You can change your LIRA into a LIF or annuity not earlier than 55 years of age, and yet not later than the end of the year you reach 71 years old.

The remaining of your LIRA is no longer locked after you die. It is either paid out to your spouse, or to your heir. If it's transferred to your spouse, they can deposit it in their own tax-free RRSP or RRIF.

You can also take money out of a LIRA if you meet the following criteria:

• If a specialist certifies that you have a disease or physical condition that could reduce your life expectancy to less than 2 years;
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• You are in a financial crisis 
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• If you have not spent at least 2 years in Canada
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• You are at least 55 years old, and the overall value of all your locked-in accounts is not more than the 40 percent of your maximum pensionable earnings ("MPE") for the calendar year in which the withdrawal request is made.

What are the benefits of a LIRA?

• It's an advantage to people who might be tempted to take cash before retirement age because LIRA monies are locked up.
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• Rather than relying on your previous employer to handle your LIRA assets, you can manage them yourself.
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• If the company you work for as an employee goes out of business, LIRAs reduce the danger of losing your retirement funds.

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Locked-In Retirement Accounts (LIRAs) vs Registered Retirement Savings Plans (RRSPs)

A locked-in retirement account (sometimes known as a LIRA) is a Canadian investment account that holds a locked-in pension fund. Like most retirement accounts or similar plans, the LIRA is used to accumulate funds for use in retirement. The LIRA is governed and regulated by provincial governments, and it is used to support legislation in Saskatchewan, Newfoundland, Alberta, Manitoba, Quebec, Ontario, and New Brunswick. As the term implies, these accounts or plans are "locked-in"; account holders do not have the freedom to use them until they expire or meet requirements, usually when they retire or reach a certain age (depending on an agreement between the parties). If the Registered Pension Plan RRP membership of an employee is canceled for whatever reason before retirement, the accrued money must be moved to LIRA. The money is passed to the surviving spouse and then to the family if the policyholder dies before retirement. Lastly, if the marriage or common-law partnership ends because one of the partners has an RPP, the accrued money will be transferred to the LIRA, which will hold them until retirement.

Taxes on interest earned on the LIRA will be deferred until that point is drawn. Holders of LIRAs can opt to transfer money to other retirement income programs like LIF, LRIF, or RRIF when they reach retirement age (typically 55 in countries where LIRAs are utilized). If the holder reaches the age of 71 and has not converted it yet, it must be transferred before the year runs out. 

A Registered Retirement Savings Plan (RRSP) is yet another form of Canadian account. Introduced in 1957, the main objective of this scheme was to facilitate employees to accumulate funds before retirement age.  What types of assets are permitted for contributions when to contribute, maximum contributions, as well as how to turn it into a Retirement Income Fund (RIF) are all controlled by Canadian income tax policy. It is quite comparable to the LIRA discussed earlier. Group, spousal, and Individual plans are all available in RRSPs.

RRSPs are available and are governed by the Commonwealth of Canada.

The lira and the RRSP, on the other hand, have notable differences. Unlike the LIRA, RRSPs reduce the amount of tax the holder owes each year (rather than just deferring until the time of withdrawal) by spending a portion of an employee's income in Canadian-regulated lira. The reduction in income tax has been significantly reduced. Another major distinction is that, unlike the LIRA, the RRSP is "liquid" rather than "locked." This indicates that plan beneficiaries are not bound by the plan's expiration date. RRSP holders may choose to withdraw from the fund early to meet any demand that may arise (to the extent set out in the agreement at the time of plan launch).

One would be wise to invest in the LIRA or RRSP to prepare for the inevitable retirement. However, people should note what these differences are and which ones best suit their underlying needs and future plans.

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What is the difference between LIRA and RRSP? A Summary:

1. Locked-In Retirement Accounts (LIRAs) and Registered Retirement Savings Plans (RRSPs) are plans available for Canadian citizens to retire.
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2. LIRAs and RRSPs must be opened before age 71, at which point the funds will be transferred to the Retirement Income Fund (RIF). 
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3. RRSPs decrease the holder's income tax every year, but LIRAs only delay taxes until the withdrawals period.
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4. LIRA is "locked up"; holders cannot use the fund until the fund expires or encounters a specific event (such as the death of the holder). RRSPs, on the other hand, are liquid and allow holders to use their funds freely (within certain parameters); RRSPs are subject to federal jurisdiction.

Can you take money out of a LIRA account?

Early withdrawals from a LIRA are only permitted in extremely narrow circumstances, such as the threat of bankruptcy or eviction. Your LIRA is designed to be utilized in retirement, and the regulatory frameworks that govern it make early withdrawals difficult.

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A primary reason for every investment is to have something sustainable to ultimately depend on in times of crisis or after retirement. It is never a good idea to spend all of your money as soon as it comes in. It's a good idea to set aside and invest a portion of your income, no matter how small. Any financial experts in Canada will constantly advise you to invest your money in various portfolios in order to provide for yourself and your loved ones. To make a profitable investment, you'll need a good investment strategy that will help you meet your financial and investment objectives.

Read: Investment Planning how to Prepare for your Future

If you're thinking about starting to invest, it's critical that you do so with a set of criteria in mind. You must have a strategy and stick to it. Otherwise, you'll soon start to see your savings dwindle, rather than multiply. Today, we will discuss how to do investment planning.

How to do investment planning?

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Examine your particular conditions

You should invest in a way that is acceptable for your age group. In general, if you're young, you'll have more recovery time if the market crashes. A good idea is that you allocate your investments to investment portfolios that are dynamic.

If you are close to retirement, it is best to invest in products that are not so dynamic.

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Analyze your financial situation

You must be aware of how much money you have available to invest. Setting a budget to establish how much money you wish to invest is critical. Do not forget to leave a separate amount for any unforeseen emergency situation.

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Reserve sufficient funds for current consumption

It is mainly reserved for customers for basic living expenses such as food, clothing, housing, transportation, entertainment, and medical care, and the remaining funds can be used for investment.

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What is your risk profile?

The profile you have determines your risk tolerance. Even if you are young, it does not mean that you are willing to take many risks.

After all, you should remember that there always are. Also, the fewer risks there are in a product, the lower the profits. Investors who take a lot of risks tend to make more money (although they can also lose significant amounts).

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Decide on your goals.

What do you intend to do with the funds? Are you interested in pursuing a master's degree? Or do you want to purchase a house? These are some of the questions you'll ask yourself before making a financial investment decision.

No matter what your aim is, it's always a good idea to diversify your investment portfolio. The aim is to let the investment grow over a long period of time so that you have sufficient money to cover your goal expenses.

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Set a date for your goals

If you are interested in quickly making a big profit on the investment you are making, and are also prepared to take the risk that you could suffer a big loss, then you can choose the most dynamic investments that have the potential to generate significant profits.

On the other hand, if you are interested in earning money slowly, the best investments to choose are those that generate along-term return.

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What degree of liquidity do you require?

A liquid asset is one that can be readily and rapidly transformed into money. So, whether you have an emergency, you can easily get money quickly.

For example, stocks or funds are highly liquid assets because they can be converted to cash in a matter of days.

Real estate, on the other hand, is not very liquid. It might take weeks or even months to turn them into money.

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Choosing the right investment vehicle

This step is mainly to choose to collect further investment information and to select investment tools that are consistent with the investment objectives. The best investment tool is not necessarily the one with the greatest return, and other factors such as risk and tax considerations may have a greater impact. For example, if a customer wants to get the maximum dividend income, theoretically, he should buy stocks with high dividends, but if the company that issued the stock is more likely to go bankrupt, and once the company goes bankrupt, the customer will lose all investment, then this It is wiser to advise clients to buy stocks in companies that pay relatively lesser dividends but are less likely to go bankrupt. Careful selection of investment vehicles is the key to investment success. The selection of investment vehicles should be consistent with investment objectives and should consider the balance of investment returns, risks, and value.

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Decide how you want to diversify

It is recommended not to put all the money in the same basket. It is better to diversify. In this way, if an investment is suffering losses, the money can be recovered with another that is offering profits.

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The plan must be in accordance with your risk profile

Bear in mind that if you invest 90percent of your money into stocks every single month, you risk losing a lot of money if the market falls drastically. As a result, you must ensure that it is a risk you are willing to take. Otherwise, don't do it.

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How do I make an investment plan?

All you need to do is go through the process discussed earlier and implement them accordingly. However, if you are not entirely sure how you can make your plan according to your objectives and your level of risk tolerance, it is best to contact a financial advisor for advice.

For our Canadian readers be sure to take a few minutes and go over this article How to do Investment Planning: Guide for Canadians.

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Important of making investment planning

• ‍Errors are reduced. Decisions are thought of more with the head than being carried away by hunches.
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• There are fewer risks. In line with the previous point. By analyzing investments more, risks are reduced, although there will always be risks.
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• It can be measured and changed. Another advantage of having an investment plan. From time to time, you can analyze the results to see what is done wrong or right and adjust it.

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How to evaluate the progress of your investments in your investment plan

Every investment plan needs to be controlled and evaluated. That is why it is essential that you evaluate how the progress of your investments is going to see if the plan needs some tweaking to improve.

Check your investments on a regular basis. Analyze if they are developed according to your objectives. If they don't, reassess your investments and determine where you need to make changes.

• ‍Determine whether you need to alter your risk profile. You become less inclined to take chances as you become older.
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• Assess whether you are contributing enough to reach your financial goals. It may be the case that you do not allocate enough money from each salary to your investments to achieve the goals you set for yourself. Otherwise, you can get too far gone and end up spending more money than necessary. What is essential is that you adapt your contributions accordingly.

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What are the best investment strategies?

Each investment strategy has its advantages and disadvantages depending on the investment profile of each person, the time horizon, and their financial objectives. Therefore, each investor must choose the one (or those) with which he feels most comfortable investing. Some of the best-known investment strategies are the following:

• Direct investment in shares(the investor invests in the companies that he or she believes to be the most profitable).
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• Value investing or investment in value (consists of investing in firms that are undervalued).
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• Investment in companies that distribute dividends among their shareholders (the objective, in this case, is to ensure regular income).
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• Growth investment or growth (it is invested in companies that are expected to grow above the market).
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• Momentum (the values ​​that rise faster at each moment are bought).

All these strategies can become very interesting depending on what type of person. For example, an investor who will need their money in the short term might opt ​​for Value, while another with a longer time horizon might prefer Growth investing.

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6 basic tips for any investment

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Find out well before starting any investment. 

‍The information gives you the power to know the sectors that best suit your investor profile.

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Set clear goals. 

‍The risk you are willing to take, the purpose of the investment, and the time you are willing to wait to obtain benefits will help you choose the path you want.

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Decide how much money you are willing to invest. 

‍Analyze the state of your personal finances. You can pick what sorts of investments are best for you based on how they are. You don't have to forget that you won't be able to enjoy that money for a time. That is why having patience is essential and that, in addition, the benefits may take time to arrive.

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Diversify your investments. 

‍It is something that we have already commented on throughout the article, but we repeat it again because it is something very important. If you put all your money into a single product, you run the risk of losing everything due to a bad operation. Better to diversify to correct possible losses.

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Choose the products that suit your investor profile. 

‍There are many options whereto invest. Analyze them well and stay with the one that suits you best taking into account the risk, your objective, and the time in which you want to achieve it.

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Investment in your education is one of the best investments you can make. 

Learning to invest is a very good tool that you can have at your fingertips so that your investments can be a success.

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How to do investment planning in Canada

if you want to achieve performance and profits in a new business, before starting it, it is important to invest time and money in an investment plan to know how profitable it can be and what benefits it provides in the long term. What this plan will allow you to do is find beneficial investment opportunities while reducing unnecessary costs, also helping you to choose the most profitable option.

Financing your life can feel complicated and confusing, especially when you're just getting started. You may be wondering what all these different investment options are and which one is right for you. For instance, what is a non-registered investment?

This may seem like a simple question, but it can be tough to answer without getting into complicated financial jargon. In this blog post, we will break it all down for you and explain everything you need to know about non-registered investments.

Check out these two other articles that will help you find your way to understand what's needed to be done to better your future, What is Investment Planning & Investment Planning how to Prepare for your Future.

So, whether you're looking for new ways to grow your portfolio or are just starting to think about your financial future, read on to learn more about how non-registered investments could work for you.

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What is a non-registered investment?

A non-registered investment also referred to as an open or non-registered plan, is an investment account where you can invest an unlimited amount of money in a wide range of assets.

Banks, financial service providers, and mutual fund companies offer non-registered investment accounts. Both individuals or spouses can open non-registered investment accounts, investing in stocks, bonds, mutual funds, exchange-traded funds, and other products.

Non-registered accounts are not tax-sheltered, which means any income you earn on investments held in the account is subject to taxation. Investing in a non-registered account might result in interest or dividend income taxed when earned and capital gains taxed when realized.

Because non-registered investments are not registered with the federal government, they are flexible and have zero contribution limits. However, one downside to non-registered investments is that they are not tax-deductible.

There are two kinds of non-registered investment accounts: cash and margin. Cash accounts are taxable when capital gains, dividends, or interest income are earned in a fiscal year. A margin account allows customers to borrow money from their broker to buy securities, known as purchasing on margin.

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What does registered investment mean?

A registered investment is a type of investment account registered with the federal government. Registered investments are tax-sheltered (tax-deferred) by the government, so income earned on the account is never subject to taxation until withdrawals are made.

However, there are rules for investors to follow to avoid being penalized. This is to make sure investors use registered investment accounts for their intended purposes.

The most common types of registered investment accounts are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts(TFSAs).

Other types of registered investment accounts include:

• Registered Education Savings Plan(RESP)
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• Registered Disability Savings Plan(RDSP)
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• Registered Retirement Income Funds(RRIF)

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Registered investment accounts have contribution limits and withdrawal rules that you must follow. For instance, if you withdraw funds from an RRSP before retiring, you will be subject to taxes on the withdrawal. However, you can deduct your contributions from your taxable income with RRSPs.

There are many benefits to both registered and non-registered investment accounts. Registered investments are held within specific accounts which offer certain tax breaks. Non-registered investments don't have this benefit, though they are more flexible. It's always helpful to speak with a financial advisor to determine which type of investment account is right for your financial plan.

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Is a TFSA a registered investment?

Yes, a Tax-Free Savings Account (TFSA) is a registered investment account. With a TFSA, your investment earnings are not taxed.

TFSAs offer many benefits to Canadians, including the ability to withdraw your money without paying taxes. If you're looking for a flexible and tax-advantaged investment account, a TFSA may be right.

Speak with a financial advisor for more information on TFSAs and other registered investment accounts. If you're interested in these, they can help you determine which type of account is right for your unique situation.

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Are non-registered investments worth it?

Non-registered investments offer many benefits, including flexibility and zero contribution limits. If you reach your contribution limit on an RRSP or TFSA and need another way to save money, opening a non-registered account may be worthwhile.

In either case, non-registered investments can be a great way to grow your wealth. In addition to having zero contribution limits, there are no withdrawal limits, meaning you can withdraw as much as you want or need without penalties.

If you're considering investing in a non-registered account, speak with a financial advisor to learn more about the pros and cons. They can help you decide if a non-registered investment is right for you.

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What's the difference between registered and non-registered investments?

The main difference between a registered and non-registered investment account is that the former has tax benefits, while all earnings are taxed and claimed as investment income with the latter.

With registered investments, earnings are not taxed while the money is invested, yielding a higher earning potential. However, there are contribution limits with registered investments, unlike non-registered ones.

Overall, non-registered investments offer many benefits and flexibility, and there are no age restrictions. Alternatively, there is a minimum or maximum age limit for most registered plans.

Registered accounts are less flexible overall. Most registered accounts have age limits when you start contributing or withdrawing funds. For example, you must be over 18 to open TFSAs, and RRSPs must be collapsed by age 71. Additionally, some long-term savings accounts are also challenging and costly to withdraw from.

All in all, registered investment accounts are ideal for long-term savings goals like retirement or a child's tuition. Meanwhile, anon-registered account can be great for shorter or longer-term financial investing.

With non-registered accounts, there is no limit on how much you can contribute, and you have the flexibility to withdraw your money as you need. While non-registered investments are taxed annually, dividends and capital gains are taxed more favourably than interest income.

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What is a Non-Registered Investment: Bottom Line

So, what is a non-registered investment? It's simply an investment that doesn't have the same level of protection as a registered investment. Is that a bad thing? Not necessarily - it just depends on your financial situation and goals. And it also means you need to be a little more careful when investing in them.

Talk to a financial advisor about your questions regarding registered and non-registered investments. They can offer advice on what might be the best option for your unique financial situation. They can also help you keep track of your capital gains, and losses come tax time.

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Fixed income investing is a form of investment that focuses on capital and income preservation. This investment is represented in securities such as government bonds, large corporate bonds, certificates of deposit, and money market funds. In addition, it has the characteristic that it offers the investor a constant flow of income, with less risk than shares. You are purchasing a stake of a corporation when you buy or invest in stocks. When you acquire fixed income instruments, on the other hand, you are essentially lending money to the issuer.

With the wide range of fixed income securities available, it is essential that as an investor you find the securities that meet your investment wants and needs. That means that if you want a high level of security for your investment, you should choose securities with a high credit rating. However, you receive a comparatively lower interest rate. On the other hand, for fixed income securities with a lower credit rating, there is the option of receiving a higher interest rate, with higher investment risk.

Learn more about investing with these guides, What is Investment Planning & Investment Planning how to Prepare for your Future.

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What is fixed income investing?

It is the one in which the investor acquires a fixed income title. It is, in other words, a debt instrument issued by a corporation, government agency, or other body to develop and finance its operations. The purchase of any product of this type is equivalent to a loan from the investor, to the issuer of the instrument. These securities provide investors with a set rate of return in the form of monthly payments. The capital can also be repaid at maturity.

Fixed income investments are increasingly becoming the focus of money investors. The objective is that the money is increased with various types of investments. Of course, security is a fundamental aspect. But those who want safe investments should be clear that they will usually only get low returns. These investments offer you the security and certainty of knowing from the first day what amount you will receive at the end of the contracted term.

In general, fixed-income investments deliver exactly what they promise. Fixed income securities may be a valuable component of a well-balanced portfolio. Fixed income investments are a secure, low-risk approach for many investors to receive consistent income. When held to maturity, the securities provide a guaranteed return on the invested principal in the form of predetermined payments. Fixed income investments offer greater stability than participation in shares.

Types of Fixed Income investment

A government or corporate bond is by far the most typical example of a fixed-income investment. The most widely held government securities by Canadians are those offered by the Canadian government, which are known as Treasury securities. Many fixed-income instruments are also available from non-governments and enterprises.

The following are the most popular fixed income products:

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Treasury bills

Treasury bills are short-term fixed-income instruments having a one-year maturity and no coupon payments. Investors purchase the bill for a lower price than its face value, and they profit from the difference when it matures.

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Treasury notes

Treasury notes have maturities ranging from two to ten years, pay a set interest rate, and are offered in $100 increments. Investors are refunded the principal at the conclusion of the maturity period, but they continue to receive semi-annual interest payments until the maturity date.

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Treasury bonds

Treasury bonds are identical to T-notes but have a 20 or 30-year maturity. Treasury bonds are available in $100 increments.

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A municipal bond

Municipal Bonds are comparable to a Treasury bond in that it is offered by the government, but instead of the federal government, it is offered by a province, or municipality, which is used to raise funds to fund local expenditures. Investors in municipal bonds may be able to profit from tax-free returns.

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Corporate bonds

There are many different forms of corporate bonds, and the price and interest rate issued are primarily determined by the company's financial strength and credit reputation. Bonds with a better credit score have lower coupon rates.

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High-Yield bonds

High-yield bonds are also known as junk bonds, represent corporate bonds with a higher coupon rate given the higher chance of default. When a firm fails to repay the capital and interest on a bond or debt security, it is said to be in default.

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Guaranteed Income Certificates (GICs)

This is a fixed-income investment that has a maturity of fewer than 5 years and is sold by financial institutions. The interest rate is greater than a conventional savings account, and GICs are insured by the Credit Union Deposit Insurance Corporation (CUDIC) or the Canadian Deposit Insurance Corporation (CDIC).

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Fixed income or asset allocation ETFs

Fixed income or asset allocations EFTs function similarly to mutual funds. These funds are designed to invest in certain credit ratings, durations, or any other characteristics. ETFs also include a fee for professional management.

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Business Promissory Notes

It is a financial product that offers a high return but in exchange for high risk. They are debt financial assets that are "zero coupons" securities issued at a discount and short term. They indicate a commitment to pay people or companies on a specified date, the most frequent terms being 2,3,6,12 and 18 months.

Therefore, what we acquire when we buy a debt issue is an obligation on the part of the issuer (state or company) to return us an amount of capital plus interest valued at a certain moment in time, on the date of issue.

Subordinated obligations

Hybrid financial product between shares and debt, that is, it has an issue and closing date that is listed on a secondary market. When the due date arrives, the full amount plus interest must be returned. If the company issuing the securities could not meet its payments, the common creditors and the holders of simple obligations would have a preference in the collection.

Convertible bonds

Possibility of exchanging the title for shares of the issuing company. An obligation can be converted into a share or into another classof obligation.

Mortgage cells 

Fixed-income titles or securities issued by financial institutions with a mortgage guarantee from the issuing credit institution, that is, by the flows of a set of mortgages.

Is fixed income investment safe?

Although fixed income has traditionally been associated with a safe investment where profitability is practically guaranteed, in reality, this is not always the case. What's more, in recent years, the guaranteed return of fixed income has been increasingly questioned. 

The monetary policy of the central banks has plunged interest rates to even negative levels, causing the price of government bonds and, in general, other similar fixed-income instruments to fall in the secondary market.

This anomalous circumstance has caused many fixed-income investment funds to see how their value has fallen, dragged down by the decline in the price of bonds.

But, in addition, no one guarantees that the creditor will be able to repay the principal together with the agreed interest in a timely manner. If you go bankrupt, it is possible that reductions or remissions will have to be imposed and, consequently, the creditor will lose part of the stipulated amount.

In this sense, there are a series of risks that all investors assume when investing in fixed income:

‍Market risk: it is the possibility that the securities trade below the price that is paid for them. This risk depends, fundamentally, on the risks of interest rates.
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Liquidity risk: this is the risk that no counterparty can be found in the market and, therefore, the product cannot be sold on the secondary market.
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Credit risk: this is the risk assumed due to the issuer's failure to collect interest and/or principal on the investment.

How is fixed income acquired?

Fixed income can be purchased directly from the issuer, usually through your financial institution, or on the so-called secondary market, where you can buy and sell your fixed-income assets to other investors.

Should all your fund be invested in fixed income?

Deciding whether to invest all your capital infixed income depends mainly on your profile as an investor. If you want to jump right into the stock market and have a great future as an investor, you're more likely to do it through equity holdings, with a variable return. If, on the other hand, you want to maintain your capital and have a safe and reliable source of income, invest in fixed income instruments.

Fixed income securities are an important tool for stabilizing overall portfolio volatility, preserving capital, managing risk, and generating income. Investments of this type should be viewed as a portfolio within a portfolio, requiring the same careful construction as an overall investment plan. The different kinds of investments you make not only achieve different goals but are tailored to your different interests and market dynamics.

Why would you invest in fixed-income?

Here are some of the advantages of investing infixed income we can mention:

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It is a reliable investment system: ‍

Fixed-income securities are fixed-term investments that earn you interest on a regular basis. These can be bonds or debentures, among others. The issuer of the securities determines the amount of interest beforehand. You will get your capital back at face value at the conclusion of the period. In addition, you know the interest that you will receive within the established period of time. That way you always know what's coming. You can plan your investments and the accumulation of your assets well.
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It allows to personalize the investment and recover the money quickly if necessary:

‍ With fixed income investment you can choose between securities with different maturities and different denominations. From a few months to years. You decide what best suits your estate planning. Also, if you need to access your capital before the term ends, you can do that too: you sell your securities back at the current market price. So, you will always count fluently if necessary.
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They provide fixed and constant income:

Interest might be paid monthly, quarterly, semi-annually, or even yearly on fixed income investment assets. These payments ensure that you have a consistent and predictable income. This consistent flow of income can also assist to lessen the volatility of your portfolio's returns and provide liquidity for non-investment costs. Also, if you choose a reliable and qualified bond issuer, your investment is quite safe.

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Cash as well as investments (Mutual Funds, stocks, ETFs, and bonds, among others) that are bought or traded to help you achieve your financial goals are held in an investment account. Individual investors' trading accounts are managed by dealers and their certified investment advisors.

Anyone can open both non-registered and registered investment accounts in Canada. In this post, we're going to discuss at length what registered investment is, its types, and every other thing you might need to know.

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What is a registered investment?

Registered Investments are tax-deferred or tax-sheltered investments that have been registered with the government. Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESP), Registered Retirement Income Funds (RRIFs), as well as Registered Retirement Savings Plans (RRSPs), are all examples of registered investments. Contributions to an RRSP can be deducted from your income every single year during tax season. In this approach, the funds in an RRSP will be taxed at a later period and, presumably, at a reduced tax rate when it is withdrawn. 

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What is a non-registered investment fund?

On the other hand, non-registered investments are not subject to government regulation. They are not subject to the same restrictions or rules as registered investment vehicles due to their unregistered status. The highest amount you can invest each year, as well as age limitations, apply to registered investments. RESPs might also have yearly restrictions on how much the government will pay. These limitations do not apply to non-registered investments.

Non-registered investment income is taxed with your income each year since it does not benefit the same tax-deferral or tax-sheltered advantages as registered investments. Even though non-registered investment taxes are collected on income, only 50percent of investment earnings from non-registered assets can be taxed at your tax rate.

This may all be a little confusing around tax season, which is why chatting with an investment financial advisor before you start investing in any registered and non-registered products can be quite advantageous.

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Deciding Between a Registered and a Non-Registered Account?

The decision between a registered and non-registered account is based on a number of variables, including:

• Your current and future marginal tax rates
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• The sorts of assets in which you intend to invest
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• The kind of returns (capital gains, dividends, interest income)
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• The amount of money you want to invest and why you want to invest it (short-term project financing, retirement savings, college fees for your children)
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• Whether you've used up all of your registered plans
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• Account age restrictions, if appropriate

What are the many types of Registered Accounts available?

Because the Canadian government encourages certain savings goals, there are several distinct types of registered accounts. Here are some of the accounts that have been created:

• Registered Retirement Savings Plan (RRSP)
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• Life Income Fund (LIF)
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• Registered Education Savings Plan (RESP)
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• Tax-Free Savings Account (TFSA)
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• Registered Retirement Income Fund (RRIF)

Registered Retirement Savings Plan (RRSP)

You can contribute to an RRSP account up to a certain amount each year depending on a percentage of your earned income in the previous year. Your contribution reduces your taxable income, saving you money on taxes (tax refund).

Income earned in your investment account is tax-deferred until you begin withdrawing from it in retirement. Your marginal tax rate is payable during this time, which is usually lower than it was throughout your working years.

When you take money out of your RRSP (except for the Lifelong Learning or Home Buyers' Plans), you permanently lose that percentage of your contribution capacity immediately. Contribution space that has not been used can be carried over forever, and there are consequences for donating more than you are permitted.

Because RRSP earnings are compound tax-free, these additional funds may greatly boost your portfolio returns performance over time, making the RRSP an excellent vehicle for growing your retirement savings.

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RRSP Tips:

• The majority of assets operate effectively in a Registered Retirement Savings Plan(RRSP). In RRSP accounts, income-producing investment assets like fixed-income securities (bonds) as well as term deposits (GICs and High-Interest Savings Accounts) are highly helpful. Holding income-generating securities outside of a registered plan is unfavorable since interest income tax is calculated at your marginal tax rate.  
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• When your marginal tax rate is greater now than when you withdraw or during retirement, you get the most advantage from your RRSP. Your tax savings, as well as portfolio development, are maximized when you reinvest the tax return produced by your Registered Retirement Savings Plan (RRSP) contributions.
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• RRSPs offer a spousal account as a critical component of an income-splitting scheme to reduce the overall tax liability on your household in retirement.
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• Assets kept in a Registered Retirement Savings Plan (RRSP) account is can be effortlessly rebalanced without having to keep track of capital gains or losses, modified cost bases, as well as the tax consequences.
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• If the account plan holder's RRSP assets are still available when he or she dies, they are transferable to an eligible beneficiary tax-free.
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• The Registered Retirement Savings Plan (RRSP) account's limits and fines may make it a lot easier for less-disciplined individuals to stick to their plans and save for retirement.

Tax-Free Savings Account (TFSA)

Since 2009, all qualified adults over the age of 18 have been able to invest up to a specific amount every year ($6,000 in the year 2022) in a tax-free investment account. The money you put into your TFSA does not result in a tax refund.

Unused TFSA contribution room, similar to RRSP contribution capacity, can be rolled over forever. Funds withdrawals from a Tax-Free Savings Account (TFSA), unlike an RRSP, can be re-contributed at a later time in the future.

When you remove money from your TFSA account, you don't have to pay taxes on the income earned by the account. Over-contribution to your Tax-Free Savings Account (TFSA) might result in fines.

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TFSA Tips:

• Income-producing investment assets can be held in a TFSA account to avoid paying a higher tax rate on interest income than on capital gains or dividends.
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• A TFSA may be preferred over an RRSP if you are investing/saving funds that you expect to release in the near future (for a mortgage on a house, a trip, or emergency savings). You can re-contribute the amount you took out as early as the year after you took it out.
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• Do you want to invest in dividend-paying overseas stocks? Asides from the withholding tax imposed by the foreign nation; you will not be required to pay any additional taxes in Canada if your funds are maintained in a TFSA.
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• Revenue from a TFSA is not included in the level at which the government begins to claw back your OAS pension.
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• If you don't have enough "earned" income to contribute to an RRSP, a TFSA enables you to save or invest in a registered tax-deferred account using money from any source.
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• Because their "tax rebate" advantage is substantially lower given the lower marginal tax rate, lower-income persons should prioritize their TFSA above their RRSP inmost circumstances. Furthermore, any TFSA earnings will not be counted toward GIS eligibility in retirement.

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Registered Education Savings Plan (RESP)

This is a savings plan set up to help your children save for their post-secondary education.

The government authorities sweeten the offer by contributing 20 cents per each $1 you contribute, limited to a total of $500 in subsidies per year (as well as a lifetime limit of $7,200) to motivate parents/guardians to prepare for their children's future studies. The Canada Education Savings Plan (CESG) makes this incentive possible.

The a-CESG, as well as the Canada Learning Bond, provide further funding. In an RESP, you may contribute up to $50,000 for a child.

Contributions to RESPs are not taxable. The account's earnings are tax-deferred until your child begins making withdrawals to pay for college. The funds they withdraw are subsequently taxed at a lower rate when it reaches their hands.

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RESP Tips:

• The free government grants ensure you a yield on your RESP contribution of 20percent or more as soon as they are received!
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• If your child decides not to continue their education beyond high school, you have a few options for how to spend the money.

What's the difference between registered and non-registered GIC?

There are two kinds of GICs in Canada: registered and non-registered. Registered GICs allow you to grow your money in government-registered accounts tax-free. Non-registered GICs are held as separate investments and are subject to government taxation, which means you'll lose a percentage of whatever interest you receive. These GICs, on the other hand, are usually more flexible compared to registered GICs.

Which is better: a registered or a non-registered GIC?

Because registered GICs are not taxed, they often provide superior returns compared to non-registered GICs returns. This implies you can earn more money than if you had a non-registered GIC (which can skim up to 50 percent off your earnings). Because withdrawals from government-registered accounts like RRSPs, RESPs, and TFSAs are subject to limitations and fines, the funds you put in may be hard to obtain when your GIC matures.

There are relatively few distinctions between registered and non-registered GICs other than that. Both forms of GICs give a fixed or variable interest rate and protect your main investment. You may expect to receive roughly 1-3 percent of your money back in interest if you lock in a fixed rate. Your profits will change dependent on the success of the financial markets if you pick a market-linked product.

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You want to be as prepared as possible for your future. That's where investment planning comes in. Investment planning is figuring out how best to use your money to have a comfortable retirement and meet other financial goals.

Creating a plan for this can seem like a daunting task, but don't worry. This blog post will allay your doubts and fears by answering some of the most common questions about investment planning. By the end of this blog, you'll be ready to start creating an investment plan of your own! So, if you're ready to make the most of your money, let's dive in.

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What is investment planning?

Investment planning is creating a strategy for using your money so that you can reach your financial goals. This usually involves looking at things like what you want to achieve, how much risk you're willing to take on, and what kind of time frame you're working with.

In short, investment planning is aligning our financial goals with the financial resources available to us. Thankfully, today there are many ways to invest, from stocks and bonds to real estate and others. So, no matter your current funds and goals, there's an investment option that can help you reach them.

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Why is investment planning important?

Investment planning is important because it gives you a roadmap for the best use of your money. It's easy sometimes to make impulsive decisions or let your money sit idly instead of working for you. Having a plan helps keep you focused and on track to make the most of your money.

Another reason investment planning is important is that it can help you reach your financial goals. By determining what you want to achieve and how best to use your money, you're more likely to reach your goals than if you were to wing it.

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Benefits of investment planning

There are many benefits to investment planning, including:

Financial understanding

Improved financial understanding is one of the key benefits of investment planning. When you take the time to create an investment plan, you learn about things like risk tolerance and portfolio diversification to support you in making better financial decisions in the future.

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Standard of living

Financial savings can be there to support you in difficult times, providing you peace of mind should you ever need it. For instance, if a primary working member of your family ever passes away or is unable to work.

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Efficiently manage income

Investment planning can help you figure out how much money you need to save and how best to use your money to reach your financial goals, manage expenditures, make tax payments, and so on.

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Savings

Investment planning can also help you boost your savings. When you have a plan, you're more likely to be disciplined about saving and investing. This can help you reach your financial goals sooner and can help you build a nest egg that you can use in the future. Plus, when you utilize highly liquid investment vehicles, you’ll have funds that can easily be taken out in the event of an emergency.

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Family security

Investment planning is important for family security. Should anything happen to the primary working member of the family, the other members can remain financially secure thanks to the investment.

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How to plan for your investment planning future

When it comes to planning for your financial future, it's important to create a portfolio tailored to your present and future needs. A portfolio will help you avoid taking on more risks than you're comfortable with and help protect your money in the long run. One great way to plan for your future is to consult with a financial advisor. They can help you understand the different types of investments and what might be best for you. They can also guide you through rebalancing your portfolio as your goals and needs change over time.

Read: Investment Planning how to Prepare for your Future

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What are 4 types of investments?

When it comes to investment planning, it's important to choose the right mix of investments for your goals, as each type of investment has its own set of risks and rewards.

There are four main types of investments: stocks, investment funds, bonds, and annuities:

Stocks

When you buy a stock, you buy a piece of ownership in a company and become a shareholder. As a shareholder, you have the potential to earn money through dividends and capital gains. While the value of whatever shares you own tend to appreciate, they can also depreciate, leaving some room for risk.

Investment funds

Investment funds are another type of investment that allows you to pool your money with other investors to buy a basket of assets.  These can include stocks, bonds, and other securities.

Investment funds offer diversification and professional management, but they also come with commission fees as a fund manager designates them. The benefits of investment funds include diversification, professional management, and liquidity.

Bonds

Bonds are a type of debt investment. When you buy a bond, you lend money to an entity like a government or corporation. The entity agrees to pay you interest and repay your principal later in exchange for your loan. Bonds aren't ideal for quick returns on investments or early retirement. However, the benefits of bonds include long-term stability and income.

Annuities

Annuities are contracts that are purchased from insurance companies. The benefits of annuities include guaranteed periodic payments after retirement and tax advantages.

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What are the steps of investment planning?

Now that we've talked about what investment planning is and why it's important, let's talk about how you can plan for your future.

This process is about much more than choosing the right stocks or bonds to buy. Without the proper steps and careful consideration, it'd be hard to call it a plan in the first place. And it would prove even harder to invest your money at the lowest possible risk effectively.

By following these steps, you can create an investment plan that accounts for everything that matters - including your current financial situation, goals, timeline, and how much risk you're willing to take on.

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Step #1: Assess Your Current Financial Situation

First, have a clear picture of your current financial situation. This includes understanding your income, debts, expenses, and long-term financial goals.

You'll also need to know your net worth, which is the value of your assets minus your liabilities. To calculate this, add up the total value of all your savings and investments, then subtract any debts you may have. This is a good starting point for understanding your priorities and what you have to work with.

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Step #2: Determine Your Financial and Investment Goals

The next step is to determine what you want to achieve with your investments. Do you want to grow your wealth? Generate income? Save for retirement?

Your goals will shape what types of investments you make and how much risk you're willing to take. For example, if you're saving for retirement, you'll likely want to focus on growth investments like bonds. But if you need the income now, stocks may be a better choice.

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Step #3: Determine Your Timeline and Risk Tolerance

Now, you can begin thinking about how much of a risk you're willing to take.

This is where your time horizon comes into play. If you're investing for the long haul, you can afford to take on more risk, having more time to ride out the market's ups and downs. But if you need your money sooner, you'll want to be more conservative with your investments.

To get an idea of your risk tolerance, ask yourself how you would feel if your investment account lost 20% of its value in a year. If the thought of that makes you anxious, you have a low-risk tolerance.

On the other hand, if you're comfortable with taking on more risk for the potential of higher returns, you have a high-risk tolerance.

Remember that everyone's risk tolerance is different, and there's no right or wrong answer. The important thing is to be honest about what you're comfortable with.

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Step #4: Decide What to Invest In

Now that you know your financial situation, goals, and risk tolerance, it's time to start thinking about what to invest in.

There are several types of investments, but some of the most common are bonds, stocks, mutual funds, and exchange-traded funds (ETFs).

Each investment type has its pros and cons, so it's important to research and find the option that best suits your needs.

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Step #5: Monitor and Rebalance Your Investments

Finally, don't forget to monitor your investments and make sure they're still in line with your goals.

As your needs change over time, you may need to rebalance your portfolio to ensure you're still on track. For example, if you're getting closer to retirement, you may want to start shifting some of your investments into less risky options.

Creating a diversified portfolio is one of the most important steps in investment planning. Diversification is all about spreading your money around to different investments to minimize risk.

A diversified portfolio will typically include a mix of stocks, bonds, and cash equivalents. But the specific investments you choose will depend on your goals, risk tolerance, and time horizon.

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Investment Planning

No matter your situation, there's no one-size-fits-all answer to investing. The important thing is to take the time to create a plan that's right for you.

Start by taking the first step today, and you'll be well on your way to creating a bright financial future for yourself.

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Critical illness can be difficult, but recovery doesn't have to be. When a critical illness strikes, it’s important to focus on getting well and worry less about medical bills. 

We have to admit that everyone wants to be healthy, but sometimes illness is inevitable. Fortunately, Canadian are now gradually paying more attention to healthy life, and medicine is increasingly developed. Even if you are unfortunately infected, the chance of recovery and recovery process has been greatly improved. However, rehabilitative care is very expensive, and treating and combating of the illness often requires a lot of money. That’s where Critical illness insurance comes to play by giving the insureds and their families the extra coverage they need to recover from a health problem so they can rebuild their body, mind and budget.

In this article, we will be explaining everything you need to know about critical illness insurance in Canada and why you may need one.

What is critical illness insurance?

Critical illness insurance means that once the insured is diagnosed with any disease covered by the policy, the insured can receive the amount specified in the policy without any expense receipt, and the insured is free to use the indemnity for any purpose. Therefore, the compensation method of critical illness insurance is not actually reimbursed like travel medical insurance, extended medical insurance, etc.; nor is it issued on a monthly basis like disability insurance and long- term care insurance. Instead, once the insured is diagnosed with any one of the diseases covered by the insurance, and the relevant requirements specified in the policy are met, the entire insured amount will be paid in one lump sum. Insurance benefits are tax-free. After the claim is paid, you get to keep the money even if the serious illness recovers.

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How does critical illness insurance work?

The concept behind critical illness insurance is that whenever you're confronted with a life-threatening health issue or any medical emergency, you might not be able to finance treatment and rehabilitation even with available government free health card. In fact, you may also be unable to work and support yourself. A lump-sum benefit payment might provide you with the financial assistance you need to recover. 

You may get critical illness insurance in a variety of ways:

• Directly from your employer, if there is a provision for that within the company.
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• Directly from a certified insurance company within Canada
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• As an add-on offer to a life insurance plan.

A critical illness insurance policy, unlike typical health insurance, provides cash for expenditures like out-of-pocket medical fees, rent or mortgage obligations, as well as childcare support. If apply and qualify, you will start paying a monthly fee and receive a maximum lifetime benefit — usually a one-time payout.

Why do you need critical illness insurance in Canada?

Many people have such questions. As a Canadian resident, why should you buy critical illness insurance if you can enjoy the free medical care provided by the Canadian government? You must know that in Canada, if you are unfortunately seriously ill, the medical service plan only covers the doctor's consultation fee and medical expenses during hospitalization, but not drugs and nursing services when you are out of the hospital; more importantly, free medical care cannot solve the problem of illness due to illness. And the loss of economic income, it is especially necessary to purchase critical illness insurance.

According to statistics from relevant departments, about 40% of men and 35% of women may develop cancer. About 75,000 Canadians suffer from heart disease each year, and about 50,000 Canadians have an unfortunate stroke, 33 per cent of whom are under the age of 65. In fact, anyone can be unfortunate enough to suffer from a common serious illness, but thanks to the advancement of modern medicine, more and more people can recover from serious illnesses. Therefore, the significance of the critical illness insurance plan is that when the insured suffers from an insured critical illness, the indemnity can be used to treat the critical illness or solve other family financial difficulties, so that the patient and family property can be buffered and focused on treatment and recovery.

How much does critical illness insurance cost? 

In general, the younger and healthier someone is, the cheaper your premium (cost). However, the critical illness insurance cost varies based on your current age, the insurance level, health condition, the insurance carrier, and the variety of illnesses covered.

It's worthwhile to browse around for the best critical illness insurance deal. When doing so, you need to put somethings into consideration. Such as your income, dependents, financial commitments, as well as health-care demands. 

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How can I make a claim?

You are can make a claim If you're diagnose with the critical illness or disease covered by your insurance by a physician who is licensed to practice medicine in Canada and also specializes in the specific illness you’re diagnosed for. 

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If my claim is approved, when will I receive payment?

In most cases, you will get a lump-sum compensation payment within 30 days after your claim has been processed.

There are also no limitations on how you may use the funds. The critical illness insurance coverage will expire right after your claim is settled. 

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What happens if you don’t experience a critical illness?

The insurance costs you paid may be reimbursed to your designated beneficiary if you die based on a condition not insured by the critical illness insurance. Also, if the policy matures without a claim, some plans may refund the cost or a percentage of the insurance premiums paid over the policy's lifetime.

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What if I make a full recovery?

Even though you recover completely, you remain entitled to the entire benefit involved.

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What is consider critical illness for insurance in Canada?

The covered conditions for critical illness insurance in Canada mainly include cancer, heart disease, stroke, kidney failure, Alzheimer's disease, paralysis, Parkinson's disease, severe burns, multiple sclerosis, major organ transplantation, benign brain tumors, blindness, deafness, coma, limb separation, coronary artery bypass Surgery, amyotrophic lateral sclerosis (ALS) and other motor neuron diseases, occupational-related human immunodeficiency virus (HIV), etc. A total of 25-26 illnesses are covered depending on the insurance company.

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Is it worth getting critical illness insurance in Canada?

With the development of science and technology, the time from the onset of these serious diseases to death is getting longer and longer, and a considerable number of seriously ill patients eventually recover completely. During this period, a lot of funds are required to cover the treatment expenses amongst other things needed.

Therefore, you need a different policy than life insurance (which is paid after death) to get the benefits to cover your expenses until you recover from a serious illness. In Canada, we can see reports in newspapers and periodicals calling on everyone to raise funds for families in need.  To avoid this, a great financial planning need to spend a small amount of money to obtain protection in the event of serious illness, casualty, without calling for donations.

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What does a critical illness policy cover?

A critical illness policy covers all necessary funds needed for the complete treatment of the insured diagnosed illness, such as paying for special treatment, home care, and paying a mortgage or personal loan; filling the gap between the government medical plan and real life inevitable economic gap. With a critical illness insurance plan, a one-time payment is provided when a serious critical illness or illness is diagnosed, reducing the sudden financial burden and worry of the family, reducing the financial hardship caused by the loss of income and the need for additional treatment costs or care due to critical illness. As well as the funds needed for medical treatment abroad.

Final Thought

Compared with life insurance, the history of critical illness insurance is not too long, but because of the high frequency of claims, insurance companies in Canada have been raising premiums, and the underwriting conditions and requirements are relatively high.

It is indeed fortunate that we have a free medical plan in Canada, but it does not cover all medical expenses, nor does it provide income to the patient's family. Life is not easy, be kind to yourself, and plan insurance arrangements for yourself and your family earlier, so as not to increase anxiety in middle age, and only to be hesitant in old age.

What is everyone's greatest asset? I believe many people think that their greatest asset is their house, but this is not the case, your greatest asset is your health! Without health, there is no revolutionary capital.

Once our health is threatened, how can we make money without capital? Why don't we insure ourselves sooner?  Critical illness insurance can help you financially when you need it most, and we need it not just because our lives are at risk, but because we want to live better.

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The earlier you get life insurance, the better and less expensive it will be.

Most people don't want to talk about life insurance until they are "old". In the traditional Canadian concept, people are reluctant to discuss this sensitive topic, which is also human nature. But that doesn't mean you don't need to prepare and plan ahead.

Life insurance is a very important part of any family's financial planning, and the sooner you deploy it in your financial planning, the more protection and benefits you can get. On the contrary, if you buy it in the future, the premium will definitely be higher than it is now. In this article, we’re going to share some insight on when is the best time to buy life insurance as a Canadian and why you need one.

When is the best time to buy life insurance?

When talking about insurance with young people, most people feel that they are still young and have no need for insurance. Most feel that there is no need for them to spend a part of their funds on insurance when they are still young, and they would rather invest it or use it for other daily expenses. The shocking fact is that, this notion is wrong!

Research has shown that the average age of claims in Canada for major diseases is 42 years old, which is the peak period of income and career, and it is also a high-pressure period of "the old and the young".

In Canada, the average life expectancy is 84 years. Purchasing insurance at the age of 20 allows the insured to benefit from a 20-year extension in the protection term compared to purchasing insurance at the age of 40. More importantly, with the same amount of insurance, it is much cheaper to buy at the age of 20 than at the age of 40!

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There are four major benefits of buying insurance early in Canada:

1. Age-related: less premiums

One of the factors in the calculation of insurance premiums is age-related. When purchasing the same coverage, the younger the insured age, the lower the cost, and the older the age, the more the cost.

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2. It is related to time: the guarantee period is long

Nowadays, many insurances are guaranteed for life, and once you apply for the insurance, you can enjoy the protection benefits. The younger the age of insurance, the longer the protection period you enjoy; and many life insurances have a dividend function, and the dividend is calculated by compound interest, so the sooner you apply for insurance, the sooner you can enjoy the dividend income, and the longer the accumulation time, the richer the income will be.

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3 Related to inflation: reducing the cost of inflation

With the development of society and economy, prices continue to rise, and the level of consumption will also increase accordingly. Similarly, it is impossible for insurance companies to keep the original rate products in the market for a long time. In this way, insurance products are constantly updated. The first product will be discontinued after a period of time, when a replacement product will be launched at a slightly higher rate.

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4 Related to underwriting: don't let insurance pick you

Most young people are relatively healthy, and they do not need a medical examination under a certain insurance amount, and even a medical examination can easily pass the underwriting. Older people generally require medical examinations. And if there are some problems with the body, it is likely to be required to increase the insurance coverage, or even be denied insurance.

When should you take out a life insurance policy?

The best time to acquire life insurance is different for everyone, based on their family and financial situation. Generally, if someone else is living off your income, or if you die with debts, you need life insurance. And besides, you wouldn't want your loved one to be without money... or to be in debt on their credit cards.

In terms of the time when you should takeout a life insurance policy, the younger you are, the better. This is simply because the younger you are, the cheaper your rates will be. As you become older, you may suffer health issues that increase the cost of insurance or possibly preclude you from purchasing it.

Young adults, on the other hand, who are responsible for a mortgage, vehicle payments, and school loan debt, are more likely to put off purchasing life insurance. While clearing off current debt is vital, failing to purchase life insurance when you're still young and strong health wise, similar to delaying retirement savings, can have a significant economic impact. The earlier you purchase, the better.

Since we cannot predict the future, so we can only prepare in advance. Insurance is to plan ahead and pay for the unpredictable. Buying insurance while you are young and the premiums are cheap can also allow yourself to put aside the pressure and work hard without distractions.

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Is life insurance cheaper when you’re younger?

Yes. When you're younger, life insurance is less expensive. Generally speaking, the older the insured age is, the higher the risk the insurance company is exposed to, and therefore the higher the premium. Insurance firms may even deny the insurance applications because of the insured's health.

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What age is too late to get life insurance?

Most life insurance advisors always advice their client to get a life insurance plan before the age of 60 years. Because 80% of life insurance company tends to reject most applicant application that fall within such age range.

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What age buys the most life insurance?

Statistics shows that the average age of Canadian with the most insured rate is 40 years.

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What is the minimum amount of life insurance coverage?

If you are the insured, the way to determine your life insurance coverage is to assume how much cash and income your loved ones will need in the event of your death. Things to consider include end-of-life care costs, funeral expenses, and personal loans and debts. Your policy should provide enough cash to cover these expenses, plus of course enough to cover your family's living expenses, your children's education, and other future expenses.

Regardless of which policy you decide to choose, try to narrow the gap between

(1) what your family actually needs and

(2) what your family gets.

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How much should I pay?

When it comes to life insurance, the policy with the lowest premium is not necessarily the best policy. Therefore, when choosing a policy, you should focus on whether the policy provides all the options and benefits you need to meet the needs of your family now and in the future, not whether the premium is the lowest.  

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Is it necessary to undergo a physical examination in order to purchase insurance?

Uncertain. The insurance company will decide whether the insured needs a medical examination according to the insured's age, the amount insured and the health condition. The insured must truthfully declare past health conditions and medical records so that the insurance company can use it for underwriting purposes. 

In Conclusion: no matter our age, we all need a life insurance advisor to help plan our financial plan. 

In a complex and rapidly changing world, a life insurance advisor can help you with financial planning. Good life insurance advisors are professionals, fully supported by a reputable company, generally highly trained, and experienced in analyzing financial needs. Conducting financial needs analysis for potential customers before selling can help customers understand their insurance needs and financial situation, as well as whether the available insurance products are suitable for their situation. Plus, you can leverage their expertise to design a comprehensive insurance plan for your needs now and to protect you in the future.

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The value of a life insurance policy might be underestimated. The cash value element of your insurance, often known as the hidden value, is a terrific method to obtain rapid access to money should the need arise. Your insurance policy's monetary value will be determined by the type of policy you have.

When you include a cash value component in your life insurance policy, the scenario dramatically shifts in your favor. Forget about providing for your family in the event of your death; instead, start thinking about accumulating and accessing money while you are still living. But which life insurance policies give financial value in Canada?

With this in mind, we'll go over everything you need to know to make informed life insurance policy decision as a Canadian.

What is the Cash Value of a Life Insurance Policy?

A permanent life insurance policy's cash value is simply a component that includes an investment feature. This cash value account grows at a set rate over time, as the insurance matures.

Cash value may be withdrawn or borrowed to be used by the policyholder while he or she is still alive, but the death benefit is only paid out after the policyholder has passed away. Loans and other large-scale expenditures might also be financed using the money gathered over time.

When the policyholder dies, the beneficiaries will get the death benefit, but what about the cash value that has accrued?  The insurance provider receives its money back if a policyholder does not use it. Don't throw away your money if you've collected it; else, you'll be wasting it.

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Which Type of Life Insurance Policy in Canada Generates Immediate Cash Value?

Because the death benefit and the cash value of your policy are different, any remaining money in your insurance belongs to the insurer if you die. The amount of money you save will be influenced by the kind of insurance you choose. Term life insurance is the only kind of coverage that does not accrue cash value over time.

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Whole Life Insurance

A fixed monthly payment and a guaranteed death benefit are two of the advantages of whole life insurance. The premiums never vary, so you'll pay the same amount every month for the rest of your life if you choose this option. Throughout this period, a minimum guaranteed rate of cash value accumulation occurs. There are several ways to increase the cash value of a whole life insurance policy, including using profits from your employer.

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Universal Life Insurance

It's easier to alter the death benefit and lower premiums in universal life insurance than in a whole life insurance policy, as long as there's adequate cash worth to pay for the policy expenses.

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Guaranteed Issue Life Insurance

As a whole life insurance policy, guaranteed life insurance typically has a minimum coverage value of $20,000 and is available in minor policy quantities. Cash value may be included in certain guaranteed life insurance plans, but the potential for wealth accumulation is smaller than with other choices since the sum is so tiny. If you die within a few years after purchasing guaranteed issue life insurance, your heirs will not get the entire benefit amount.

How Can I Withdraw Cash Value From Life Insurance?

You may be able to obtain the cash value of your life insurance policy in one of the following four methods, depending on the kind you have:

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Exchanging Your Policy's Cash Value for Money

Permanent life insurance policies may enable you to receive a tax-free payment. Withdrawals that are more than the amount put into the cash value part of your insurance will be subject to income tax. Also, remember that taking money out of your cash-value account affects the amount of money that would be given to your loved ones as a death benefit if you die away.

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Borrowing on Your Policy

In most cases, you may borrow up to the policy's cash value. A portion of your premiums intended for the cash value account, as well as any interest that has accumulated, may be included here. Taking a loan is not considered income according to the CRA. However, if you pass away before paying back the loan, the remaining balance would be deducted from your death benefit. Your debt will continue to accrue interest until you pay it off, which could reduce the death benefit you might get from your policy.

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Getting Your Life Insurance Policy's Cash Value by Handing It Over

Surrendering your policy is the same as canceling it, therefore you will no longer be protected by it. If you terminate your life insurance policy, your equity is equal to the cash value component of the account plus accumulated interest. It is possible, however, that your insurer may deduct cash from the insurance to cover any outstanding debts or payments. You may also be charged "surrender costs," which might further diminish the surrender value of your policy. On top of that, you may also be taxed on the money you get from the policy's surrender.

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Paying Premiums with Cash Value

Using the cash value in your policy to pay your life insurance premiums may be an option if you're strapped for cash. Find out how this feature works for your coverage by contacting your agent. It's important to keep in mind, however, that if you exhaust the cash value account to the point where your policy lapses, you will lose your life insurance coverage.

A life insurance policy's emergency funds might provide a sense of security. Personal circumstances are different for everyone, so it's a good idea to consult with an insurance agent to figure out the best course of action for getting access to your cash value money.

How to Cancel Cash Value Life Insurance

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Terminating a Term Life Insurance Plan

Term life insurance products seldom accrue considerable monetary value over time, and if you decide to terminate your coverage, you will often get nothing at all. Canceling amid a payment cycle is the only method to obtain extra money back. This means that a part of your monthly payment will be returned.

Rather than trying to cancel term life insurance policies, the best option is to sell them. A life settlement makes it easier to receive an inheritance because you can work with a company to help you through the process of receiving payment.

If you've already made up your mind and want to end your policy, you should speak with your insurance provider. Filling out a cancelation form and mailing it to the insurance company is the most common method of ending your policy. Non-payment of premiums can also be used to cancel a policy.

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Whole Life Insurance Policy Cancellation

Permanent life insurance policies include whole life insurance plans, universal life insurance policies, and variable life insurance policies, all of which provide coverage for the remainder of the insured's life and accumulate a cash value from the monthly premiums paid.

If you have a whole life insurance policy, you may either get a large lump sum of money or an annuity, depending on the terms of the contract and the amount of money you've saved. Alternatively, you may activate the nonforfeiture clause by simply ceasing to pay the monthly premiums, but be sure to verify with your insurer and go through your contract for further information.

This option allows you to get your policy's cash surrender value from your insurer. All you have to do is send your insurer a cancellation letter to end your coverage. Include your policy number, your name, and personal information, as well as a brief explanation of why you're canceling. In your letter, let the insurer know that you'd want to receive a check for the monetary value.

Life Insurance Policies with Cash Value

A cash value component can only be found in permanent life insurance products such as whole, variable and universal life insurance. The term "cash-value life insurance" is used to describe any of the three plans mentioned.

As a whole life insurance policy, it provides lifelong coverage and a guaranteed death payment to policyholders. Additionally, there is a monetary value component for the insured to use at anytime.

As long as the policy's cash value account has enough money to meet the premiums, universal life insurance is a perpetual policy with adjustable premiums and death benefits.

The cash value account is then invested in various subaccounts within the policy. The policyholder can takeout a tax-free life insurance loan while they are still living since the cash value account is tax-deferred.

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Does Single Premium Life Insurance Generate Immediate Cash Value?

This policy's cash value rises fast, but the death benefit is determined by the policyholder's age and health at time of insurance.

It's an excellent idea if you have the resources to handle the high price and are seeking a long-term insurance policy.

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If you’ve been thinking about life insurance, then you’re not alone. Life insurance is a key aspect of many Canadians' overall financial plan. Especially when you’re the main financial backbone of the family

The main purpose of life insurance is to leave a tax-free income for the designated beneficiary after the death of the insured to pay for end-of-life expenses, mortgages and Children's education expenses, etc. (equivalent to a tax avoidance method for huge asset transfers).  So, how do you know the types of life insurance available in Canada and what type of life insurance is best for you?

In this article, we'll discuss everything you need to know about the types of life insurance in Canada, from the types of coverage to deciding whether you need life insurance (the quick answer is of course!). No one wants to imagine the moment they die, but life insurance is a gift you can give your family when something bad happens.

Before diving deep into the article, it’s important we understand what life insurance means.

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What is life insurance?

Life insurance is a contract between a person and an insurance company, in which the insurer agrees to pay the person's beneficiary(ies) the amount named in the contract. This happens in the event that the person dies during the time that the insurance policy is in force.

To better simplify this, let take a look at this scenario below.

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For example, Let say Sam, a 40-year-old man, purchases a 20-year term policy with $500,000 coverage that costs him $48 per month. Sam names his wife Laura as the beneficiary of the policy. If Sam dies within these 20 years, and Laura makes a claim with the insurance company. She will receive a check for $500,000.

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What is the best type of life insurance in Canada?

There is no such thing as an absolute best or bad when it comes to insurance policies. There are over 38 million of people in Canada with different family status and needs at different stages of life development. That is, the best type of life insurance for you might not be the best life insurance plan for someone else. As we dive in more deeper into the article, you will get to learn the types of life insurance available for you as a Canadian and which of it is best for you.

However, before deciding what kind of insurance is best for you, you need to consider these two factors:

1.       How much insurance do you need? In general, life insurance coverage should be between 7 and 10 times your annual income.

2.      Decide whether you need term, participating or universal life insurance. You can also consider hybrid coverage. My advice is that the cost of insurance cannot exceed 10% of your gross income.

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Types of Life Insurance in Canada

There are two basic types of Canadian life insurance are Term life insurance and Whole life insurance.

Term life insurance

Normally granted for a certain number of years, generally around 10 to 30 years span, and is subject to a medical examination. Every single year of the term, the charges will remain the same, and if suddenly the insured die during the term, the insured chosen death benefit will be paid to his or her beneficiaries. Term life insurance is available up to a certain age, usually about 85 years of age.

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Whole life insurance

‍Often known as Permanent life insurance, covers an individual for the rest of your life. The insured will never 'age out' like he or she would with term insurance as long as the insured pay the premiums. Permanent insurance is substantially more expensive when compare to term policies with equivalent coverage since their pay out are guaranteed. Permanent life insurance plans compensate for their cost by providing additional benefits, such as tax-advantaged investment.

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Types of Canadian term life insurance

Term life insurance can be subcategories into different categories based on the characteristics that distinguish them. The following are the types of term life insurance available in Canada.

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Convertible term life insurance

Convertible term life insurance allows you to change your insurance plan to a permanent one at predefined intervals. If you make a decision to convert your insurance policy, you won't need tore-qualify, just as with the renewable terms. In most cases, you may convert to any kind of permanent life insurance issued by the same company.

Convertible insurance has the advantage of allowing you to upgrade to a greater plan if your circumstances change. However, this implies that the insurance provider assumes greater risk in the event you need to use it. As a result, rates for convertible term insurance are often higher when compare to those for non-convertible term life insurance.

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Renewable term life insurance

A renewable term life insurance policy allows you to keep the insurance plan after the term expires without going through any sort of re-qualifying process. Term renewals put insurers at greater risk since the insured have become older and the insurance firm knows nothing about the insured current health condition. That means the rates of the individual insured will rise drastically, when the contract is renewed.

If your health is in a pretty good condition, re-qualifying for a new term might help you receive a better rate. If your health deteriorated within your first term, renewing might result in cheaper premiums than re-qualifying. Renewals are possible until you exceed the ultimate age, which is typically 85 years old. This implies, for instance, that at age 75, you'll be eligible to renew your last 10-year term insurance.

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Joint life insurance

Several types of term and permanent life insurance plans are available as single or joint plans. A joint insurance protects two individuals as a single 'life insured,' usually partners or spouses. Insurance costs for joint coverage are always greater than that of single coverage, which accounts for the higher likelihood that the insured benefit will be given out.

This insurance policies are in two ways, it's either joint first-to-die or joint last-to-die insurance.  After one of the insured dies, joint first-to-die will pay the life insurance payout benefit to the surviving partner, whereas last-to-die provides the payment to the designated beneficiary after both persons on the insurance policy die. A joint policy differs from a 'combined' insurance, which is when you buy numerous single policies from the same insurer. This saves you money on premiums and is worth considering on occasion.

Types of Canadian Whole Life Insurance

This type of life insurance premiums are locked in and the coverage period covers a lifetime rather than a specific period. Whole life insurance is more expensive, though, and monthly premiums may cost about ten large pizzas instead of one, but your beneficiaries can be sure to get the payout (unless you're a vampire). Whole life insurance is also divided into the following subcategories:

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Universal Life Insurance

This type of life insurance has a variable premium, which allows the policyholder to decide the premium amount, providing greater freedom. Universal life insurance is more of an investment account and avoids taxes. As a result, many wealthy Canadians turn to this type of life insurance as a type of investment when they run out of TFSA or RRSP credits.

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Participating Life Insurance

This type of life insurance includes both insurance and investment components, with the investment component managed by the insurance company. Participating life insurance aims to have low risk, moderate growth, and no tax. Dividends received by policyholders can be used to reduce premiums or to increase death benefits. A common misconception about participating life insurance is that the policyholder cannot receive both the cash value of the investment and the death benefit, but this is false.

FAQ

Is it reliable to buy life insurance? Will the company pay when needed?

It is very common to hear things like “good luck when they have to pay you” or “ insurance companies don't pay” . The reality is that life insurance is a very black and white contract. That is, the company has the obligation to pay the beneficiary if the insured person dies.

The only document required to make an insurance claim is a death certificate. Except for a suicide in the first two years of the policy, the company must pay in the event of death.

Despite what people say, the life insurance industry in Canada pays out on average 99.5% of all claims made to it, according to Munich Re's 2018 Individual Insurance Survey.

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Why should I worry about life insurance?

Being healthy and young is the ideal situation to buy life insurance. The price of life insurance is linked to the person's age, sex and smoking status. Prices increase exponentially with the age of the person, that is, the older someone is, the higher the price they will pay to insure themselves.

In addition, when one receives a quote for life insurance, that price is based on that of a "standard" health person. The longer someone waits to get insured, the greater the chance of developing medical conditions that prevent them from qualifying for "standard" life insurance.

In Conclusion

Life insurance takes the life of the insured as the object of insurance, and the insured pays the insurance premium while the insured is alive, and transfers the risk to the insurer. In the event of the death of the insured, the insurer will pay a fixed amount of compensation, the so-called death benefit. In the event of the death of the insured, life insurance covers funeral expenses, debts, tax bills and other financial burdens, thereby relieving the family of the financial burden in this regard.

Key terms related to life insurance:

• Insurance Policy: A contract signed between the policyholder and the insurance company
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• Policyholder: The holder of the policy
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• Premiums: Fees paid on a monthly, quarterly, semi-annual or annual basis
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• Beneficiary: Individual(multiple people) or entity receiving death benefit
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• Death benefits are tax-free.

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These two processes have been known to confuse many because they are quite similar and they take care of your affairs when you are alive and when you are no longer around to tend to your finances and assets. The basic difference is that one is more comprehensive than the other which makes some people go for the less comprehensive one. The complexity of estate planning sometimes discourages people from having one and choosing to have a Will instead. However, it all depends on your finances, assets and ultimately your preference. There are a lot of things to consider before choosing one over the other and going for the easy one is certainly not one of them. This article will discuss the difference between the two and the appropriate one to have depending on your financial and asset situation and your preference. You will also learn what to include in anyone you choose and the appropriate age for having either of the two.

Does Estate Planning Include Wills?

Estate planning in itself is described as the process of taking care of your finances while you are alive and also provides for how your finances will be handled according to your wishes when you are no longer alive. So, to answer the question of whether an estate plan includes a Will, the answer is yes, Wills are included in an estate plan.

A Will is a legal document that provides instructions on how a person wishes to share his assets with his/her loved ones and who takes custody of their minor children if any. So many people interchange an Estate Plan and a Will thinking that one can be substituted for the other. This is not the case. A Will is included in an Estate plan while an Estate plan cannot be included in a Will. Other things that can be included in an Estate plan include Trust, A living Will that gives healthcare and mental power of attorney to a person of your choice.  It is always advisable to seek the help of a professional to help develop your estate plan to effectively take care of your estate while alive or dead.

At What Age Should You Do Estate Planning

Estate planning is not age-specific. Experts will tell you, the earlier the better. Given the comprehensive nature of estate plans, you will be able to take care of your finances while alive and prepare for your loved ones when you are no longer around. As long as you are earning, it is advisable to have an estate plan. However, your estate plan must be adaptable to your current financial situation.

The 20s

Once you clock 18, your parents will no longer have authority over health and financial decisions. You can create an estate plan with a living Will to give healthcare and mental power of attorney to a person of your choosing who will take care of your financial and healthcare decisions in case you become incapacitated. Do not feel too young to have an estate plan, it is a smart way of putting your life in order and taking care of your welfare.

The 30s

At this stage, you should be preparing to have a family or you may already have one. You naturally will have more responsibilities at this stage as well as a reasonable income. You may have assets you wish to bequeath or you may want to set up a Trust for your family. At this stage, your estate plan should include a Will and a Trust, together with a living Will that will give healthcare and mental power of attorney to anyone you wish for when you become incapacitated.

At What Age Should You Have A Will

Like an estate plan, there is no appropriate age for having a Will. As long as you attain the majority age of 18, you are eligible to have a Will to take care of your affairs. You can create a Living Will or a Last Will and Testament. A living Will take care of your affairs while you are alive but incapacitated to make key medical and financial decisions. It will ensure your wishes are carried out to the latter. A Last Will and Testament, on the other hand, takes care of your affairs when you are no longer around. It takes care of how you want whatever assets you may have to be distributed among your loved ones. Whatever Will you decide to have must be appropriate for your current financial situation.

What Is Estate Planning?

Estate planning is the process of creating a set of wishes and instructions that will detail how your assets are used and distributed in the event of incapacitation or demise. An estate plan seeks to distribute your assets according to your wishes and minimize tax liabilities. It will comprise of different legal documents that will assign different sets of authority on how your affairs should be managed and prevent your loved ones from guessing what your wishes will be.

After a well-spent lifetime with a lot of money earned and financial goals met, an estate plan will ensure that your wealth is not distributed at the discretion of the government which may be against your wishes and principles. Therefore, an estate plan ensures that you structure your finance when you are alive and also ensures your affairs are handled by the people of your choosing after your demise. It is a comprehensive way of taking care of your money and assets. From the moment it is created, an estate plan takes care of your current and future assets and money. In other words, it helps you structure your financial affairs while you are still alive and allow you to make good decisions about your finances.

Advantages Of Having An Estate Plan

There are a lot of benefits of having an estate plan to take care of your affairs. Some of the advantages of an estate plan include:

To Provide For Your Loved Ones

‍An estate plan allows you to leave enough money for your spouse and other loved ones of your choice to include in your estate plan. You can set up a trust for your loved ones and bequeath some other assets to them to take care of them for when you are no longer around. The double advantage of an estate plan is that it also allows you to make provisions for yourself and your loved ones while you are still alive. Having various investment portfolios and Trusts can take care of you and your family while you are alive.

To Minimize Expenses and Taxes

‍Having an estate plan takes care of the expenses that may be incurred during the transfer of properties to your named beneficiaries. You can use it to set up a Trust for your children and loved ones which has its tax advantages and ensure your beneficiaries keep more money.

Plan For Decision Making During Incapacitation

‍An estate plan will create room for healthcare and mental power of attorney that will appoint someone that will make medical and financial decisions on your behalf when you become incapable of making them yourself.

Plan For Your Needs

‍An estate plan gives you the opportunity to give healthcare and mental power of attorney to a person of your choosing to make medical and financial decisions on your behalf when you are incapacitated.

To Make Donations‍

If you have philanthropic wishes, an estate plan ensures that you fulfil this goal by putting the money in a trust and donating it when you are no longer around.

What Is A Will?

A Will is a legal document that describes how you want your assets and money to be used and distributed when you are no longer around. A Will takes care of both your assets and liabilities. An up-to-date Will allow your executor to carry out your wishes according to the laws of your Province. The absence of a Will means that the government will determine how your assets and money are used and distributed. You will name an estate representative who will handle your affairs as you have listed in your Will.

There are several options for writing your Will. You can engage the services of a Will and Estate lawyer, Will kits, Will preparation sites and DIY legal forms. You no longer have an excuse for not having a Will. Some of the things you should include in your Will are:

• Name of executor(s);
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• How you want your assets and money to be distributed;
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• Guardians for your children; and
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• Provisions for your debts and taxes.

It is important to ensure that anyone you name as your executor is someone you trust and have confidence in to execute your estate according to your wishes. For a Will to be legal in Canada, it must be:

• In physical form;
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• Made by someone who has attained the age of 18;
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• Made by a testator of sound mind at the time of writing;
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• Signed by the testator at the end of the Will and by 2 witnesses who are not beneficiaries in the Will;
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• Notarized.

Advantages Of Making A Will

Having a Will is not a death sentence or does not mean you will die soon. There are a lot of benefits you can get from creating your Will. Some of the advantages of having a Will include:

Allows Your Wishes To Be Carried Out

‍A Will allows you to list out your wishes as to how your affairs are handled when you are no longer around. It ensures you are in control of your assets in terms of usage and distribution.

It Protects Your Loved Ones

‍A Will protects your loved ones from the exploitation of unscrupulous elements in the family. Your Will provides how your children are taken care of and how your assets and monies are taken care of.

Funeral Directives

‍You can use your Will to give additional instructions on how you want your burial arrangements to be handled.

It Helps To Keep Peace Within The Family‍

If there is an outlined instruction on how your affairs should be handled it prevents rancour among family members who may want to take your properties for themselves.

It Prevents Statutory Devolution

‍Where a person does intestate, the law says that it is the province that takes charge of the assets of the deceased and they will be used and distributed at the discretion of the province. Most times, the state will use and distribute your assets differently from how you would have loved them to be distributed. Having a Will ensures you decide who gets what in your estate.

Differences Between Estate Planning and Wills

• Estate planning is the comprehensive process of distributing your estate which usually comprises your real estate, monies in banks, investments, cars and any other asset.
  A Will is a legal document that provides instructions on how your assets and monies are  used and distributed.
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• Estate planning can be active while you are alive and at your demise.
  A Will becomes active after your demise.
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• An estate plan includes a Will.
  A Will cannot include an estate plan.
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• Documents that make up an estate plan include Will, Inter-Vivos Trusts, Testamentary Trusts, and Power of Attorney.
  Documents that make up a Will include all documents showing legal ownership of your assets.

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Tax planning is a complex task that requires you to be conversant with every tax you are liable to pay as an individual. It also means you have to be conversant with the relevant tax laws and calculations to enable you to meet the requirements of the law. You must have heard that there are ways to ensure you pay the lowest taxes possible without raising the CRA's attention. Most people end up paying more than they are either because they do not want to employ the services of a tax expert or they lack knowledge on tips for effective tax planning. Tax planning for those without the requisite information is quite frustrating. This article will explain why tax planning is important and some tax planning strategies that you can adopt.

Tax Planning In Simple Terms

Tax planning in simple terms refers to the analysis of your financial plan or current situation in order to ensure that all components work together to allow you to pay the lowest taxes possible.

Tax Planning Explained

Tax is an inevitable mandatory financial charge that is imposed by the government on anyone qualified to pay them under relevant laws. Failure or resistance to paying taxes is regarded as a crime and punishable under the law. One way to ensure that you maximize all available legal methods to reduce the amount of tax you pay is through tax planning.

Tax planning is the process of arranging your financial and business affairs in such a manner that will attract the lowest tax rates under the relevant tax laws. In other words, it is the process of limiting the amount of taxes you pay without breaking any law. An efficient tax plan will minimize how much taxes you pay and is an essential part of your financial plan. Tax planning involves the optimization of marginal tax rates using different calculations and means such as Trust arrangements, charitable entities, corporations, tax exemptions, deductible expenses, profit-shifting arrangements, and some other means. One thing to note about tax planning is that while you pay reduced tax rates, it must be done within the purview of the law. Tax planning is entirely different from tax evasion which is a crime.

When developing a tax plan, some of the things to consider include the timing of your income, the size of your income, the timing of your purchases, and the plans you have for your other expenditures. Also, the types of investment portfolios and retirement plans you choose must complement your tax filing status and deductions to create an efficient tax plan.

Types of tax planning

Some of the types of individual tax planning include:

Tax Planning using Government Programs‍

This tax plan is using tax benefits offered by the government of Canada. Some of which may include registered plans such as Tax Free Savings Account (TFSA), Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP). You will also get tax benefits on your charitable donations and withdrawing from your RRSPs through Home Buyers Plan.

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Retirement Tax Planning‍

This is a tax plan that allows you to enjoy your post-retirement days by reducing your tax liability and maximizing your income at that stage of your life. You can enjoy deferred taxes on your Registered Retirement Savings Plan (RRSP), Canada Pension Plan (CPP), and for some, Individual Pension Plan (IPP).

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Estate Tax Plan

‍Believe it or not, when you pass away, your estate is still subject to taxes. Yes, even the dead pay tax. You should put a tax plan in place that will preserve the value of your estate. You can enjoy the benefits of plans like Tax Free Savings Account (TFSA) or taking out life insurance to pay for those taxes.

Importance Of Tax Planning

Paying your taxes is important for so many reasons. For one, it ensures that you stay on the right side of the CRA. However, there are ways to ensure you pay less in taxes without contravening the law. With a well-prepared tax plan, you can enjoy paying taxes while you also build your financial plan and enjoy maximum benefits from your financial plan. Here are some of the importance of tax planning:

Solves Tax issues‍

Having a tax plan will help you pay up any back taxes you owe and also solve any other tax issues you may have.

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Extra Cash‍

With a tax plan, you can save some extra cash and divert it into your savings or investments. It is an opportunity to grow your wealth with a smart tax plan.

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Building An Education Fund For Your Child‍

The extra cash you get from smart tax planning can be diverted to fund your child’s education. You do not need to start sweating for cash to build an education fund when you can easily get it from paying less in taxes through your tax plan. You can take advantage of the Registered Education Savings Plan (RESP) which allows you to save for your child’s post-secondary school education and also earn tax-deferred income. On top of that, you also attract government grants that can help grow this savings faster.

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Flexible Tax Payment Schedule‍

A tax plan will inform you on when to pay up your taxes. This eliminates unnecessary stress and uncertainties when it comes to paying your taxes. It allows you to take advantage of the tax installment opportunity where you can spread the payment of the tax owed over the course of the year.

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Tax Information‍

Building a tax plan will mean you have to be up to date on the relevant tax laws and tax liabilities. In other words, tax planning is a learning opportunity about relevant information on taxes and relevant laws. You also get to learn about some tax tips and legal tricks you can use to pay less in taxes.

What Are The 3 Basic Tax Planning Strategies?

Tax planning strategies will ensure the efficiency of your tax plan to reduce your tax liability. Tax planning strategies revolve around 3 components which include reduction in income, increasing deductions, and utilizing available lower tax rates. Three basic tax planning strategies you can adopt include:

Income splitting and Shifting‍

Tax splitting is when you shift income across your family members or legal entities. When you split your income across your family unit, you enjoy reduced tax rates. You can also shift different types of income such as bonuses, dividends, and your year-end payments to a period when you will enjoy lower tax rates. You may also use a Spousal RRSP to split your retirement income in the future.

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Deferring Taxes‍

Deferring your tax payment will allow you to pay your tax at another time. You can do this by using specific investment portfolios that allow deferred tax payments. A good example is a pension plan contribution and RRSPs that allows you to defer your tax payment till a later date in the future.

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Tax-Exempt Investments‍

You can choose selective investments that will afford you exemptions from federal or provincial tax. One registered investment program is a Tax Free Savings Account (TFSA) with tax free earnings that may benefit your tax plan. Another investment with tax benefits are flow through shares.

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Tax Planning Tips

Some basic tips on tax planning will give you the benefit of enjoying tax advantages without the help of a tax expert. Here are some of the tips you can consider for your tax plan:

Investments‍

Choosing the right investment will enable you to enjoy some tax benefits. Some investments such as stock are accorded tax breaks on dividends and capital gains. You should be careful of putting your money in fixed-income investments such as GICs and Bonds because they do not have tax benefits. They are fully taxable and will cost you money.

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More Philanthropic Activities‍

Donating to charity does not only mean you get to help those in need, but you can also enjoy some tax benefits that come along with it.  Charitable donations have their fair share of tax credits or deductions which will be a good addition to your tax plans. The essence of the tax benefits on donations is to encourage people to give to the needy.

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Assess Your Deduction Strategy‍

If you have several expenses to meet up with, it is best you itemize the deductions available to you. There are deductions you can enjoy as the head of a household and there are the ones you can enjoy if you file jointly with your spouse. Itemizing them gives you clarity on the benefits that are available to you and it helps you divert the deductions for other useful purposes. For example, your Registered Retirement Savings Plan (RRSP) allows you to enjoy tax deduction and tax-free growth on your earnings until retirement.

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Start A Side Business‍

Asides from being your boss and building something for yourself, starting a business also has its tax benefits. One advantage is that you can deduct many of your expenses from the income from your business which will reduce your tax obligations. Some of the tax deductions you can enjoy as a business owner include health insurance premiums, home office tax deductions.

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Aim For Capital Gains‍

Investment is an important aspect of a financial plan because it is what determines how well and fast your wealth will grow for a financially secured future. Investment portfolios such as mutual funds, stocks, bonds, and real estate have their tax advantages if you shoot for capital gains. Capital gains have much more favourable tax treatments compared do dividends, rental and interest income.

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Borrow To Invest and Save To Buy

‍Almost everyone has one debt or the other hanging over their heads. If you are going to have one, you might as well make most of it. Taking out a loan for investment purposes has its tax advantage. The interest on loans taken out for the purpose of investing can be tax-deductible as against taking a loan to make a purchase. This is a wake-up call to change your orientation, borrow to invest and save to buy.

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Open A Tax-Free Savings Account (TFSA)‍

The investment income earned on the funds you invest in a TFSA is not subject to tax when earned or withdrawn. It is a sure way of maximizing the tax benefits available to you. Another benefit of a TFSA is that your contribution room is replenished the year following your withdrawal.  

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Tax Planning For Individuals Conclusion

Tax planning is very important and has its advantages. However, you should be careful and ensure your tax plans will not put you on the wrong side of the law. Know the limits the law provides to clearly distinguish your tax reduction from tax evasion or tax avoidance. Keep abreast of changing tax laws to maximize any benefit available to you, depending on your investment plans and your finances generally. If developing a tax plan is becoming complex for you, it is advisable to seek the help of a professional tax accountant or certified financial planner to help you out your tax plan within the ambit of the law.

A financial safety net is usually embedded in a financial plan to provide you with a cushion when there is an emergency that requires instant cash. It is best to start planning for your financial safety net once you have put your day-to-day expenses in order and your long-term financial goals are in motion. An emergency fund should be included in your financial safety net, it is an important component that you can fall back on when you need an emergency fund. Such needs could be in the form of health needs or suddenly losing your job. It is advisable to have enough savings for six months to cover your safety net funds. Other components of the financial safety net include life and disability insurance. Building a financial safety net requires careful and systematic planning that requires few tips. Some of these tips are discussed in this article.

What Is a Financial Safety Net?

A financial safety plan is a combination of various insurance policies and a savings account. Its function is to help you reduce financial risks that may be caused by unexpected expenses. It protects you and your family's long-term financial goals by giving you a fallback plan that will not derail your overall financial plan.

Emergency funds are held in a liquid savings account which makes it easily accessible, unlike your investment funds which may be locked in for a specified period. Financial advisors always recommend setting aside a specific amount to build your financial safety net for expenses that carry significant financial impact.

Why Should Creating An Emergency Fund Take Priority?

You never can tell when you will need a financial safety net. That's the whole essence of having one. To prepare for any eventuality. If you speak to people who have an emergency fund when they need one, they will testify to how happy they were that they had an emergency fund and how difficult it was to find the amount of money if they didn't have one. An emergency fund helps you plan ahead. No one prays for any financial emergency but these things happen and you have to be prepared for them.

The Covid 19 pandemic is an example of such an emergency. A person with an emergency fund would have coped better for a few months than someone who had to dip into their investment funds.  Here are some reasons why you should make creating an emergency fund a priority:

You Just Started Budgeting

‍When you just start out budgeting your income and expenses as part of your financial plan, it is not unusual to leave out some expenses that you may need to plan for. An emergency fund will come in handy when you finally realize you have left out some important expenses. It will help you cover the expenses for the main time till you recover and put them in your budget.

You Have Only One Source of Income

‍If you fall under this category, it is important to have an emergency fund in case of any eventuality. An emergency fund will protect you from a sudden job loss or illness that can keep you from earning your regular income.

You Have A Medical Condition

‍If you have a medical condition that requires constant testing and purchase of drugs that may max out your income, an emergency fund will help you cater for these costs. It will also protect you from any medical emergency that may force you to take days off without pay.

You’re Saving For A Goal

‍If you have a financial target you want to meet, having an emergency fund will guarantee you achieve this goal in case of any emergency. An emergency fund prevents you from touching your savings and investments to meet any emergency financial need.

You Own A Car or A Home

‍These two assets do not give a warning when they want to break down. They are very essential for your everyday living and should they need fixing, it has to be done as soon as possible. An emergency fund comes in handy in these kinds of situations. If your car needs repairs or your home needs some repair and upkeep.

5 Reasons Why You Need A SafetyNet

A financial safety net protects you from a financial hit and cushions your fall in cases of emergency. A safety net also allows you to take some investment risk to grow your investment funds without the fear of being impacted should it fail. Here are some of the reasons why you need a financial safety net:

To Protect Your Long Term Investments

‍A financial safety net gives you the discipline you need to avoid touching your long-term financial goals. When an emergency situation arises, there is always the temptation to dip your hand into your investment to meet the financial emergency. Essentially, a financial safety net prepares you for a rainy day.

To Provide For Your Family

‍A financial safety net is not only for you. You also do it with your family in mind. Your kids could fall I'll, needing major medical attention that could hit you financially. Having a financial safety net will help you feel the impact less. Losing your job or taking sick leave without pay could affect your family being the breadwinner of the family. A financial safety net helps your family deal with these kinds of situations till you get back on your feet.

Financial Stability

‍A financial safety net gives you financial stability by providing a cushion for any financial emergency. With a financial plan, all your income and expenditures are structured to meet your financial goal. Any slight change in the routine could put your finances off balance. This is the essence of a financial safety net. When an emergency arises, instead of distorting your financial plan, your safety net takes the hit while your financial plan is still intact.

It Improves Your Saving Culture

‍A safety net fund is another set of saving you have asides from the savings plan in your financial plan. Knowing that you are building a safety net keeps you in check and prevents you from spending extravagantly. One saving plan still gives you the room to spend impulsively but with a safety net plan in place, you are restricted on your spending to be able to meet up with all your financial goals.

It Helps You Organize Your Financial Plan‍

A safety net plan is part of your financial plan. Having it included in your financial plan gives it structure and organization. A safety net can be classified as one of the strategies for meeting your mid-term and long-term financial goals. It will guarantee your investments are not distorted by any financial emergency.

Ultimately, a financial safety net is a strategy used to meet your long-term financial goals.

5 Ways To Start Saving Today

For young people, saving can be a problem because it might seem like there's enough time to save in the future. This is a wrong orientation that you should correct. Saving helps you build your financial plan to meet your financial goals. It also ensures that you have a financial safety net for rainy days. No one is too young to save and you should start developing the habit today. Here are some tips methods of having a saving culture:

Have A Budget ‍

One effective way of saving is having a budget and sticking to it. Young people mistake having a budget to restrict the amount of fun they have. By creating a budget, you will be able to track your expenses and allocate funds for your savings and investment. You can track the amount you spend on fun and what you spend on securing your future.

Have A Safety Net Plan ‍

This is another way to develop a saving habit. A financial safety net plan requires you to set aside a portion of your income for an emergency fund. It will ensure you keep to your saving plan to meet up with your financial safety net plan. You can use a high-interest liquid savings account as your safety net plan so you can access it in a time of emergency.

Set Savings Goals ‍

Goal setting is known to be an effective way of achieving a desire. Visualizing what you're saving for keeps you in check and ensures you follow through with your saving culture. Setting goals like buying your home in 3 years will improve your saving habit because you have a goal to meet.

‍Find Ways To Cut Your Spending

‍If you have high expenses, you won't be able to save. If you are interested in developing a saving habit, you need to cutdown on your expenses. You will need to do away with some of the unnecessary things you buy just for the sake of buying. The habit of buying clothes thinking you will need them in the future will have to stop. Cut back on expenses on entertainment and eating out. Having a budget will help you cutdown on unnecessary spending.

Try Out Automated Saving

‍Automated savings ensures that a predetermined amount is deducted from your main account into your savings account before you access it. With automated savings, you can split your income between your main account and your savings account to gradually meet your saving goals.

Track Your Progress ‍

Tracking your savings progress is essential because it will ensure that you stick to your savings plan. It also helps you to know when you are not meeting up with your savings plan. It will also encourage you by showing you how far you have come with your savings plan.

Financial Safety Net Conclusion

Having a savings habit is essential, especially at a young age because it will ensure you prepare for a secured future. Do not think you are too young to save, as a matter of fact, this is the best time for you to start saving for your future. Have a financial plan that consists of investment plans, financial goals and a financial safety net plan.

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Financial planning is very important when it comes to structuring your finances. To keep track of your income and expenses, you will need a solid financial plan to guarantee a financially secure future. One of the important steps in developing a financial plan is setting your financial goals. Goals on a general note can be classified into short-term, mid-term, and long-term goals. This is also applicable to your finances. Setting financial goals guides you on how to set aside a percentage of your income as savings and how much will also go into investment. You may think you have time on your side before retirement, don’t be deceived because time flies and you will only have yourself to blame if you have not adequately prepared for post-retirement. We will be discussing the importance of setting financial goals and how to set smart financial goals to secure your future.

Why Is Setting A Smart Financial Goal Is Important

It is one thing to set financial goals, it is another thing to set smart financial goals. Smart financial goals will allow you to put in place effective savings and investment frame works that will ensure you meet your financial goals both in the short term and long term. Smart financial goals are important for the following reasons:

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Sense of Direction

Setting goals gives you a sense of purpose and direction and having one for your finances is very important. Without financial goals, you do not have a reason to save or invest part of your income for a secured future. You will fall for every financial temptation, buying things you do not need and borrowing money you have no means of paying back on time. Smart financial goals give you direction on your finances by telling you how much you earn and give you a clear idea of how much is convenient to save and invest. Smart financial goals will identify what lifestyle you desire for yourself and also guide you on how to invest smartly so as to grow your wealth to meet this lifestyle.

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Financial Strategy ‍

Smart financial goals will help you identify the best investment strategy that will help you meet these goals. If you have modest financial goals, you can come up with flexible strategies that will ensure you enjoy a bit now and still plan for your future. For those with ambitious financial goals, you may need to combine a few investment strategies to meet these goals.

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Discipline ‍

Setting smart financial goals will instill discipline when it comes to your finances. It will tell you how much to set aside as savings and investment to meet your goals. It will prevent you from spending money on what will stretch your budget and what you do not need.

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Shape Your Career Choices

‍When you set smart financial goals, you do everything in your power to meet up with these goals and part of what you can do is make the right career choices that will earn you more and increase your savings and investment. If you have a 9 to 5 job, and you have an ambitious financial goal, you may want to look at starting your own business or taking on more gigs so as to increase your income. When you know what you want financially, it guides your decisions on how to achieve them.

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Difference Between Short Term Goals and Long Term Financial Goals

Short-term and long-term goals may seem self-explanatory but when it comes to finances, some intricacies must be understood in order to avoid placing what should be short-term in the long term goals. This may affect your savings and investments and you may end up not achieving your set financial goals.

Short-term financial goals have to do more with your immediate expenses. They vary according to personal needs and timelines. Generally, short-term financial goals are usually between 1 month and one year. Most people use short-term financial goals to settle their credit card debt, set up emergency funds, and save for minor home improvement, holiday expenses, and payment of other utility bills.

Long-term goals, on the other hand, are usually set from 5 years and above. Long-term goals require more strategic savings and investment planning and you may need the help of a professional. Some things that fall under long-term financial planning include retirement planning, mortgage payment, and starting your business.

In between these two sets of goals, it the mid-term goals, these set of goals usually take a few years to accomplish and some of the short-term goals and long-term goals can overlap as mid term goals. Some mid-term goals include paying off debts and buying a car.

How Do You Set Smart Financial Goals?

The ‘smart’ in smart financial goals could be termed as an acronym that means Specific, Measurable, Attainable, Realistic, and Timely. These five components when applied to your financial plans will give you some degree of assurance of a secured future. To create a smart financial plan, there are tips you should follow so as to get the desired result. Some of the tips include:

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Specific Goals

‍When highlighting your financial goals, ensure that you are specific as to what you want. Avoid basing your goals on some conditions that may or may not happen. Being specific with your goals will give you clarity and every step from then on will be intentional and towards achieving the goals. Know what you want and how much you want it.

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Measurable Goals

‍When you have outlined specific goals, it becomes easy to track. You can create points of measurement in-between your plan to see if you are on your way to achieving your set goals. For example, if you set out to save $12,000 in 12 months, you could assess your progress after 6 months to see how far you have come. You can also set weekly targets to ensure you are progressing steadily towards your goal.

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Attainable Goals ‍

In setting your goals, whether moderate or ambitious, ensure that they are goals that your current financial situation can attain or close. When setting your goals, also ensure your strategies are achievable. Do not base your strategy on possibilities or guesswork. For example, you set a goal of $50,000 in savings in 12 months with a $1,000 income. How do you want to achieve that? Simple. By keeping your goals within your means.

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Realistic Goals

‍When your goals are realistic, then they are attainable. This ties directly to the above. Sometimes, long-term goals may seem unrealistic but when you break it down and have a measurability frame work in place, it will make it easier and realistic. You can always review and change.

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Timely‍

After identifying your specific goals, with a measurability framework and you have determined that they are realistic and attainable, the last part is to put a timeframe on the attainment of your goals. Give yourself reasonable time, do not choke yourself. Putting a timeframe also instills discipline and focus towards achieving your financial goals.

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While these steps will get you closer to setting smart financial goals if you ever feel overwhelmed by the process. Do not fail to involve a financial expert. You can choose to develop your financial goals and run them by your financial advisor for his input.

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10 Examples Of Smart Financial Goals

‍Eliminate Credit Card Debts ‍

Collate all your credit card debts and the interest rate, then assess how much from your income you can conveniently set aside to service all your credit card debt. Set a time frame and ensure that it is a realistic time frame.

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Create An Emergency Fund ‍

An emergency fund comes in handy when there is an unexpected urgent expense that needs tending to. It prevents you from dipping into your savings and investment. This is a reasonable financial goal that you must have. You can set a time frame of 6 months to 1year to build an emergency fund. Set the amount you want and make sure it is attainable with your current income.

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Set Investment Goals ‍

This is the fulcrum of your financial plan because that is what will ensure the growth of your wealth to secure your future. In deciding on your investment goals, set out specific asset growth you want to achieve in the long term and identify the best investment strategies and portfolios that can help you achieve these goals. Investment goals could be from 10 years so it is advisable to have a variety of portfolios that will ensure your investments are balanced and attainable within your set timeframe.

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Retirement Savings

‍Whether you are retiring early or at a regular age, it is always important to have retirement savings plan to cater for your post-retirement. If applicable, you can set up a RRSP through your employer with a convenient percentage as a contribution, your employer might match a certain percentage of what your contribute as well. Your retirement lifestyle goals and the duration before retirement will determine your contribution. Ensure your retirement lifestyle is a realistic one.

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Earn More Money ‍

If you can, having multiple streams of income will go a long way in helping you achieve your financial goals. It allows you to set more money aside for savings and investment. Take per-time jobs and set aside a percentage of the earnings. Set a time frame you want for your side hustle. This is a relevant financial goal for those looking to save more money.

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Financial Education

‍This is spending part of your income on how to better manage your finances. You can take online classes or buy books on financial management. This will go a long way in making sure you are financially mature. It will also help you with financial goals and investment strategies.

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Own Your Home ‍

If you have the extra income, you can take advantage and set a goal of owning your home in the next 10 years. You can make two mortgage payments till the end of the year and see how far you have covered the principal sum. Take stock at intervals to measure your progress.

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Insurance‍

This is a very important goal. Protecting your life and your assets can not be overstated. You can subscribe to life insurance, disability insurance, or car insurance.

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Estate Planning ‍

It is never too early to start an estate plan. Setting family goals will go a long way in structuring your estate plan. You can provide for your loved ones and create a legacy for when you are no longer around. An estate plan is not a death sentence, it is a smart financial goal.

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Start Your Business ‍

Although it is often said that not everyone is built for a self-made life but it is worth considering. Running your business means taking your fate into your hands. You can always run a business side by side with your 9 to 5 job. Set aside your capital and set specific goals for your business and soon enough, you can set aside part of your profit to meet your financial goals.

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Smart Financial Goals Conclusion

Setting specific financial goals and applying the SMART concept will go a long way in securing your financial future. The essence of smart financial goals is to have flexible financial plans that will give room for financial market fluctuations for your investment and other uncertainties. Do not forget to be as realistic as possible. Set aside periods when you will do some sort of check-up on your financial plan to monitor the progress you have made towards attaining your financial goals.

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‍Investment Panning Definition

Investment planning is the process of aligning your financial goals with your investment resources. It is the main component of financial planning which puts to use your savings and ensures you earn more money through investment. The first step to a successful investment plan is identifying your financial goals and objectives so as to direct you on the type of investment vehicles you can use to multiply your financial assets to meet these goals and objectives. Having a plan for your investments gives you a sense of direction and purpose so you can get maximum return on your investments. Investment planning also helps you decide on the best investment strategy to meet your financial goals.

Read: What is Investment Planning? Canadians Guide

Why Is Investment Planning Important?

Having something to fallback on in times of crises or post-retirement is a major reason to have an investment. It is never advisable to spend every cash you have whenever it comes in. it is prudent to save and invest a percentage of your income, no matter how little. Financial advisors will always recommend that you have your money invested in different portfolios to provide for you and your loved ones. To have a lucrative investment, you need to have a solid investment plan that will ensure your financial and investment goals are achieved. Investment planning is important for the following reasons:

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Definite Goals and Objective ‍

When you include an investment plan in your financial plan, it helps you to think and identify your future financial goals and objectives. The kind of lifestyle you want to live in the future will determine the best type of investment portfolio that will meet your financial goals. It gives you an idea of the bigger picture you want for yourself.

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Direction

Having an investment plan will give you a sense of direction in your finances. You will be able to choose the best investment and every financial decision you make will be intentional and purposeful.

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Investment Strategy Formulation‍

Having an investment plan will help you determine the investment strategy that best suits your financial goals. You will be able to align your income with your savings and determine how you move money around to grow your investments. It helps you create an investment plan that will be comfortable for you by accommodating your present needs.

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Review and Monitoring

‍An investment plan will help you review your investment strategies and monitor how well your investment portfolios are doing. With a proper investment plan, you can always review and change your strategies if there are indications that they won't help you meet your financial goals. ‍

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Financial Security

‍An investment plan protects your future both in the short term and long term. It guides you on how to save and invest to secure your future and that of your loved ones.

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Financial Knowledge

One benefit you get from investment planning is the level of financial awareness it gives you. In order to choose the right investment plan for your financial plan, you will have to be familiar with quite a number of investment vehicles that will improve your financial knowledge. You will know investments that are appropriate for the short term and in the long term. It will give you a whole new perspective on budgeting and how you can improve your financial situation and lifestyle.

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Controlled Spending

In developing an investment plan, you will have to assess your current financial situation to enable you to save and invest a portion of your income. It also puts a cap on your expenses so as to meet up with your saving and investment plans.

What Is The Difference Between Investment Planning and Financial Planning

Investment planning is known to be a subset of financial planning. The major difference between these two is the area of focus. Financial planning focuses on a comprehensive aspect of your finances like estate planning, and retirement planning. While investment planning focuses only on how you will grow your savings through different investment vehicles. Your investment planning is a key determinant of how successful your financial plan will be.

Read: How to do Investment Planning - Guide for Canadians

A financial plan helps you evaluate your current financial status and helps your structure your savings, budget, taxes, insurance, retirement, and estate plan. An investment plan, on the other hand, helps you create and evaluate your investment strategies that will multiply your assets and secure your future and that of your loved ones.

What Is Systematic Investment Planning

Systematic investment planning refers to a investment strategy that allows investors to contribute periodically instead of investing lump sums. The amount to be contributed is usually fixed and debited at pre-determined intervals. This type of investment relieves the investor from speculating in different volatile investment markets.

A systematic investment plan (SIP) is appropriate for retail investors who do not have the financial might to pursue exclusive investment vehicles. It also frees an investor from active investment monitoring which will be handled by the investment house handling the mutual fund portfolio. It is a flexible investment plan which you can discontinue anytime, increase or decrease your contribution at your convenience. SIPs are suitable for long-term investments as you can invest small amounts over a long period. These contributions can be biweekly, weekly, monthly or quarterly.

What are The Five Steps Of Investment Planning

It's one thing to know you need an investment plan, it's another thing to develop a viable investment plan. It is advisable to seek the help of financial advisors and tax lawyers to help structure your investment plan. After a bit of research into what investment planning is, there are further steps to take to ensure your investment plan is solid. Here are the first 5 steps to take when developing your investment plan:

Evaluate Your Current Financial Situation

‍Investment planning is all about securing your future and to do that, you need to know where you stand financially today. Evaluating your current financial situation gives you an idea of what you have to kick-start your investment plan. It will also help you structure your income and expenses to make room for investment capital. This step gives you a clear picture of where you are financially and it can also help you identify your desired financial lifestyle. You are also able to determine your investment capital after evaluating your financial situation.

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Identify Your Financial Goals and Objectives‍

This step is quite important because it will determine how you will structure your investments in different portfolios. After assessing your current financial status, set a financial target for yourself in the short term and the long term. You could pen down the desired worth of your asset in the short term and long term. This step will enable you to identify the best financial strategy to adopt that will grow your assets to meet your financial target. Some of the things to consider when outlining your financial goals include your post-retirement lifestyles, your real estate goals, your streams of income, and whether you want to create generational wealth for your loved ones.

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Decide On Your Risk Appetite

‍As the saying goes, the higher the risk, the higher the reward. Investing is all about risk, nothing is ever guaranteed. Low-risk investments usually have low returns and you have to decide what your risk appetite is for the investment journey. Most financial advisors will recommend that you spread your investment portfolios to combine low-risk and high-risk investments to strike a balance in your portfolio. Your financial goals also directly relate to this step because that determines how aggressive your investment portfolios will be. The key is to set realistic goals for yourself, using your current financial status. You can always review your investment plan when your financial situation improves. The more your income, the more you can afford to invest. Your retirement age also determines your risk appetite. For those aiming to retire young at the age of 40 or below, depending on how old you are and how much you make, you may have to invest aggressively to be able to sustain the post-retirement lifestyle you desire. When it comes to investment and risk, it's not about how quickly you reach your financial goals but reaching them that is important.

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Decide on The Type of Investments

This step is crucial to the survival of your financial plan and it is what determines how soon you achieve your financial goals. There are different types of investments that you can put your money to help achieve your goals. It is advisable to consult a financial advisor at this stage because every investment portfolio has its pros and cons depending on your financial goals. There is also the issue of tax which may hinder your investment from growing at the desired rate. Some of the common types of investment include:

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Stocks

‍This gives you a stake in the ownership of any public company offering it. The returns on shares are known as dividends or you can sell your stakes when it has appreciated over a period. The stock market is known to appreciate by 7% annually or more. That is a potential value appreciation of whatever shares you own.

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‍Investment Funds‍

These are known as a basket of stocks managed by a designated fund manager. This option is for those that do not have time in taking the investment decisions themselves. A known disadvantage is that the fund manager will be paid commission from your returns which may affect your total profit.

Learn more about what is a mutual fund.

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‍Bonds‍

Bonds are like loans to the government or individual companies in exchange for returns over a long period. This is a long-term investment with a modest return of 2% to 3% annually. For those planning to retire at a young age, this may not be the best option.

Learn what is a savings bond.

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‍Annuities

They are usually referred to as a supplement to the normal retirement income. It is a contract between an investor and an insurance company whereby the investor pays a lump sum in exchange for periodic payments to the investor after retirement. The payment interval will be pre-determined.

Learn more about what is annuities in Canada.

The scope of investment portfolios you can choose from is wide, depending on what your financial goals are and your level of income. You can seek professional help to choose the best portfolio for you.

Develop a Timeline‍

his step is also important because it gives you a sense of purpose in every financial decision you make. Your timeline should start counting from the moment you take the first step. This step ties directly to your goals and investment portfolios. If you've set a specific financial target for yourself, having a timeline will help you know when to change strategies or investment plans if it appears you won't be able to meet your goal on time.

Investment Planning Conclusion

Investment planning is a very important aspect of financial planning and it has the power to make or mar your financial plan. Choosing the right investment strategy goes hand in hand with having realistic financial goals and a reasonable timeline. For those planning to retire early, you may have to be aggressive with your investment portfolios. The higher the risk, the higher the reward. Lastly, it is advisable to consult a financial expert to help you review your investment plan.

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Debt is an undesirable obligation to owe for so many reasons. The accruing interest rates on the debt does not help matters. Most times, owing debts is not a result of irresponsibility or extravagance, you can also borrow money for genuine pressing matters. The need for the funds most times do not allow you to think of the implication of the interest rates and the means of servicing the debt. Debts could come in the form of credit card debts, mortgages, business loans, car loans, and so many others. Most times, people that borrow do not have comfortable means of servicing the debt, which is where a debt management strategy comes to play. To service your debts with relative ease, you need a debt management strategy that will structure your finances in such a way that it pays attention to your debts and also ensures that your everyday needs are catered for and prevents you from taking more loans. This article will discuss a few steps to take in developing an effective debt management strategy.

What Is Debt Management Strategy?

A debt management strategy is a way of getting your debt situation under control through financial planning and budgeting. A debt management strategy helps you minimize your current debt obligations with the aim of eliminating your debt profile after a set period and it also ensures you have a proper financial plan to manage any future credit facility you may want to take.

When it comes to your financial plan, it is important to create a section to manage your debt. Too many debt obligations may hinder your financial progress and prevent you from achieving your financial goals. A debt management strategy takes care of your debt obligations without hampering your financial plan by giving it a much-needed structure. A debt management strategy is a way to keep up with your debts and current bills. There are different strategies you can use to manage your debt. You can develop a strategy on your own or work with a financial expert to ensure that your debt management plan aligns with your financial plan.  

A DIY Debt Management Strategy

You may decide to develop your debt management strategy by yourself which is not a bad idea in itself. One way to go about it is by creating a budget for yourself that will make provisions for settling your debts and still allow you to settle your daily bills and needs. This will ensure you are financially stable while you are settling your debts. You can use budget calculators, repayment calculators, and financial management apps to track the progress of your strategy. Some DIY strategies include debt snowball and debt avalanche. You can also negotiate with your creditors on a repayment plan that will be convenient for both parties.

Debt Management Prepared By A Credit Counselor

There are for-profit and non-profit credit counsellors you can engage to help you sort out your debt situation by preparing an effective debt management strategy. A credit counsellor will come up with a plan to repay your debts and also negotiate with your creditors on your behalf.

How Can I Reduce My Personal Debt Quickly?

Debt obligations can put you in an undesirable position which could distort your daily living. Asides from hampering your daily expenses, it can also hinder your savings and investment plans which may prevent your wealth from growing. The best way to overcome this is to come up with a debt management strategy that will eliminate your debts while still allowing you to meet your short-term financial needs and also have a long-term financial plan. A debt management strategy is part of a comprehensive plan that helps you take care of your debt while you secure your future. Consistency is also an important ingredient that will ensure the success of your debt management strategy. You can adopt some of the debt management strategies below to help you take care of your debt situation.  

Stop Accumulating Debts

The first step to getting out of a bad situation is to stop putting yourself into that situation in the first place. When it comes to debt, it is not about the principal sum but the accruing interest rate. Although this strategy won’t get you out of debt, it will, however, prevent you from entering into more debt. It may be a difficult habit to break, especially with credit cards, but you can stop accumulating debts by creating a budget for yourself to prevent you from spending beyond your limit. You can also freeze your credit to prevent you from applying for new credit on impulse. This is an important first step in the journey of getting out of debt.

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Increase Your Income

In order to meet up with your debt obligations, you need to free up money, create a budget and also earn more. This is very important because it ensures that you are able to meet your short-term financial needs and still have enough money to service your debts. Waiting for a promotion may not be the answer because you don’t know when that will be. Get some digital skills or start your side business to increase your income. Another way to also ensure an increase in your income is to take advantage of different tax benefits at your disposal so you can divert the tax refund into servicing your debts.

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Make The Extra Effort

Settling your debt will require a lot of discipline, both from your spending and commitment. When you come up with your debt strategy and earmark the periodic payment, make that extra effort, when possible, to pay more than the set minimum payment. Paying more than the set minimum will save you money on interest and help you get out of your debt faster. For example, you have a $10,000 balance on your credit card with a 15% interest rate and a $500 minimum payment. If you pay the minimum, it will take you almost 3 years to pay up with $4,500 in interest. However, if you pay $600 a month, the $100 extra means it will take you less than 2 years to pay up with just $3,500 interest or less. There is a great advantage in making that extra payment.

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Build An Emergency Fund

Having an emergency fund in the middle of settling your debt might seem like a bad idea. You may be asking yourself, why set aside an emergency fund when I can easily channel the fund into paying my debt? What an emergency fund does is to keep you from entering more debt which ties back to the first strategy of avoiding more debt. It serves as a safety net for when there is an emergency and you do not want to touch your investment or borrow more money. An ideal emergency fund hold between 6 to 12 months of living expenses. You can set aside whatever is convenient for you monthly to build up your emergency fund. Anywhere from $1,000 monthly should do.

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Consider Debt Consolidation

This is a smart debt management strategy that depends on some variables. If you have high-interest rate debts, you can consider this strategy to accelerate your payment. When you consolidate your debts, you can then take out a from a bank or reliable lender to service these debts all at once, leaving you with only one debt to pay. It will be an advantage if you have good credit or someone with good credit that can guarantee you so you can qualify for a debt consolidation loan which usually has lower interest rates than all your other debts. This strategy will help you pay your debt faster and save you more money.  

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Negotiate With Your Creditor For Lower Interest Rate

The effect of interest rate on debts can be so frustrating, it is the reason most people do not settle their debt on time. Sometimes, it almost seems as though your payments go towards the interest rate rather than the principal sum. If you have a good payment history, you can negotiate with your creditor to lower the interest rate. Though it is at the discretion of the creditor, a good payment history puts you at an advantage.  ‍

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Negotiate For A Lump Sum Payment Less Than You Owe ‍

This always seems like a long shot but it works, especially if you use 3rd party negotiator companies that specialize in this area of debt management. They'll call your creditors to negotiate the settlement of your debt for less than you owe. Take note that some debt settlement companies may ask you to stop payment during negotiations for better terms. This can impact negatively your credit score. Be sure to continue payment until a new term of payment is agreed upon.

Take From Your Retirement Fund or Life Insurance Policy

These are risky strategies that may turn out badly because they will mean touching your future investment for yourself and your beneficiaries. When you withdraw from your retirement account to pay off your debt, it puts you at risk because if you end up leaving your employer, you may have to also refund your employer in an expedited time frame that may further put you in a precarious debt situation. Also, when you retire, you may not have enough funds to fulfil your post-retirement lifestyle because you would have missed out on interests, dividends and capital gains. When you cash out from your life insurance portfolio, it exposes you to some tax obligations and may also affect the benefits accruable to your beneficiaries. These strategies are risky but may be worth the risk if you weigh your options carefully.

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Debt Snowball Strategy ‍

With this strategy, you will make the minimum payment on all your debt except for the smallest one, which you will pay as much as you can. This strategy allows you to eliminate your smallest debt quickly and move on to the next smallest debt while maintaining minimum payment on other debts. It stabilizes your debt structure while eliminating it little by little, from the smallest. This strategy may not work for a payday loan or a title loan.

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Debt Avalanche Strategy

This debt management strategy is effective when you have extra cash. It helps you maximize the extra cash towards settling your debt. For this strategy to work, make a list of your debts in descending order, from the one with the highest interest rate to the lowest. You will make the required minimum payment on all your debts, you will make an extra payment towards the debt with the highest interest rate. This is the opposite of the snowball strategy. When you pay up the debt with the highest interest rate, you will move on to the next highest and state making more than the minimum payment. You will continue this process until all your debt is paid. This strategy allows you to save money by tackling the debt with the highest interest rate first.

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Track Your Progress

This is more of a tip than a strategy. It is easy to lose momentum with paying your debt, especially when it is frustrating and denying you of your financial goals. To keep yourself motivated, track your progress through weekly or monthly check-ins. You can also keep a chart or spreadsheet of your payments to remind yourself of how far you've come. This will keep the momentum and ensure you pay up your debts on time.

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Debt Management Strategy Conclusion

These debt management strategies can be effective if you follow through on them. While some of the strategies might seem insignificant, they are all essential in the bigger picture of being debt-free. You have a choice of engaging the services of a debt management professional to execute some of these strategies for a better advantage. It is best to clear your debt at this young age so you can enjoy your retirement in peace.

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Young people under 30 generally tend to have problems with saving. The excuse made by most is that they don't earn enough to set aside part of it for saving purposes. This is a wrong mindset. No one is too young to save. In fact, saving at that early stage helps you attain your financial goal on time. There are other numerous advantages in having enough savings before you clock 30. It's all about cultivating a habit of saving and there are numerous ways to develop this habit. Nothing is stopping you from having a financial safety net savings account before you clock 30. This article will give you reasons why you should have savings as early as possible. We will also discuss what is appropriate for you to have saved before you clock the age of 30.

How Much Should I Have Saved By The Age Of 30

There is no exact figure as to how much you should have in savings by the time you're 30 years old. It all depends on a number of variables like your income, your financial obligations, financial goals, debts and so many other things. The most important thing is to have a saving culture before the age of 30. While we are all different and have different financial obligations and goals, it is important to have a general idea of what is considered reasonable savings at the age of 30.

While not putting yourself under any pressure, it is said that you should have an average savings of $47,000 if you're earning a relatively average salary. This estimation is based on the rule of thumb which says you should have a 1-year salary in savings by the time you start your fourth decade. The average weekly salary of persons between 25 and 34 in Canada is $979, and the average monthly salary within the same age bracket is $3,917, which makes an annual salary of $47,000.

If you have saved this amount or you're approaching this amount and you are not even 30,congratulations, you have met a financial goal. If not, do not put yourself under pressure, take this as a wake-up call and start your savings plan to save as much as you can before you clock 30. There is still time.

How Much Do I Need To Retire

This is a very common question among young people who want to start saving to secure their future and even those approaching retirement age. The truth is no amount is too small or big to have as your retirement fund, it all depends on the retirement lifestyle you have envisaged for yourself. Your retirement lifestyle will determine how much you need and how much will be enough to meet your lifestyle post-retirement. Knowing more about your income potential will secure your post-retirement lifestyle, although, emergencies occur which may affect your financial goals it is good to have some measure of control over your finances could give you the post-retirement lifestyle of your dream.

There is no benchmark of the amount you must have for retirement, it depends on your financial plan and your retirement lifestyle. However, to give you an idea, look at your lifestyle now and assess your expenses, then consider how these expenses will change when you retire, then you add some of the retirement benefits you will get from the Canadian Retirees Incomes: The Canada Pension Plan (CPP) or Quebec Pension Plan(QPP); The Old Age Security (OAS); Employer-sponsored pension plans and personal savings and investments. All these analyses combined should give you a fair idea of how much will be enough for your post-retirement lifestyle.

A survey showed that an average Canadian who retires at 65 will spend $60,359 including taxes until the age of 82. If you have a spouse and you both retire at 65, you will need $1,026,103 till you are both 82. These are average numbers which does not mean it has to be your numbers. Depending on the peculiarity of your situation, the money needed during your retirement may be lower or higher. This figure is only to give you an idea of the amount you should have in savings and investments before you retire.

Average Retirement Age

Globally, the age of 65 is regarded as the ripe age for retirement. Some retire before that while some retire way after that. Other than health reasons or years of service, it is the age most of the government retirement benefits are accessible to you. In Canada, you are eligible for the Old Age Security Pension, and Canada Pension Plan. The mandatory retirement age in Canada was 65 years until 2009 when mandatory retirement was abolished except for Judges, Justices of Peace and Magistrates.

Unless you are expecting an inheritance that will cater for you for the rest of your life, you are expected to work until the age of 50. That is usually referred to as the earliest retirement age. According to Statistics Canada, the average retirement age in Canada is 63 and a half years. The average retirement age for self-employed people is 68 years and 61 and a half years for federal workers. Private sector workers retire mostly at 65 years.

10 Ways To Save For 30

Developing a saving culture before the age of 30 is something that is now being encouraged. Covid 19 showed that anything can happen at any time and no one is too young to save. Even if you do not have a financial plan, endeavour to save as much money as you can, it is the key to securing your future. Here are some ways to save for the age of 30:  ‍

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Treat Paying Off Debt With High-Interest Rates As Investment

Debt is an undesirable situation that most people find themselves in. You may have some debt situations in your 30s such as student loans, and credit card debts. One hindrance to paying off loans on time is the high-interest rate. However, if you focus on paying off the debt with the highest interest rate, you save more by taking it off the list. To have a better understanding of this strategy, you can read more about the avalanche strategy of debt management.

Have An Emergency Fund

Building an emergency fund is an effective way of developing a saving culture. Emergency funds are used to settle unexpected financial obligations without having to touch your other savings or investment funds. To build an emergency fund, you will have to set aside a portion of your income which means you are indirectly saving some amount somewhere for when you may need it. This emergency fund also protects your other savings should the need arise for you to fulfil a financial obligation.

Automate Your Savings

Automated savings allows you to set up a direct deposit into your savings account at specific periods. The amount to be saved will be determined by you, it only means you do not have the power to decide when you remit once you activate it. It is a very effective way of developing a saving culture early on in your life. You will not have to keep racking your brain for when you have to save or are tempted to miss this current month’s savings commitment.

Have a Budget

This is a tested and trusted method of instilling a saving culture. Having a budget will give you the necessary discipline to meet your financial goals. With a budget, you can track your income and expenses and stop impulse spending. To have a realistic budget, you can have weekly and monthly expenses to watch what you spend. It is important to stick to your budget. You must be intentional about your saving culture and having a budget is one way to go about it.

Cut Down On Your Expenses

To have an effective savings plan, you must separate your needs from your want and stick to them. Reduce unnecessary travelling, impulse buying, eating out and other things that take your extra cash. Channel this cash into building an emergency fund and other investment goals. Things you can cut down on include utilities, energy, taxes, food and groceries, auto expenses and credit card charges. The extra cash you make off the cutting down can be channeled into your savings plan.

Insurance Policies

This is another way you can save enough before you clock 30. You can subscribe to policies such as disability insurance and auto insurance. This ensures that you are catered for if events under this policy occur. It is a way of saving for the eventuality and protecting your investment fund.

Save More As You Earn More

At your current age, you are full of energy and take on multiple jobs for multiple incomes. Do not see this as an opportunity to spend lavishly, rather it is an opportunity to have more money saved before you are even 30 years old. Take advantage of your youth to secure your future. It is not a time to live extravagantly and forget there is a future you need to secure starting from now. At this stage of your life, your expenses should increase at a slower rate than your income.

Open High-Interest Savings Account

This complements your automated savings plan. You can have an automated savings plan with a high-interest rate. This will ensure your money grows at a higher rate as against the regular savings accounts. At this rate, you're not only saving, but you are also earning. It is a smart move that every young person should think of.

Understand The Concept Of Cash Flow

At this stage, your financial knowledge may not be that deep which is common with everyone in their 20s. However, you can be smart and start improving your financial knowledge. One thing you can start with is the concept of cash flow. This will help you in your budgeting plan. It teaches you how money comes in and how it goes out. It allows you to streamline your expenses and make wise financial decisions. Knowledge is power.

Start Now

Do not think you are still young and you have decades to prepare. Time flies and you may end up regretting it. Things happen and you may not make as much later or you may make a lot more but because you have not cultivated the habit of saving, you lavish your income without thinking of the future. Be intentional about your finances and start saving now.   

Review Your Progress

This is important for your motivation. Once your savings plan is in place, you can set up a monthly review of how far you have gone into meeting your savings goal. It also helps you change your strategy if it doesn't align with your financial goals.

Conclusion

These tips will help you develop a saving culture and still allow you to have enough fun in your youth. Do not mistake these tips as a gag on your youth, it is an opportunity to be smart and have fun at the same time. With an effective savings plan before you are 30, you are sure to continue living the lifestyle of your dreams till you're 80 and more.

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Financial planning, as important as it is, must not be rushed into because of its sensitive nature. It is a way of protecting your future by structuring your finance. It is advisable not to rush into a financial plan because things could go south faster than you imagine and you might end up wasting your time and money. The importance of financial planning cannot be overstated. The major importance of financial planning is that it puts you in control of your income, expenses, savings, and investments. It is advisable to break everything about financial planning into stages in order to have a solid financial plan. This will enable you to track each step of your financial plan to ensure you dot every ‘i’ and cross every ‘t’. If you want to do your homework before involving a professional financial advisor, you can research the different steps (you can read our blog on the steps to take on financial planning) you can take and the things to include while preparing a financial plan. Once you are done, you can then give your financial advisor to review. From analyzing your current financial situation to developing an effective strategy to implement your financial plan, financial planning involves a systematic way of making provisions for your future.

The importance of a financial plan requires you to be thorough. Therefore, asides from outlining the steps you need to take to have a good financial plan, you can also go the route of outlining a checklist of things you want to take care of and included in your financial plan. Having a checklist is a more comprehensive way of ensuring you tick all the necessary boxes of having a workable financial plan. A good financial plan must include some important elements in order to make it work, these elements can be recreated as your checklist which will guide you when you finally start developing your financial plan. You may be wondering how you will determine what should be on the checklist and what you should leave out. This article will discuss some of the major elements that must be on your checklist so you won’t miss out on anything while preparing your financial plan. Some of what will be discussed include your assets and strategies. At the end of it all, it is important to run everything by your financial advisor for a professional view.

What Should Be Included In A Financial Plan?

A financial plan is composed of different components that work together to guarantee you a financially secured future. While some of these components are a must, you may do away with others. It all depends on your financial status, needs, and financial goals. Some of the things that must be included in your financial plan include.

Estate Plan

Estate planning is a way of taking care of your finances when you are no longer around. It is usually in form of a Will or Trust. It will state your wishes on how to handle your assets, dependents, and the administration of your estate. Your estate plan should also include a section that will appoint the person that will make medical and financial decisions when you are incapacitated. Your estate plan should also include an up-to-date list of beneficiaries of your insurance policies and registered accounts such as RRSP and TFSAs.

Financial Goals

Financial goals are an important aspect of a financial plan that you must include. These goals can be divided into short-term, mid-term, and long-term goals. This will be a road map to how you will spend, save and invest your income to meet your various financial goals. Short-term goals which could be in a time frame of 1 or 2 years include paying off high interests debts, tax preparations, and short-term investments. Mid-term goals take a few years and it includes life insurance policies, real estate purchases, and starting a family. Long term goals, like the name implies, is usually for a long period and it includes your estate planning and retirement planning. Financial goals should also include your family goals which will take care of them in your lifetime and when you are no longer around.

Emergency Funds

An emergency fund is a fund you set aside to use for any unforeseen circumstances. Things you don’t plan for may happen anytime and this is one of the major reasons for having a financial plan. Having an emergency fund in your financial plan ensures your savings and investments continue to increase in value without touching it, even in the event of emergencies. Unforeseen circumstances could be in the form of unexpected job loss or unexpected medical bills. Financial advisors recommend that you have at least 3 to 6 months of savings that can cover your living expenses for the same period as your emergency fund. It is also advisable to put your emergency fund into a liquid checking or savings account in order to be able to access the funds in a time of emergency.

Retirement Plan

The essence of a retirement plan is to make you financially independent post-retirement. It is never too late to include a retirement plan in your financial plan to give you a much-desired independence post-retirement. For a sufficient retirement plan, it is advisable to save between 20% to 30% of your pre-retirement income. You should also create financial goals and a budget for life after retirement. This will ensure you judiciously spend your retirement funds to achieve your set out financial goals.

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Financial Checklist To Include In Your Financial Plan

For you to have a comprehensive financial plan, having the following checklist will go a long way in helping build a solid financial plan.

Current Financial Analyses

Number one on the checklist is the analysis of your current financial situation. You cannot possibly plan for your future if you do not understand your current situation. In analyzing your financial situation, you must consider the following.

Financial assets

Your assets will tell you where you stand financially. You need to make a comprehensive list of all your assets which may include your saving and checking accounts, retirement accounts, brokerage accounts, investment accounts, emergency funds, cars, real estate, jewelry, artworks, and artifacts. Your assets include all your valuables and they must all be assessed to determine your worth before you start your financial plan.

Financial liabilities

You will also need to analyze your liabilities which may include loans, mortgage, credit card debts, business debts, and other expenses.

Credit Utilization Ratio

To calculate your credit utilization ratio, you divide your total debt by your total credit limit. This is also something you should include when preparing your financial plan.

Financial Insurance Portfolio

It is important to assess all your insurance coverage as well. Life, auto, health, and other insurance policies should be considered.

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Paying Your Debts

Debt is not a pleasant thing to have on your neck, especially with the interest rates. While it is advisable to avoid any form of debt, there are some debts that you may not be able to avoid at a particular stage of your life. Some of these debts include mortgage, student loans, and credit card debts. While preparing your final plan, you should come up with a strategy to pay of your debts. You can start with the ones with high interest rates. This is important for the health of your financial plan. It will ensure that you are not buried in debt while trying to build your financial plan.

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Financial Goals

This is another element of a financial plan you should have on your checklist. Your financial goals are what will drive your savings and investments and they will also give you a sense of direction on your finances. You can divide your financial goals into the following:

•  Short term goals

•  Mid-term goals

•  Long term goals

•  Family goals

•  Retirement goals

•  Career goals

Tax Issues

There will always be questions of tax when it comes to your assets. Your short and long-term profits on your investments are subject to capital gains tax. You can engage a tax professional to help you maximize every tax benefit available to you. Have a tax strategy before making any financial move that concerns your financial plan. You need to optimize your approach for tax benefits when you want to sell your assets, set up a charitable trust or donation, or shift your investments. It goes a long way in your financial plan.

Budget

This is also another important element to include in your checklist. You can break down your budget into weekly and monthly budgets. This will enable track your expenses and ensure that you are within your expected spending limit. It also separates your needs from your wants. It will also help you reach your financial goals on time.

Emergency Funds

Having an emergency fund in your financial plan enables you to grow your savings and investments even in times of emergency. You can put your emergency fund in a liquid investment to also grow it for your time of need.

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Insurance

Another important component of financial planning that you must include in your checklist is insurance policies. It goes side by side with your emergency fund as it ensures that certain aspects of your life are covered without you needing to dip into your savings and investments. Health insurance will cover your health needs, auto insurance takes care of your automobiles, life insurance provides for your dependents for when you are gone. Others include umbrella insurance policies and disability insurance policies.

Investment

This is arguably the backbone of your financial plan. It is a must on your checklist because it is what will ensure the growth of your savings. It is advisable to diversify your investments so as to vary your income and ensure a healthy financial plan. You should also align your fund allocation on each investment to suit your risk tolerance.

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Retirement Plan

This is an important aspect of your financial plan because of its importance when you are no longer active to work. You should decide on the percentage of your income you want to save for your retirement plan.

Estate Planning

Estate planning will allow you to include your loved ones in your financial plan. It will be your legacy when you are no longer around to take care of them. Some of your wishes that you can include in your Will are the beneficiaries of your retirement accounts and life insurance policies. You can also include a durable power of attorney on who will handle your finances when you are incapacitated. You can also take care of your post mortem financial goals in your estate plan.

Consulting A Professional

The role of a professional financial expert in reviewing and putting together your financial plan should not be overlooked. You may choose to prepare your financial plan using this checklist, but it is advisable to engage the services of a financial expert to put everything in order and ensure you do not miss any component. A professional will also help you consult other requisite professionals such as a tax lawyer and an insurance agent to help you review sections of your financial plan that requires their input. Engaging a professional to guide you when preparing your financial plan should therefore be on your checklist.

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Financial Planning Checklist Conclusion

The above checklist is not all-inclusive. Different strokes for different folks. Depending on your financial situation and financial goals, you may need to include some other components to have a comprehensive financial plan. That is why it is advisable to engage the services of a professional.

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Financial planning is a method of putting your finances in order so as to better protect your future

and that of your dependents. A financial plan gives you a sense of financial security that allows you

to spend rightly and save adequately. It also helps you take care of your debts in a structured way

that will prevent them from choking you. The very first step to take in financial planning which is

usually overlooked is to decide that you need one. After deciding that you want to set up a financial

plan to help monitor your present and future finances, you can then engage the services of a reliable

financial advisor to help you with a preferred structure. Find the 10 key components to financial planning to help you build out your process fully.

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This article will talk about the various steps involved in having a practicable financial plan that will

secure your future and that of your dependents. Having a financial plan will enable you to have

control over your income, expenses, and investments to achieve your financial and life goals. From

the moment you decide to have a financial plan, the first step is to assess your financial position so

as to know where to start from. You determine your current income, and future possible income,

with your daily and monthly expenses. You will also need to assess your debt situation to know your

obligations. After the assessment, there are subsequent steps that you may need to take to ensure

your financial plan takes root. Some of the other steps that will be discussed include developing

financial goals, a budget, and a plan to service your debts.

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What Is The First Step In Financial Planning?

We all make hundreds of decisions every day, some with reasons and some without reasons but all

decisions we make have both short and long-term consequences on our future. This is why having a

financial plan is considered one of the most prudent decisions you will ever make. It will help you

monitor your finances and secure your future. As it is with other things, a future position, there must

be an analysis of a current situation. When it comes to wealth management and financial planning,

the very first step financial advisors encourage is the analysis of your current financial situation.

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Analyzing Your Financial Situation

This step of the financial planning process is the first and comprehensive view of where you are

financial, considering your income, expenses, savings, investments, debts, and taxes. In analyzing

your current financial position, you will have to prepare a list of your current assets, debt balances,

interest rates, your daily, weekly, and monthly expenses. This will give you a foundation for workable

financial planning.

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It is advisable to engage the services of a professional financial planner that will collate all your

financial documents to determine your current financial position and help you design a structure

that will require that you make some changes in your financial lifestyle. During this stage, some

questions will be asked which will bother on your lifestyle goals, financial goals, risk tolerance, and

credit card transaction. After getting the much needed information and determining your current

financial position, changes may be made to your financial structure mostly in your expenses, savings,

and investments. These changes will be in line with your desired financial goals which will probably

be your next step in the financial planning process. Once a review of your financial position is

complete, it will be easier to proceed to the next steps of your financial plan.

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What Is The First Step In Financial Planning For A Baby?

For most, having a baby is desirable, and having a good financial plan alongside will go a long way in

securing the future of your child. It is advisable to start your baby’s financial planning as soon as you

realize your baby is on the way.

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Whether you decide on time before birth or immediately after birth that you want to have a financial

plan for your baby the first thing to do is to update your financial plan to accommodate your baby's

arrival. Most importantly your monthly budget. Once a baby is in the picture, you may need to

review your monthly budget to accommodate the baby’s needs. Most people underestimate the

expenses that follow the arrival of a new baby, therefore the adjustment you make may be a

significant one, especially for first-timers who have to buy new baby needs such as cribs, swings,

toys, and car seats. You have to create room for expenses such as diapers, infant medicines and food,

and visits to the pediatrician. Having a financial plan for your baby is the first step of good

parenting.

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What Are The Next Steps Once You Analyze Your Financial Position?

After you must have analyzed your current financial situation, there are other steps you will need to

take to put your financial plan in good shape. Some of these steps include:

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Identify Your Financial Goals

Once you have reviewed your financial position and you know what your financial strengths and

weaknesses are, the next step is to develop your financial goals. Your financial goals will serve as a

roadmap to your financial future. You can divide your goals into short-term, medium-term, and

long-term goals. It helps you differentiate your needs from your wants. Your financial goals must be

reviewed regularly to capture any change in your financial situation.

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Developing a Strategy For Your Financial Plan

This step enables you to come up with savings and investment plans that will help you improve your

financial situation and attain your financial goals. You can design how your money will be spent on

things like savings, investments, and bills. The financial strategy will also create a road map on how

to increase your income, either through job-hopping, side hustles, and a salary raise. Having a

strategy also brings other areas of your financials to the fore. It will help you consider areas like

estate planning and insurance. This will also help you strategize on the type of investments that will

grow your savings into what will protect your financial future. Your investment strategy will depend

on things like your personal needs, risk tolerance, and financial goals

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Engage The Services Of A Financial Advisor

A professional advisor is quite necessary when it comes to financial planning, especially if you have

complex financial needs. A financial advisor will guide you in putting your financial plan in place. He

may also introduce you to a network of other professionals such as a tax lawyer, an insurance specialist, and

investment advisors, that you may need to implement your financial plan. A financial advisor will

review your financial plan and his expertise will help straighten any grey areas in your plan.

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Evaluate Your Strategy

Having come up with a financial plan strategy, it is easy to lose track of some of your needs and

strategies. There might also be a couple of strategies that may not fit into your financial goals

together. Evaluating your strategies will help you identify any loopholes in your financial strategies

and plans. This is the time to discuss with your spouse, attorney, and your investment house to

ensure everyone is on the same page. This is also where your financial advisor evaluates your

proposed strategy and ensures it aligns with your risk appetite and goal. He may also make his

recommendations which you should consider.

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Risk Evaluation

This is also another important step in financial planning which may make or mar the success of your

plan. There are inherent risks in every financial plan and it is important to evaluate each risk and

decide whether it is worth taking on. For example, you may have a plan to sacrifice further studies

for work in order to earn more income. While this may be a good plan in the short term, it may

become a problem in the long term because you may not be able to advance in your career due to

your limited education. These are the types of risks that must be evaluated before implementing your

financial plan. Another important risk that should be evaluated alongside your planning includes

your investment risks. This is what will determine how your savings will grow.

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Implementing Your Financial Plan

After so much work has been put into the planning stages, the implementation stage is one of the

most challenging stages of financial planning. This is the stage where you chart different courses of

action for the success of your financial plan. At this stage, you have to make hay while the sun shines

by implementing every decision as and when due. For easy implementation, you can create a budget

calendar for your expense to ensure that you are not ahead of your budget at every specific period,

set dates and reminders to complete some financial tasks, and implement decisions. You need to

have your financial advisor on speed dial at this stage because his recommendations, guidance, and

network will come in very handy. He may also handle interaction with financial product providers on

your behalf.

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Monitor and Update Your Progress

This is a very important stage because it is what will ensure the sustainability of your financial plan.

You must continue to monitor and update your financial plan until you meet every goal in your plan.

As you progress through the different phases of your life, your priorities and situations may change

which may require some tweak in your financial plan. Periodic monitoring and update of your

financial plan will help you adjust your financial plan to reflect your current situation. It will also

help you to prioritize your financial decisions and make necessary adjustments that will align your

financial needs and goals with your current life and financial situation.

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Financial Planning Steps Conclusion

Financial planning is a very important process that required a properly defined and documented

process (you can read our blog on Financial Planning Checklist) as listed in this article. When you

follow a systematic process in setting up your financial plan, you are guaranteed a reasonably

financially secured future. It not only protects your finance, but it also makes provisions for your

loved ones and ensures that they are properly taken care of as your dependents. While a financial

plan may not give you a foolproof financially secure future or wealth creation, it will, however,

provide you with the opportunity to look towards attaining wealth and a financially secure future

with proper analyses, discipline, and the expertise of a financial advisor.

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If you've been wondering how to handle your finances, especially to cover you for the future, financial planning is the best way to go about it. There are components of financial planning that will help you understand how to effectively execute whatever financial plan you decide to go with. This is especially for the young folks who want to protect their future and that of their kids. If you have a well-paying job but your bank account is not reflecting this position or you have a minor expense in the coming years and you want to know how to go about it most prudently, then you need a financial plan.

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What Is Financial Planning?

Financial planning is a method of taking control of your finances. It usually serves as a guide to your spending as you achieve your goals at every stage of your life. Financial planning is basically a way of handling your income, expenses, and investment so you can achieve your life and financial goals. 

If your still a little unsure of where to start your financial planning, we made this financial planning checklist article just for you.

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Why Is Financial Planning Important?

Financial planning is a way of budgeting your finances so you can cater to both current and future needs. It is an important aspect of your finances that you should not ignore. Here are the reasons why financial planning is important: 

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Contingency Purpose

No one knows the future and there are a lot of things that can happen that you neither plan for or budget for. It could be anything ranging from health, sudden job loss, child support, or travelling needs. Having a financial plan will help you set aside a contingency fund for such eventuality. Financial advisors advise that you have a contingency plan worth at least 6 months of your salary. This fund will be invested in a liquid investment so as to give you access during an emergency. It is simply a case of doing your best to prepare for the worst. 

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Comfortable Retirement

Retirement is an inevitable phase that everyone will live to experience. However, when it's time for retirement, you will not be able to work and earn money to sustain yourself. That is why it is important to start a financial plan that will ensure you live out your retirement days with enough funds. It could be the time you travel the world and explore different cultures since you will be having time on your hands. Also, having a retirement fund will help you cater for possible medical needs when you are old and vulnerable. 

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Effective Money Management

Once you start a family, it may be difficult to keep track of your obligations and resulting expenses. The wife wants a dinner gown, the kids want a car, or the whole family wants to move into a bigger apartment. The best way to get ahead is to have a financial plan that will monitor your spending and guide you on the best ways to satisfy the needs of your family.

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Handle Inflation

Times change so does the economy. The prices of goods today might not be the price in the nearest future. Having savings is good, but when your savings does not grow in value, it does not effectively tackle inflation. A good financial plan will include growing your savings to last you long enough in retirement and to also handle inflation in the future. 

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Peace Of Mind

A good financial plan will relieve you of the burden of worrying about your current and your future finances. You can adequately cover your expenses, save some funds and invest your saving to earn more. With all these settled, there is certainly a reassurance and peace of mind this gives you, having settled your finances. 

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Types Of Financial Planning

•   Cash Flow Planning - This helps you monitor and plan your inflow and outflow of cash. It allows you to manage your expenses and how you fulfil your current and future financial obligations. This will enable you to set aside savings and invest them for future needs. 

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•   Investment Planning - This helps you identify the types of investment that will ensure your savings don't just lay dormant. There are different investment vehicles that give varying returns. Investment planning will help you identify the best short-term and long-term investments for effective financial planning. 

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•   Retirement Planning - It is nota healthy thing to be worrying about your finances during retirement. Your financial planning should include a retirement plan that will cater for when you are no longer able to actively earn an income. There are long-term investments that will ensure your retirement savings grow in value. It gives you financial independence when you're expected to be a dependent. 

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Components Of Financial Planning

Here are 10 key components of financial planning to help you succeed in your short term and long term goals. Don't forget to read our article helping you make the right first step in this journey, after your done this one.

Financial Goals

This is an important component of financial planning because it sets out your current and future financial goals. It identifies what you want to achieve, how much money you need and when you will need them. You can classify your financial goals into short-term, medium-term, and long-term goals. Read more about how to set smart financial goals.

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Cash Flow Analyses

This will help you identify your inflow, outflow, assets, and debts. This will prevent you from spending more than you earn. 

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Tax Planning

This is also an important component that ensures you enjoy tax reduction on your savings and tax-free returns on your earnings. So you can adequately grow and enjoy your savings. Read more about how to make your life easier with these 7 on tax planning.

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Investment Planning

Growing your savings is a very important component of financial planning. This is what differentiates it from an ordinary savings account. There are different investment vehicles that will help you grow your savings and excess funds and manage the tax implications.  Read more about how to prepare for you future with our investment planning article.

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Retirement Planning

This component will help you prepare for your inactive days. You can set aside a retirement fund that will be invested to grow over time so you can have enough for when you retire. Your retirement lifestyle, financial objectives, and government benefits are some of the things you will consider when including retirement in your financial plan. A good goal to have is to have a set amount saved up by 30.

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Debt Management

This component allows you to manage your debt effectively by ensuring you stay away from high-interest debts and find a way to serve the ones you already have. It will help you design a plan on how to service current and future inevitable debts you may incur. Read more about how to succeed with your debt management strategy with these 10 tips.

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Emergency Fund

This is another component that helps you manage your funds properly. The emergency fund will prevent you from taking out of your other savings and investments in times of emergency. This way, your long-term savings, and investments are intact during emergencies. Read more about how to create your financial safety net today.

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Estate Planning

This aspect caters for your wishes regarding your assets and investment for when you are no longer around. This gives you the opportunity to appoint who will administer your estate, which must be someone you can trust. It also allows you to determine who gets what amongst your dependents. You may also want to include Powers of Attorney to appoint people that will take health care and financial decisions for when you are incapacitated. 

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Insurance

This is also important because it reduces the burden on your long-term savings and investments. Having insurance for some necessary needs is important. A health insurance cover ensures you are adequately covered when you have health issues. You will not be required to dipinto your savings or even your emergency funds. Other types of important insurance include Disability insurance and Life insurance. 

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Education Planning

This is mainly for your children and possibly your grandchildren. It is usually advisable to start this even before your kids are born. Children grow so fast which is why adequate financial planning is needed for your children's education. Some of the things you may want to consider include the average tuition for every stage in their education, available student loans and mode of repayment, and educational tax credit. Having a separate financial plan for your children's education will ensure you don't have to spend out of your long-term savings and investment. 

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Key Components of financial planning Conclusion

Financial planning is a prudent way of ensuring a financially secure future. It puts your spending into perspective and allows you to see where you are spending unnecessary cash and how you could potentially earn more, even when you retire.

The financial planning components help you identify all the important areas you have to consider so that your long-term financial planning can adequately cater for your future needs. Even when you're no longer around, you can be reassured that your finances are in safe hands as per your wishes. If you fail to plan, then you plan to fail. 

Out of these 10 financial planning areas above, what one do you need help with most?

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If you follow the news, you may have heard that recently, Canada's inflation rate for August hit 4.1%, which historically speaking, is quite high. So what does that mean, for you? As a worker, or a retiree, or an investor? Before we delve into that, first let's take a look at what inflation is, and how it's measured.

"The economy works best when inflation is stable and predictable" - Bank of Canada.

Just think, how difficult would it be for your to budget your monthly expenses if instead of spending $300 on groceries every month, it might be $500 one month, $200 the next, and then back to $600 the next month, even though you're buying roughly the same things? If you ran a business, how difficult would it be if your supplier charges you wildly different amounts every quarter, even though you're receiving the same stuff from them?

When inflation is high, that means the economy is in trouble. For example, you may have heard about the situation in Venezuela where the unstable economy resulted in almost 3000% inflation over just a few years. Imagine if a $4 carton of eggs was suddenly $80 the same time next year. This is obviously an extreme example of a very unstable economy and government, but you get the idea.

On the flip side, deflation, where the cost of items go down, isn't great either. It's usually seen in times where countries go through a depressive phase in their economy: a great example would be the US, and many other parts of the world, during the global economic crisis of 2008.

Through use of monetary and fiscal policy, the government of Canada aims to keep inflation at roughly 2% annually. Thus, it may sound alarming when you hear the headlines saying that inflation hit 4.1% just recently.

What does this all mean to you, as a Canadian?

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Should someone working in Canada be concerned about inflation?

As someone who is working and earning an income in Canada, the high inflation can be a cause of concern, especially if your wages aren't keeping up with inflation. Business owners are feeling the same squeeze too. With global production down and demand staying relatively the same, the prices of nearly everything are not only increasing by itself, the prices are further increased by inflation. Make sure that you're budgeting properly and taking into account the inflation we're seeing, so that you're prepared in the upcoming months, and perhaps years.

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Should someone who is retired worry about inflation?

If you're retired, it really depends on your sources of income. For example, if you are taking the Canada Pension Plan, or CPP, in addition to other government benefits, that is adjusted for inflation by the government, so your real spending power isn't really affected dramatically. On the other hand, if you're taking money from your own savings and investments, you do want to make sure that you take inflation into account, as a 5% growth with 2% inflation is very different when there's a 5% growth with 4% inflation. Talk to a financial expert in Vancouver to make sure that you're adequately protected.

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Should investors worry about inflation?

Luckily, if you're an active investor, you're in a great position to protect yourself against inflation! The worst thing you can do when inflation rates are climbing is to let your money sit there, stagnating. Having your money invested in something, anything, will counteract the effects of inflation. Of course, the real rate of return will be lower than before, so what you'll need to do is to find ways of adjusting your portfolio so you're still hitting those desired outcomes.

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In any case, no matter what position you're in, the most important thing is for you to stay prepared by staying knowledgeable. When you have a plan in mind to deal with inflation, you'll be able to put yourself into the best position in any scenario!

Have you ever used, or have thought about using the registered retirement savings plan that’s available to us in Canada? If yes, I assume that you want to use it because it offers a great tax benefit, and helps you grow your long-term savings for your future retirement, right? That’s usually the case for most people. As our team of financial planners in Vancouver would tell you, the RRSP is something of interest to most people because of the above reasons.

First, let’s have a quick refresher about some key points of the RRSP, and why it has been a long-time staple in the financial planning of so many Canadians.

The RRSP contribution reduces your taxable income.

‍This means that if someone earns $100,000 a year, and they contribute $10,000 into their RRSP, they only need to pay taxes on $90,000 worth of income. This could mean a reduction of around $3500-$4500 of taxes paid.

The money grows tax deferred.

Deferred means not yet, so while the money is sitting inside the RRSP (being invested, hopefully, and not just in a savings account), you won’t be taxed on it every year like you would your normal income. It only becomes taxable once you decide to make the withdrawal. Which brings us to our next point.

When making a withdrawal from an RRSP you’ll have to pay full income tax.

Ideally, you would make withdrawals from your RRSP once you’re retired. The idea is that in retirement, people would generally have lower income. So even though you’re making withdrawals from your RRSP, it will be balanced out by the fact that you’re not making as much working income. There are 2 ways that you can temporarily withdrawal some money from your RRSP: The homebuyer's plan and the lifelong learning plan, but pay attention to the fine print: you'll need to pay it back at some point.

If you and your partner have different incomes, use spousal RRSP.

There are many single income families, or families where the partner make very different incomes. If this is the case, the higher income partner can contribute to the lower income spouse's RRSP. The deduction will go to the higher income spouse, but the savings will be under the lower income spouse's name. Essentially, you could get some income splitting happening.

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As you can see, the biggest benefit here is that your RRSP contributions lowers your taxable income, which means you will pay less taxes. For some people it might even give them a tax refund! But here’s a secret that a lot of people don’t know, which we are excited to share with you today: there is another way to get that same tax refund, without the downside of the withdrawals being fully taxable!

In Canada, when you borrow money (that is, take on a loan), you will need to pay interest. If you invest in certain assets with that loan, the interest that you pay on the loan would actually qualify you for tax deduction as well. If you’re not sure about this, ask your accountant about line 22100 – carrying charges and interest expenses, and they’ll tell you all about it.

We can use this to our advantage. Let’s assume that you borrowed $200,000 and the bank charged you an interest of 5%.This means that in one year, you’ll be paying 5% interest, or $10,000. At the end of the year, you would have $10,000 of interest expenses, which will lower your taxable income by $10,000. You’ve achieved the same income deduction as if you contributed $10,000 into your RRSP. Not to mention, if you had invested the loan into something, making 10% hypothetically, you’d end up with $20,000! This is what we mean when we say you can go beyond the RRSP: not only do you get a tax deduction, you also get amazing potential for growth!

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Talk to us to learn more about the RRSP and find out how you can supercharge your own financial plan!

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The contents of this post are from informational purposes only and should not be considered financial advice.

A local website has recently reached out to us, to let us know that in their search for the top financial advisors in Vancouver, we were one of the 5 selected! Being noticed like this was such a pleasant surprise, and incredibly rewarding. We've been hard at work building our company and to have something like this happen is the kind of affirmation we love to see!

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Read more about it here

This month, we would like to feature and share with you the more fun and personal side of Prometheus and team members. As some of you may know, community and philanthropy is a big part of what we do, and we want to share our experience in giving back and hopefully can inspire you to join us as well!

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What did PPAG do this year in terms of giving back?

Earlier this year, we decided to embark on a charitable initiative that allows us to continue to give back to the community perpetually.  We put together our very own Donor Advised Fund: The Prometheus Corporate Giveback Fund with Vancouver Foundation! 

What is a Donor Advised Fund?

A Donor Advised Fund (DAF) is a fund set up with a public foundation, such as Vancouver Foundation, and allows individual donors, like our clients; or a company, like PPAG, to establish a charitable endowment fund. By donating money to the fund, you receive a charitable donation tax receipt, and then distribute the growth of the fund in the form of grant over time. Grants can be made to any registered Canadian charity chosen by PPAG.

Who are your target beneficiaries?

We put a huge value on education, as it opens doors and creates opportunities. We also like to help younger generations. Our fund intends to provide youth and young adults with limited financial resources the opportunity to seek higher education in the form of bursaries and scholarships.

How much can you distribute?

PPAG Giveback Fund can distribute around 4% annually. The distribution rate is determined by Vancouver Foundation to ensure the fund can continue to issue increased grants perpetually. The more support we get to build our fund means more grants for those who need it and we can distribute more on an annual basis!

How long will the giveback fund last?

The purpose of setting up the fund is to allow us to continue to grow our charitable impact without stopping. Since we are preserving capital and mainly distributing the growth of the fund, the gift will grow and be given every year for ever! We’ve created something which will continue to make an impact long after even our team has passed on. 

How can I help?

I am glad you asked! You can support by clicking on this link: Prometheus Corporate Giveback Fund with Vancouver Foundation and make your donation to help us grow the fund and give the gift of education and create a brighter future for the youth in our community!

Some final thoughts:

‍We're a local company, with a desire to improve our community. Everyone on our team lives in this beautiful city, so we believe it's so important for us to give back and make it a better place. Making a difference is an incredibly fulfilling experience for everyone involved, and we want you to find that same fulfillment for yourself too.

Gambling versus Investing

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The morning of January 8 th , 2021 marked a historical day in the stock market. For many of us, it

will be ingrained in our memories as “David versus Goliath” on Wall Street. A group of retail

investors formed a popular alliance on the Reddit forum Wallstreetbets (WSB) with the aim of

taking down the mighty Wall Street hedge fund managers. The showdown took place on the

stock exchange, with most of the initial action centered around a company named Game Stop

(GME).

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Game Stop is a video game retailer with an aging business model and hedge funds were

massively shorting the stock — wagering that the retail chain was headed for bankruptcy. If the

hedge fund bets paid off, they stood to earn a fortune. However, Reddit users suddenly entered

the fray and went to war against the hedge funds.

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The retail investors formed a group to throw their hard-earned money into GME in a bid to

inflate the stock price as high as possible — to the moon! — hoping the hedge fund companies

would lose a ton of money by having to unwind their short. Some traders even bet on GME by

digging into their emergency funds, taking out loans and risking their family’s hard-earned

retirement funds.

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This created a frenzy in the stock market and as the news poured out, more and more retail

investors joined the alliance and inflated the price to as high as $481.99 per share. It was a

“short squeeze” of truly epic proportions. Those early speculators who got into GME and then

jumped out again made a killing — unfortunately, many of the late players to the game wound

up losing a big chunk of change in what ended up being an extremely risky proposition.

After the dust finally settled after two weeks of stock market frenzy, no one could have

predicted that ordinary posters on a public message board would have helped create such an

upheaval. However, there is one thing that all investment experts can agree on: This was not

“investing” in any way, shape, or form. It was gambling, pure and simple. For those that made a

profit on GME and other highly shorted stocks, congratulations, your bets paid off!

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Sadly, for many others, their ill-advised speculation ended only in misery, and a hard lesson has

been learned. Investing – whether it’s in stocks, investment funds, ETFs, or anything else –

should only be done in a strategic matter. All investors need to understand their personal risk

tolerance, time horizon, and objective. And people should only ever invest within their financial

means and capabilities.

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At Prometheus Private Advisory Group, we stand ready to offer our help with our knowledge

and experience. Would you like to learn more about how to invest wisely and profitably? We

warmly welcome you to book a complimentary consultation with one of our advisors to discover

what type of investment strategy is suitable for you!

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We're coming up to the end of the year, and this is a time where we start thinking about other people in our community, and how we can give back to them. It might be corny but it’s true: nothing feels as good as helping others. Of course, if you can also benefit from giving back to those in need, that’s a win for everyone. At Prometheus Private Advisory Group, we believe that’s exactly what makes charitable donations so powerful: both the donor and the recipient reap significant rewards.

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Most importantly, giving money to charities is a valuable, generous and high-impact way to allocate extra funds. You can choose an organization you believe in and see the direct impact of your support. But when you donate, you also save big on taxes and can even leave behind a legacy to make sure your gift keeps on giving after you’re gone. Here, we’re sharing everything you need to know about charitable giving, including:

• Why you should make charitable donations part of your financial plan
• How to claim charity donations on your taxes
• How to set up legacy giving
• Vancouver charities to support

Giving to Charity: A Valuable Part of Any Financial Plan

The benefits of giving to charity are many and obvious: your money goes towards supporting people and causes who need it most, it teaches your children the value of giving, and it straight up makes you feel good. For those reasons alone, everyone can benefit from making charitable giving a part of their lives.

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But from a financial planning perspective (which, of course, is what we’re all about), charitable giving makes smart financial sense. When you donate to a registered charity in Canada, you receive a tax receipt for your donation. You can then submit your receipt(s) with your annual tax return and receive up to 53% of your donation as a tax credit. The rate is 29% at the federal level and up to 24% at the provincial level, depending on where you live. 

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Since the more you donate, the more you get back, it can be valuable to hold onto your receipts and claim them all in the same year. In any given year, you can claim donations made by December 31st of the current tax year, as well as any unclaimed donations made by you or your spouse for the last five years.

How to Claim Charitable Tax Credits

To make a charitable tax claim, you’ll first need to determine that all your donations are eligible for credits. Remember, you can only claim donations made to registered charities and other qualified donees. If you’re unsure, the government website has a handy list of eligible charities in Canada. Once you’re sure that your donations qualify, you can calculate the amount you’re entitled to claim.

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At the federal rate, donations up to $200 get you 15% credit. For additional amounts over $200, you’ll receive 29%. Each province also has its own charitable tax rate, ranging from 4% to 24%. Be sure to check the provincial charitable donation tax credit rates and use the tax credit calculator to get a better idea of how much you’ll receive.

How to Set Up Legacy Giving

So now that you’re up to speed on how charitable giving can help you save on taxes, let’s talk about how to make sure your money goes to good use — for now and for the future. Your donations can make a big difference, both during your lifetime and after you’re gone. Legacy giving can ensure this happens.

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Also called planned giving, you can plan ahead to leave a portion of your wealth to a charity or organization of your choosing. This means you’ll be able to support causes that matter to you, even after you’re no longer able to make regular donations. Planned giving can also give you the opportunity to make donations that you wouldn’t be able to afford while you’re alive. You can even discuss your legacy donation with your chosen charity to decide how the funds will be used. It’s a powerful way to guarantee the causes you want to support have the funding they need for many years to come.

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You might be wondering if there’s any benefits of legacy giving to the family you’re leaving behind. In a word, yes! The money that you give to a charity in your will does not take away from the money you leave to your children. Instead, Canada’s tax regulations allow donations to come from the amount you’d typically pay in taxes to the CRA. If you haven’t already included legacy giving in your will, talk to one of our financial advisors in Vancouver to learn more.

Charities to Support in Vancouver

I think we can all agree that giving to charity is a good thing for everyone involved. Whether you’re donating to cancer research or supporting organizations that seek to end homelessness, charitable donations make our world a better place for all of us. But deciding to donate is only one part of the equation. There are so many worthy causes out there, so choosing where to donate can be a challenge.

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Choosing a charity to support is a very personal decision. It comes down to deciding what causes matter to you most — whether it’s animal rights, children’s health or equality for BIPOC people — and then researching charities in that sector. We can’t tell you where to give your hard-earned money, but we can guarantee that you’ll feel great about supporting a cause that’s close to your heart.

The best part about charitable giving is that you really can’t go wrong. Just be sure to stick to registered charities and organizations so you can claim your tax credits. If you’re not sure where to start, check out this helpful list of Vancouver charities to support. And if you still have questions about donating to charity in Canada, contact Prometheus Private Advisory Group to talk to an expert today.

5 Pieces of Financial Wisdom We Wish We Knew in Our 40s

A few months ago, we shared the biggest things we wish we knew about finances when we were in our 30s. But if you’re approaching 40, you might be wondering what financial tips you’ve been missing out on. It’s crazy to think about it but in your 40s, you’re about half way (or more) to retirement! If you haven’t already, now is the time to start making smart financial decisions for your future.

At Prometheus Private Advisory Group, we believe it’s never too late to think about financial planning. While it’s always better to start as soon as possible, you can still set yourself up for financial longevity at any age. If you’re not sure where to start, keep reading. Here, Vancouver’s financial advisors are sharing all their financial secrets for your 40s and beyond.

1. Don’t Be Afraid to Use Your Credit Cards

… as long as you pay them off! When used wisely, your credit cards can be a valuable part of your financial plan. From cashback and travel rewards to dining and retail credits, there are so many ways to make your credit cards work for you. It can make some people nervous to throw everything on their credit card, especially if you’ve struggled with debt in the past. But there’s nothing wrong with using your credit card for all of your purchases, as long as you pay it off each month before you’re charged interest. In your 40s, you know by now how much you can afford. When it comes to using your credit cards, it’s all about only spending within your means.

2. Increase Your Retirement Contributions

In a perfect world, you already have a retirement plan by the time you reach your 40s. After all, retirement isn’t all that far away so it’s a good idea to be prepared for life after work. Assuming you have a retirement savings plan, consider upping your contributions or reevaluating your account. Are you getting the most out of your retirement savings? Are you earning more than you were in your 30s? Now is the time to maximize your savings potential so you can enjoy your retirement to the fullest.

3. Buy Life Insurance

If you haven’t already thought about life insurance, your 40s are the perfect time to finally lock down a policy. The earlier you get life insurance, the better. Why? Monthly premiums are lower the younger you are because you’re less likely to have pre-existing health conditions. So while it’s never too late to get life insurance, it’s best to do it now. Life insurance is a valuable way to secure your family’s financial stability after you’re gone and will give you peace of mind knowing your loved ones will be taken care of.

4. Do a Monthly (Financial) Cleanse

No, we don’t mean you should stock up on green juice or bone broth. We’re talking about taking stock of your monthly expenses and cleansing yourself of the non-essentials. Are you really using that annual subscription for online yoga? Do you really need Netflix and Crave and Amazon Prime? If you use all of those things, great! You don’t need to get rid of things that are actually important to you. But all of those seemingly little expenses can add up to big costs, often without your realizing because they tend to be automatic charges. It’s worth taking the time to do a self-audit so you know what you’re really spending each month.

5. Get Paid What You’re Worth

By the time you’re in your 40s, you’re probably well into your career (but if you’re still figuring things out or switching gears, that’s totally cool too!). You’ve been working hard for the better part of two decades and you’ve earned your place in the working world. If you’ve been at the same company for a while or don’t feel like you’re making as much as you should be, stand up for yourself and ask for a raise. Not only will getting paid what you’re worth make you a better employee, it will also allow you to level up your retirement savings. Win win.

Not sure how to ask for a raise? Start by doing market research to find out what others in your position (and with your experience level) are making and consider hiring a career coach to develop negotiating strategies. Then talk to your boss and make your case. If they value your contributions to the company, the raise conversation should never be off the table.

Managing your finances is a big task, but it doesn’t have to be complicated. If you’re having a hard time with financial planning in your 40s, or just need a little extra advice, the financial experts at Prometheus Private Advisory Group are always here to help. Contact us for a consultation today.

What Kind of Life Insurance Should I Buy?

Thinking about buying life insurance? Good on you — you’re a big step ahead of a lot of people! Unfortunately, people love to pretend that they’re invincible and don’t need to worry about what will happen once they pass on. In reality, no one is too good for life insurance and every single one of us can benefit from planning ahead. After all, you never know what can happen and when. So while there’s nothing wrong with hoping for the best, it’s always best to be prepared for the worst. 

As insurance advisors in Vancouver, we’re experts in all things life insurance: why it matters, how it can help you and your family, and how to pick the best policy for your needs. Not sure where (or when) to start? Here, Prometheus Private Advisory Group is sharing everything you need to know about life insurance in Canada.

What is Life Insurance Anyway?

Okay, we’re going to go ahead and state the obvious: life insurance can be pretty dull. It’s one of those not-so-fun parts of adulting that most of us would rather ignore for the rest of our lives. We get it: when you sign up for a life insurance policy, you have to fill out a lot of paperwork, estimate and calculate your living and dying expenses, and dive deep into your medical history. Not exactly anyone’s idea of a good time. But even though life insurance can be tedious, time-consuming and expensive, it is 100%, totally and completely worth it.

Why? Because a life insurance policy is the official contract that guarantees your dependents (or anyone who relies on you for financial support) is taken care of once you’re gone. In exchange for a monthly premium, you get peace of mind that your loved ones don’t have to stress about money in the event of your death, and can enjoy their current lifestyle for many years to come.

Here’s how it works: you open a policy with an insurance company for a specific amount of money that will be paid out when you die. You pay said company a monthly fee for as long as the policy is in place. Upon your death, the lump sum is given to your surviving family or chosen beneficiaries. Your loved ones are free to use the money for whatever purpose they choose, whether that’s for living expenses, tuition, debt repayments, your funeral costs or anything else.

Do I Really Need Life Insurance?

Again, we’re going to be straight up with you: life insurance policies can cost a pretty penny and you personally will never see that money again. It can be a little annoying to send that cash out into the ether when you could use it for way more fun things, like vacations or a new car. If you’re feeling that way, it’s natural! You’re certainly not the first to ask yourself, “Why should I buy life insurance?”

In a word, yes. At least, if you have a spouse, children or any other dependents, you probably want to get yourself some life insurance. Because even though no one likes to think about their own death, isn’t it worse to imagine your family struggling financially because you’re no longer around to take care of them? For that reason alone, we believe life insurance is worth the investment.

But now we’re getting to the fun part. No, really, insurance can be exciting! (Hey, we see that eye roll…) Being the insurance connoisseurs we are, we can help you use life insurance as an investment vehicle to achieve your financial goals. Our team has your back with personalized solutions and strategies that will set your family up for long-term financial stability.

What Kind of Life Insurance Should I Buy?

There are two main types of life insurance in Canada: term life insurance and permanent life insurance. With term insurance, you pay an annual premium for a set number of years (usually 10, 20 or 30 years) or up until you reach a certain age. If you die during that term, the insurance company pays out the lump sum to your beneficiaries. If you don’t die, nothing happens. The insurance company keeps the money and you’ll need to renew your policy to re-up on coverage.

Permanent life insurance works a little differently. Instead of only covering you for a fixed term, you’re covered for life. As long as you keep paying your monthly premiums, you can rest assured that a payout is coming to your family at some point in the future, whenever you pass away. In addition to lifelong coverage, permanent life insurance has the added benefit of allowing you to accumulate cash value, which you can use as collateral on a loan or receive as a payout of your own if you cancel the policy. Permanent life insurance is also valuable for estate planning purposes, allowing you to leave tax-free money to beneficiaries or charities.

The type of life insurance you choose will depend on your personal goals and financial situation. Keep in mind that term insurance premiums are much less expensive than permanent insurance premiums, but term insurance has fewer perks. When in doubt, talk to an insurance advisor in Vancouver to discuss your options.

When Should I Buy Life Insurance?

As for when to buy life insurance, the answer is now. It’s never too early (or too late) to get started, but the longer you wait to buy life insurance, the more expensive your premiums will be. That’s because insurance companies consider your entire health history. Since you’re more likely to develop chronic health conditions as you age, premiums are lower for younger, healthier folks.

We know talking about life insurance can be a little overwhelming, but don’t worry. The insurance advisors at Prometheus Private Advisory Group are experts in making insurance accessible, affordable and yes, even fun. Contact us today to get started.

No one likes to think about their own mortality, but when it comes to planning for the future, it’s naive to ignore the inevitable. We’re all going to pass on eventually — and unfortunately, there’s really no way to know when. Wouldn’t you rather take steps now to plan for your family’s financial future once you’re gone? That’s what estate planning is all about and Prometheus Private Advisory Group is here to show you how to do it.

As financial planners in Vancouver, we’re experts in helping people plan for their future — including their eventual passing. We know it’s hard to imagine your untimely (or even elderly) death, but the sooner you start planning for the worst, the better off your family will be.

Here, you’ll learn:

1. The definition of estate planning
2. Why estate planning matters
3. The estate planning checklist
   

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Estate Planning 101‍

When you think about what happens to your estate once you pass away, the first thing that comes to mind is probably your will. While a will is absolutely a key part of the estate planning process, it’s not the only thing that matters. That said, if you don’t have a will already, that’s a great place to start!
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Estate planning refers to the process of preparing and arranging for the management and distribution of your property and assets in the event of your death or incapacitation. In simpler terms, it’s your plan for how your stuff will be doled out to your family, friends or other recipients after you die. Your detailed instructions will officially be written out in your will but estate planning involves many other aspects, such as setting up trusts, naming an executor and beneficiaries, making charitable donations, making funeral arrangements, and more.

A Guide to Estate Planning

We know that estate planning can get overwhelming. Aside from the absurdity of pondering your own demise, you’ll need to do a deep dive into your own finances and make big decisions about what will happen to your assets. Here’s a simple guide to estate planning in Canada to help you get started.

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Prepare to Write a Will

First thing first, you’ll want to write a will that details out your wishes: who you want in charge of your estate and where you want your money and other assets to go. Be sure to include instructions for the following:

1. Distribute your assets: Create an up-to-date, detailed list of your assets and who will get what. If there are any specific items that you want a certain person to receive, this is where you’ll state it.
2. Name beneficiaries: Make a list of the people who will inherit your assets. Have secondary options in case your beneficiaries predecease you.
3. Designate guardians for any minors: If you have children or other dependents who are minors, make arrangements for who will take care of them. Always be sure that your preferred guardians are up for the task and review your choice as your child gets older.
4. Name an executor: Your executor will be the one who carries out your wishes when you die. Choose someone who is capable of handling the responsibility and also has the time for it. Settling an estate is no simple task, so it’s important that your executor knows what they’re getting into.
5. Talk to a lawyer or notary public: For peace of mind, you may wish to get a lawyer or notary public to look over your will. While getting your will notarized or signed by a lawyer is not required, it can help to speed up the probate process so it’s something to consider.

Name your Power of Attorney:

The person you choose to act under your power of attorney document is responsible for making decisions on your behalf. In Canada, a general power of attorney manages your property and finances while you are still mentally able to do so yourself and a continuing (or enduring) power of attorney manages your financial assets if you become mentally incapacitated.

Buy Life Insurance:

Life insurance is a critical part of any estate plan. It protects your family financially and ensures they can continue their current lifestyle once you pass. Life insurance can also help pay for taxes and other liabilities that may come up after death. Make sure to keep up-to-date beneficiaries for your life insurance. As insurance experts in Vancouver, we can help you out.

Plan (and Prepay) for your Funeral:

Funerals can be very expensive. Planning ahead, and potentially even prepaying, for your funeral can take this stressful expense off your family’s shoulders.

Give Gifts or Charitable Donations:

Also called planned giving or legacy giving, charitable donations are a fantastic way to distribute your wealth after you’re gone. You can plan ahead to leave a portion of your money to causes that matter to you, which can give you an opportunity to donate funds that you wouldn’t be able to afford while you’re alive. Giving to charity also helps you save on taxes. Learn all about legacy giving here.

Set Up Trust Funds:

Trusts can be a valuable way to provide income for your family members. There are two main types of trust funds in Canada: testamentary trusts and inter vivos trusts. The first is created and begins after you die whereas the latter is set up while you’re still alive. The type you choose depends on your wishes for your wealth.

Why Estate Planning is Important

You might be wondering why you should worry about estate planning in the first place. Once you’re gone, you won’t be around to see what happens to your wealth anyway. But if you don’t have a plan for your estate, it can be extremely stressful for the people you leave behind to wade through your assets, debts, taxes and so on.
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Creating an estate plan is about a lot more than just dictating who gets what. It gives you peace of mind that your wealth will be divided according to your wishes, and allows your friends and family to focus on what’s really important: grieving the loss of a beloved family member.

At Prometheus Private Advisory Group, we believe the key to estate planning is to start as soon as possible. That way, if the worst happens, you can rest in peace that your family is financially secure. Ready to start planning your estate? Contact us to talk to one of Vancouver’s estate planning experts today.

We're coming up to the end of the year, and this is a time where we start thinking about other people in our community, and how we can give back to them. It might be corny but it’s true: nothing feels as good as helping others. Of course, if you can also benefit from giving back to those in need, that’s a win for everyone. At Prometheus Private Advisory Group, we believe that’s exactly what makes charitable donations so powerful: both the donor and the recipient reap significant rewards.

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Most importantly, giving money to charities is a valuable, generous and high-impact way to allocate extra funds. You can choose an organization you believe in and see the direct impact of your support. But when you donate, you also save big on taxes and can even leave behind a legacy to make sure your gift keeps on giving after you’re gone. Here, we’re sharing everything you need to know about charitable giving, including:

• Why you should make charitable donations part of your financial plan
• How to claim charity donations on your taxes
• How to set up legacy giving
• Vancouver charities to support

Giving to Charity: A Valuable Part of Any Financial Plan

The benefits of giving to charity are many and obvious: your money goes towards supporting people and causes who need it most, it teaches your children the value of giving, and it straight up makes you feel good. For those reasons alone, everyone can benefit from making charitable giving a part of their lives.

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But from a financial planning perspective (which, of course, is what we’re all about), charitable giving makes smart financial sense. When you donate to a registered charity in Canada, you receive a tax receipt for your donation. You can then submit your receipt(s) with your annual tax return and receive up to 53% of your donation as a tax credit. The rate is 29% at the federal level and up to 24% at the provincial level, depending on where you live. 

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Since the more you donate, the more you get back, it can be valuable to hold onto your receipts and claim them all in the same year. In any given year, you can claim donations made by December 31st of the current tax year, as well as any unclaimed donations made by you or your spouse for the last five years.

How to Claim Charitable Tax Credits

To make a charitable tax claim, you’ll first need to determine that all your donations are eligible for credits. Remember, you can only claim donations made to registered charities and other qualified donees. If you’re unsure, the government website has a handy list of eligible charities in Canada. Once you’re sure that your donations qualify, you can calculate the amount you’re entitled to claim.

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At the federal rate, donations up to $200 get you 15% credit. For additional amounts over $200, you’ll receive 29%. Each province also has its own charitable tax rate, ranging from 4% to 24%. Be sure to check the provincial charitable donation tax credit rates and use the tax credit calculator to get a better idea of how much you’ll receive.

How to Set Up Legacy Giving

So now that you’re up to speed on how charitable giving can help you save on taxes, let’s talk about how to make sure your money goes to good use — for now and for the future. Your donations can make a big difference, both during your lifetime and after you’re gone. Legacy giving can ensure this happens.

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Also called planned giving, you can plan ahead to leave a portion of your wealth to a charity or organization of your choosing. This means you’ll be able to support causes that matter to you, even after you’re no longer able to make regular donations. Planned giving can also give you the opportunity to make donations that you wouldn’t be able to afford while you’re alive. You can even discuss your legacy donation with your chosen charity to decide how the funds will be used. It’s a powerful way to guarantee the causes you want to support have the funding they need for many years to come.

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You might be wondering if there’s any benefits of legacy giving to the family you’re leaving behind. In a word, yes! The money that you give to a charity in your will does not take away from the money you leave to your children. Instead, Canada’s tax regulations allow donations to come from the amount you’d typically pay in taxes to the CRA. If you haven’t already included legacy giving in your will, talk to one of our financial advisors in Vancouver to learn more.

Charities to Support in Vancouver

I think we can all agree that giving to charity is a good thing for everyone involved. Whether you’re donating to cancer research or supporting organizations that seek to end homelessness, charitable donations make our world a better place for all of us. But deciding to donate is only one part of the equation. There are so many worthy causes out there, so choosing where to donate can be a challenge.

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Choosing a charity to support is a very personal decision. It comes down to deciding what causes matter to you most — whether it’s animal rights, children’s health or equality for BIPOC people — and then researching charities in that sector. We can’t tell you where to give your hard-earned money, but we can guarantee that you’ll feel great about supporting a cause that’s close to your heart.

The best part about charitable giving is that you really can’t go wrong. Just be sure to stick to registered charities and organizations so you can claim your tax credits. If you’re not sure where to start, check out this helpful list of Vancouver charities to support. And if you still have questions about donating to charity in Canada, contact Prometheus Private Advisory Group to talk to an expert today.

It’s been over a month since the country — and the entire world — went into lockdown in response to the COVID-19 crisis. Canadians’ lives have changed dramatically over the last few weeks, with new regulations emerging daily, and it understandably has people concerned about their future. One of the biggest questions on everyone’s minds comes down to finances: am I financially stable enough to weather the storm? What supports are available to me during the coronavirus crisis? Don’t worry. Prometheus Private Advisory Group is here to answer all your financial questions and to support you through these difficult times.

While the situation we’re in is serious, it doesn’t have to be all doom and gloom. Armed with the right information, guidance and financial strategies, you’ll come through this just fine. Remember, this is about more than insurance — it’s about overall financial planning and setting yourself up for the long run. If you’ve taken a financial hit due to COVID-19, these are the big questions to ask to make sure your finances will carry you through to brighter days.

1. Do I Have a Financial and Budget Plan?

Over three million Canadians have applied for COVID-19 job benefits since mid-March when the crisis took a serious turn. If you’ve lost your job or had a change in income due to the current situation, it’s time to act fast to create a plan for your financial longevity. This starts with understanding what government sources of income are available to help you get through the next few months, from wage subsidies to tax breaks to so much more.

Fortunately, the government has ramped up its efforts to support Canadians across the board. It doesn’t matter if you qualify for regular employment insurance benefits or not, whether you’re self-employed or work for someone else, or what your current financial situation is. If your job and income has been affected by coronavirus, you will have help.

2. What Can I Do with My Current Investment Portfolio?

If you’ve been watching your portfolio since all this madness started, you might be on the verge of panicking. Don’t. In situations like this, things are bound to take a dip, but rest assured that there will be a rebound. There are also a few ways to make up for losses. For non-registered portfolios, you can trigger a “sell and buy” transaction to realize capital loss and help you reduce your upcoming tax payables. We also recommend buying into assets that have been hit particularly hard so you can capture the rebound. Also, for those who are in the position to invest, you can do dollar cost averaging (which is basically a fixed monthly purchase plan) to buy the current dip over time, reducing your risk and also capturing upside potential.

3. Do I Have Emergency Funds Set Up?

If so, great! You’re already a step ahead. Relax, review your funds and see what’s available. If you have investments, you could consider getting a line of credit against the asset. This way, you don’t have to sell at the current low point but you can still have access to cash.

Don't forget there are also many payment deferral programs available to increase immediate cash flow. This includes mortgage deferrals, car lease payment deferrals, insurance premium deferrals, as well as bill credits for BC hydro, to name a few. So if you’re feeling strapped, there are options available to you to help you get through this.

4. Do You Have a Line of Credit?

Speaking of lines of credit, this may be the time to look into tapping into it to pay for immediate expenses. As Vancouver’s insurance advisors, we can help review your budget and determine how long the line of credit will last. We’ll also help you come up with a game plan for how to pay it back later. For those who own a home, you can also look into tapping into your home equity line of credit as an available source of income.

5. Is Your Insurance Annual Premium Payment Coming Due?‍

Under normal circumstances, many of our clients prefer to pay for their insurance annually. Given the current situation and how you’ve been affected, that might not be the best option. If you currently pay annually and your premium is coming due, we can help you change to monthly payments to reduce your immediate cash outflow.

6. Does Your Insurance Policy Come with Built-in Cash Value?

All insurance plans are a little bit different and the details for how cash value accumulates varies depending on your policy. But if there’s built-in cash value, this could be the right time to utilize that money. Ask us how to tap into it.

7. Does Your Insurance Plan Pay You If/When You are Hospitalized Due to Accidents or Illness?‍

Fortunately, this includes hospitalization due to COVID-19, so if you’ve had the virus and required medical attention, you could be covered. If not, this may be the time to consider adding on this option. It’s a cost effective solution and can provide peace of mind until life returns to normal.

8. Do You Have a Proper Disability Plan?

If you become seriously injured or ill, it can take a long time to recover and return to work. Your disability plan will provide you with monthly income so you can focus on what matters: your recovery. Let your disability plan take care of the rest.

We’re all adjusting to a new normal and there are enough stressful things happening in the world right now. Your finances don’t have to be one of them. Want to talk to Vancouver’s insurance advisors about your options? Connect with Prometheus Private Advisory Group today.

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Your 30s are some of the biggest years of your life. For many, this is the decade when you’ll land that big promotion, get married, buy your first home or maybe have your first (or second) child. But along with these exciting milestones comes a steep uptick in financial responsibility. If you haven’t planned ahead for significant life changes, you might reach your 30s and wonder, “What do I do now?”

At Prometheus Private Advisory Group, we believe that when it comes to finances, it’s always best to plan ahead and prepare for the worst. That way, even if the economy takes a turn for the worse or your circumstances change, you’ll be set up for long-term financial stability. Fortunately, as Vancouver’s financial advisors, we have the expertise to help you take control of your finances. (Unfortunately for us, we’ve also got real world experience in what not to do, too.)
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Don’t wait until it’s too late to get smart about your finances. Here are 5 things we wish we knew about financial planning before our 30s.

1. Don’t Live Beyond Your Means

So you finally landed your dream job or got that raise you’ve been waiting for. Time to pop the bubbly and buy yourself something fancy, right? We get it. It’s easy to get a little loose with your cash when you suddenly have more money coming in, but living above your means (or even just slightly below) won’t help you achieve the kind of financial stability you want — in fact, it could put you in serious trouble.

By all means, toast your raise and celebrate your promotion, but hold off on buying that new car or moving to a more expensive neighbourhood. Those things can wait. For now, live below your means as much as makes sense for you and bank (or invest) the rest.

2. The Earlier You Invest, The More You’ll Earn Over Time

Sounds like a no brainer, right? That’s because it is. The sooner you start investing your money, the more time it has to grow. Think of it this way: a seed doesn’t become a tree overnight — it needs time, care and resources to grow and flourish. (We’re talking about the money tree here, in case you missed it.)

Really, it comes down to compounding interest, which reinvests your asset’s earnings to exponentially increase your overall gains over time. We know investing can be intimidating when you’re first starting out, but we’re here to help you make smart decisions with your money.

3. It’s Never too Early to Plan for Retirement

In your 20s and 30s, retirement can feel like it’s a hundred years away. Out of sight, out of mind, no problem. Well, if you think retirement is a problem for Future You, that’s exactly what it’s going to become. It’s going to sneak up on you, one of these days, so wouldn’t you rather be prepared for it? We would too.

Even if you have a pension to support you in your retirement, it’s important to make smart choices now to set yourself up for your later years. There are tons of options for retirement planning, from reducing your expenses to investing to maxing out your Canada Pension Plan contributions. If you’re self-employed or a healthcare professional, you could also consider incorporating your business to save on taxes, which will give you extra money to invest and use towards your retirement.

4. Life Insurance is for Everyone — at Every Age

Life insurance is another one of those important things that everyone loves to forget about. But the longer you wait to get life insurance, the more expensive it will be. Premiums are largely based on your age and health (among other things), and it’s more likely for health conditions to develop as you get older. Life insurance also protects your family financially if anything happens to you, so it’s best to plan ahead.

At Prometheus, we believe insurance is the key to securing your long-term financial health. We use insurance as a tool for financial planning and investing to make sure you and your family are taken care of, no matter what. So if you’re wondering when you should get life insurance, the answer is yesterday. Call us. We’re here to help you out.

5. Get Professional Help with Financial Planning

Let’s face it, managing your finances can be overwhelming. That’s why many people prefer to just go about their daily lives and not pay much attention to what’s happening in their bank accounts. This laissez faire attitude can be extremely dangerous to your financial future. If thinking about finances makes you want to stick your head in the sand, it might be time to talk to a financial planner.

A financial planner can answer any questions you have about your finances, help you develop a long-term plan, guide you through your financial decisions and give you peace of mind that you’re making smart choices. Not only that: people who work with a financial planner accumulate about three times more assets than those without an advisor. There are some things you can fake in life but financial planning isn’t one of them.

The best financial advice we can give you is to start planning for your future now. Ready to learn more about your option? Talk to one of Vancouver’s insurance and financial experts today.

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Have you heard about the disability tax credit or DTC? If you’re like most Canadians, you probably haven’t. However, it’s a fantastic tax benefit for those living with disabilities, and it can help you with potentially thousands of dollars a year each year if you or a family member qualify.

However, there is a glaring issue. By the CRA’s own estimates, only about half the people who could qualify for the DTC actually have it. There are some reasons for this, which we’ll get to but here’s the process for applying for the disability tax credit:

• Find the disability tax credit application form
• Go to a medical practitioner and have them fill out, and sign off on the form
• Fill out personal information and submit
• Wait for approval
• Claim the amount on your tax forms

Okay, that might seem pretty simple, but there are a few challenges you could encounter. Based on our experience, let’s take a look at some of the problems that can crop up:

• Difficulties are apparent in the very first step. We’ve talked to a lot of people with disabilities and we’d estimate maybe 20% have actually heard about the disability tax credit. Less have applied for it and even less have been approved for it. Even though the DTC is a great benefit, people just aren’t getting the information. Now that you have it, start by downloading the form on the Canadian government’s DTC page.
• You have to work with a medical professional to fill out their portion of the form. Doctors and other medical professionals are great at taking care of our physical and mental health. However, their realm of expertise is not in financial planning or tax advice. Usually, that’s a good thing. You definitely want your doctor focusing on their speciality, but when it comes to the form, it poses a challenge. We’ve heard from our clients that they want to apply for the DTC but when they bring the form to their medical practitioner, the doctor doesn’t know exactly what to write, or how to fill out the form. Simply put, the medical practitioner’s role in this case is to certify that their patient is indeed experiencing a disability, which results in a decreased quality of life. Unfortunately, there are some “fuzzy” guidelines in terms of what “really” qualifies for a disability, according to the federal government; as a result, there’s a certain art to filling out the form to best describe your symptoms accurately in a way that presents you or your family member correctly. That’s something we can help with.
• Challenges from the CRA Simply applying for the DTC is only the beginning. After several months, you’ll get a reply back telling you whether the application has been declined or approved. If approved, it may only be for a certain number of years, and if declined, you can choose to appeal, which is an entire process all over again. On top of that, they expect you to adhere strictly to the guidelines of what sort of impairments can qualify for the DTC.
• Receiving the appropriate amount of tax credits, or money back, can be difficult. This can sometimes be a challenge because even though you or your family member may qualify for the DTC, you still have to actually claim the amount on your taxes. Additionally, there are other benefits you can claim if you qualify for the DTC. In addition to that (yeah, a lot of additions), you’ll have to go through more paperwork if you want to claim amounts from previous years where you’ve qualified for the DTC. You’ll need to do some careful calculations to make sure you’re getting what you deserve. Here’s where a financial professional like Prometheus Private Advisory Group or your accountant can help you calculate how much you should receive back.
• What should you do with the money? There are different options for what to do with the money that you claim back from your taxes thanks to the disability tax credit. The most important thing is to have a plan. For example, if this is for your child, you may want to start a disability savings plan for them. Or, you may want to use it to pay for additional therapies now. Regardless of what you choose, have a plan in place so you can make the best use of the money. Talk to your financial planner and work with them to find the best solution for you and your family’s situation in a holistic way by taking into account all factors of your finances.

As you can see, although seemingly easy at first glance, there are things along the way that can potentially make the process complicated. There are resources, however, to guide you. Start by visiting the CRA’s webpage on the disability tax credit to learn some basic info. Next, talk to professionals who can help you with your overall finances. At Prometheus, we can help you with your financial process. You deserve to have these tax benefits. Remember, they were created just for people in your situation, so take advantage of it!  

*Updated for 2020

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If you’re self-employed, incorporating your business can seem like a daunting task full of hoops to jump through and endless paperwork to file. And all for what? Your business is running totally fine without being incorporated, so you might be wondering, “Why should I incorporate?” Well, as Vancouver financial advisors, it’s our job to make sure you get the most out of your money and your business. In reality, there are many benefits of incorporating your business — from tax savings to reduced liability to small business deductions — and we’re here to show you how.

Prometheus Private Advisory Group is breaking down the benefits of incorporating a business in Canada. Here, you’ll learn:

• What it means to incorporate
• Why you should consider incorporating your business
• How incorporation can save you money in the long run

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Ready? Read on!

What is Incorporation?

Incorporation is a form of business ownership that creates a distinct legal entity that is separate from its owners (known as shareholders). Unlike sole proprietorships or partnerships where the owners are 100% liable for any debts, incorporated businesses offer shareholders limited liability, insulating them from being held responsible for debts.

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At Prometheus Private Advisory Group, we work with many medical professionals in the Vancouver area. If that’s you, it’s important to note that limited liability does not apply to medical liability, so incorporated medical professionals can still be held personally responsible for any malpractice.

Should You Incorporate Your Business?

Choosing to incorporate your business is a big decision that should be based on a number of factors. First of all, if you’re just starting out and still building up your revenue, it may not be worth it to incorporate. While corporate tax rates are lower than personal tax rates, your business needs to be earning enough money to reap the benefits.

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In other words, it only really makes sense to incorporate if your business makes more money than you need to live comfortably. For example, if your business earns $75,000 a year and you only need $50,000 of that, you’ll receive a significant tax break on the $25,000 that remains in the business.

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Taxes aren’t the only thing to consider when deciding whether to incorporate. You’ll also need to be prepared for the increase in responsibility that incorporation brings, including more paperwork, double the tax returns, and registration costs. We’re not trying to dissuade you from incorporating your business at all — we just want you to have all the facts so you can make the best decision! On that note, let’s dive into the reasons to incorporate your business in Canada.

Benefits of Incorporating a Business in Canada

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1. You Get a Better Tax Rate

Tax savings is one of the main reasons businesses incorporate, especially for medical professionals. We’ve covered this a little bit already, but tax rates for corporations in Canada are significantly lower than personal tax rates, so it can save you big money if you incorporate. That is, as long as your business is making enough of a profit (revenue minus costs). Like we described earlier, any surplus money that’s left in the business is charged at a lower tax rate than your personal income tax, that money then becomes your “retained earnings” and sits comfortably in your corporate account. Take for example, in BC, the small business tax rate (net income below $500,000) is just 11%

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Be aware, though, that if you decide to eventually pull those funds out of the business account and into your personal pocket, you will be charged at the personal rate, since you are effectively paying yourself. But if you simply use it towards business-related purchases, you’re in the clear.

2. You May Qualify for Small Business Deductions

Incorporating your business means you may be eligible for the federal small business deduction (SBD). This tax benefit for small businesses reduces the income tax your corporation would otherwise have to pay, dropping your small business tax rate down from 27% to just 11% if you’re in British Columbia! (Note: Each province has their own business tax rate which is added on to the federal business tax rate). To qualify, your business must be a Canadian-Controlled Private Corporation (CCPC) and earn a maximum of $500,000 annually.

3. You Benefit from Limited Liability

This is one of the biggest benefits of incorporating your business (but remember, this doesn’t extend to medical liability). As a sole proprietor or partnership, you as the business owner assume total liability. This means your house, car and all other personal assets can be seized to cover any debts your business incurs. When you incorporate, however, you become a shareholder in your business and a shareholder’s liability is limited to the percentage of the company you own. Shareholders cannot be held responsible for losses and debts, so incorporating provides you with a safeguard.

4. Corporations Have Staying Power

As a sole proprietorship, if you decide to leave your business, it basically ends with you. A corporation, on the other hand, lives on … well, forever (or until someone decides to dissolve it). This makes it much easier to sell your business because you’re selling an independent entity together with its assets and liabilities, and most importantly, you will be rewarded for your life’s hard work in building up this business. If you sell an unincorporated business, you are personally selling the property and assets associated with that business, which can be a much more complicated process.

5. Increased Credibility, Increased Access to Capital

Just like having MD or PhD after your name gives you credibility and an air of sophistication, so do Inc., Ltd. and Corp. Studies show that incorporated businesses with fancy letters after their names are perceived as more stable than unincorporated businesses. This means that incorporating could earn you more business — from customers and investors alike. Likewise, incorporated businesses have more access to capital because banks and investors are more likely to get involved with incorporated businesses.

So there you have it. Are you thinking about incorporating your business? Still have questions about the process of incorporating in Canada or if incorporation is right for you? Call Prometheus Private Advisory Group to talk to a financial advisor in Vancouver today.

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Well, we’re officially approaching month three of the COVID-19 pandemic. That’s three months of job losses, reduced income and countless changes to life as we know it. Maybe you’ve been laid off and are getting by with government support. Maybe your business revenue has dropped significantly and you’re struggling to stay afloat. You’re probably wondering how to manage your finances so you can weather the storm and bounce back when we reach a “new normal.”

No matter how you’ve been affected by the current health crisis, the importance of financial planning is clearer than ever. As Vancouver’s financial planners, the team at Prometheus Private Advisory Group is here to help you navigate these uncertain times. The key to financial planning during a crisis is to act as soon as possible to plan ahead for your future. If you’re not sure where to start, here’s a guide to managing your finances during a pandemic.

1. Create a Budget

First, you need to know what you’re working with. Start by assessing your current financial situation — including income, assets and available savings — and then work backwards to see what you can reasonably afford each month. Since we’re in a state of crisis, this may mean tapping into lines of credit or savings accounts, but be careful not to overextend yourself. You don’t want to rob Future You to pay Present You, if you can avoid it.

We don’t know how long the pandemic will last, or how long it will take for businesses to bounce back. Be cautious and create a sustainable budget that will carry you through at least six months. If it looks like things are going to take longer to rebound, reassess your budget as needed.

2. Start Small and Make Cutbacks

Once you have your budget in place, it’s time to figure out where your money is going. Calculate your fixed expenses — such as rent or mortgage payments, and cable or phone bills — to see what’s essential and what you can give up. Obviously, you’ll have bills that need to be paid, so those have to stay (bummer, right?). There are also certain comforts that you should absolutely hang on to. You’re human, after all, and you deserve your little pleasures … within reason. But chances are there are ways you can trim down your expenses to make sure you’re staying within budget.

3. Defer Your Mortgage or Credit Card Payments

Speaking of fixed expenses, there’s good news. Canada’s big banks (and many private lenders) are allowing credit card and mortgage payment deferrals to help people manage cash flow during COVID-19. This can really help to free up space in your monthly budget. A word of caution, though: this doesn’t mean those payments are cancelled. It simply pushes them off to a later date so you can focus your current finances on more urgent things.

4. Set a Long-Term Plan for the Future

Once you’ve established a short-term plan to get you through our present reality, it’s important to think ahead to the future. What if something like this happens again — will you be prepared? Because let’s face it, there will be a next time so you might as well start planning now. Making smart decisions with your money today can give you peace of mind should any unexpected situations come up down the line.

If you’ve got extra cash, this is the time to consider investing so you can build up your assets. If you have life insurance (which you should), find out if there’s built-in cash value. If you don’t have life insurance, get some! Life insurance can be a valuable financial planning tool to set yourself and your family up for long-term financial health. Ask us how.

5. Tap into Your Line of Credit

Lines of credit can be extremely helpful during uncertain times when your bank account isn’t feeling as flush as usual. You can use the funds to pay for immediate expenses or unexpected costs. Your Vancouver financial advisor can help you assess your financial situation and create a solid plan for how to pay the money back when life returns to (some kind of) normal. Homeowners, you could also consider tapping into your home equity line of credit. It’s a flexible way to access cash if and when you need it.

Unfortunately, there’s no playbook for financial planning during a pandemic. But we hope these tips will help you make smart decisions with your money so you can come out strong on the other side. As we always say at Prometheus Private Advisory Group, the key to financial stability is to start now. The sooner you start managing your finances wisely, the better off you’ll be — no matter what life throws at you.

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