Apr 222015
 

Finance Minister, Joe Oliver¬†introduced the government’s 2015 Federal Budget yesterday. The big takeaway is that there will be tax breaks for everyone. Yay! ūüėÄ The proposed budget is expected to get passed as the Tories hold a majority government.

It’s nice to finally see some welcomed changes in fiscal policy to address the economy rather than rely on monetary policy alone. :) Federal budgets are important because it shapes¬†the way we plan our personal finances.

Increased TFSA Contribution Room

The annual contribution limit for the Tax Free Savings Account rises to $10,000 effective immediately. This means Canadians who have already maxed out their TFSA for 2015 will now have another $4,500 of contribution room to use. The TFSA is a holding account where we can buy investments and not pay taxes on the gains.

Some people believe this change will only benefit the upper class who are already wealthy. Here’s my poor attempt at humour on Twitter from yesterday.

However, Ottawa says that individuals with annual incomes of less than $80,000 accounted for more than 80% of all TFSA holders at the end of 2013. And about half of TFSA holders had annual incomes less than $42,000, meaning the TFSA is mostly being used by the middle class. Personally I think the new TFSA policy benefits serious savers, not necessarily the wealthy.

RRSP delays taxation to a future date when we’ll likely be in a lower income tax bracket than today. Gains in a TFSA are made from after tax contributions and are not taxed, for the most part. So¬†between the RRSP and TFSA average Canadians now have a lot more freedom and room to save and invest with preferential tax treatments.

Here’s a table showing how much someone would need to save to max out both accounts.¬†The maximum RRSP contribution limit assumes the person earned the same income in the previous year.

Combined Tax Sheltered Savings Table 2015

Annual Gross Income Max TFSA Room Max RRSP Room Combined TFSA/RRSP Limit % of Income
$20,000 $10,000 $3,600 $13,600 68%
$30,000 $10,000 $5,400 $15,400 51%
$40,000 $10,000 $7,200 $17,200 43%
$50,000 $10,000 $9,000 $19,000 38%
$60,000 $10,000 $10,800 $20,800 35%
$70,000 $10,000 $12,600 $22,600 32%
$80,000 $10,000 $14,400 $24,400 31%
$90,000 $10,000 $16,200 $26,200 29%
$100,000 $10,000 $18,000 $28,000 28%

 

As we can see people¬†who make $50,000 a year will have to save more than 38% of their incomes before running out of space in tax advantaged accounts. There is no point in buying GICs, bonds, stocks, mutual funds, and other investments in a regular cash account anymore, unless you’re like me and trade derivatives or buy securities on margin. ūüėČ

Decreased Minimum RIF Withdrawal Rate

The new federal budget also gives seniors more options. When an RRSP is converted into a Registered Retirement Income Fund (RRIF) retirees will be able to leave more money in their tax sheltered account each year to help their savings last longer and can also lower their overall tax burden. The proposed new RIF minimum withdrawal rate will decrease from the current 7.38% at the age of 71, to 5.28% starting at the age of 71, and gradually increase to 20% by age 95. 😄

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In general lower income, and younger folks should prioritize saving in a TFSA before considering RRSP, and vice-versa for high income earners. I like to put bonds in my RRSP, and the more volatile, higher potential investments in my TFSA. For most Canadians I believe the TFSA has a more important role in our financial lives than the RRSP. However, both are important as the RRSP can save us money today by delaying the tax liability to future years, while the TFSA can save us money in the future. Holding the right amount of each can minimize the overall taxes we pay over time.

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Apr 012015
 

The market for new high-end vehicles¬†is growing quickly.¬†Last year in Canada more than 1 in 10 car buyers went luxury. I don’t¬†like to¬†feel left¬†out so I’ve decided it was time I upgraded to a newer, faster car. #YOLO!¬†ūüėĬ†Since this is a finance blog¬†I’m going to share my experience buying a $100K+ car.

Being an¬†environmentally conscious¬†millennial I’ve decided to buy a¬†TESLA! I know it’s not cheap, but¬†Watt good is money if we don’t spend it, right? ūüėČ The Tesla Model S¬†is rated as the safest car in America, and Consumer Reports has named it their best car for 2 years in a row.¬†Ohm¬†my goodness! With accolades like that how can I not buy one? ūüėé

So in early February I visited the Tesla showroom here in Vancouver (929 Robson St.) They had a white Model S on display. Here are some pictures I took.

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The biggest decision when buying a Model S is choosing the right battery capacity. After consulting with a product specialist, Sandy, I’ve chosen the¬†larger 85 kWh battery configuration, which has 380 hp and can accelerate from 0 to 60 mph (100 km/h) in just 5.6 seconds. Its top speed is 225 km/h (140 mph,) and it can travel about 400 km (250 miles) on a fully charged battery, which is a pretty good range for an all electric vehicle. :)

Purchasing a Tesla Model S

The total cost for my white 85 kWh Model S¬†came to about $105,000 including tax. I was also charged $1,000 for delivery and $180 for prep.¬†There’s a $5,000 government rebate in B.C. for electric vehicles. As someone who clearly lives a frugal lifestyle I always try to capitalize on these incentives because it’s basically free money from the government! ūüėÄ

The buying process¬†was pretty straight forward. After my¬†test drive, I sat down with a sales rep who helped me customize the options. Then I made¬†a deposit of $2,500 with my credit card. Tesla said delivery usually takes place about 2 months after an order is put through¬†because they have to source all the parts and custom build the customer’s car.

About 9 weeks later I received notice that my Model S has finally arrived in Vancouver! So earlier this week on Monday I excitedly went down to the Tesla service centre to pick up my brand new car!

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Feb 242015
 

In self defence¬†class we learn to fight… so that we won’t have to. Personal finance is very much the same way. :) The best thing that money can give us, is the freedom to not worry about money anymore.¬†Sometimes we can become so focused on our finances that we can easily forget about actually living a life. To me financial wealth is not simply about having money. It’s more about having better options in life.¬†A lack of money is a great disadvantage. Poor people have a greater affinity to stay poor. Their lack of resources keeps them from having access to better opportunities and choices that many middle class and rich people take for granted. Having a limited amount of choices can lead to further unsatisfactory circumstances, so it becomes a self-reinforcing cycle.

We spend a lot of time planning our budgets, building up our savings, and looking for profitable investments, but in the end we should realize that doing all this work is not about the money. It’s about the freedom and the awesome choices we’ll be rewarded with!¬†ūüėÄ We do not want to become obsessed about “money,” in and of itself. We don’t want to turn into those¬†kinds of people who think¬†that the best thing about wealth is that it allows them¬†to buy material things. ūüėź If that’s what they really want to believe then I wish them good luck in life. ūüėõ

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There’s a popular story that demonstrates the silly¬†nature¬†of materialism in the world today:

A¬†successful businessman¬†bought a brand new BMW M6 convertable. He parked it right in front of his office so that he could show it off to his fellow co-workers. As he got¬†out his vehicle a passing garbage truck lost control and side-swiped his car, ripping off the door on the driver’s side. The police quickly arrived and the businessman began ranting hysterically that his new BMW was now ruined. ¬†ūüė° After 10 minutes of profuse shouting¬†and cursing, the businessman was finally able to calm down. The police officer then said to him, “You are so focused¬†on your car that you don’t notice anything else.¬†I can’t believe how materialistic you are.” The businessman looked confused. “What do you mean?” he asked. The police officer¬†explained; “Haven’t you noticed that your left arm is missing? It must have been torn off in the accident.” The businessman’s face went white. “OH NO!” he screamed. “My Rolex!!”

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Dec 272014
 

Steve Zussino, the author of Travel Hacking for Canadians, kindly gave me a copy of the book so I could review it. Along with his book, Steve also launched a website to help Canadian travelers save money on the road, called Canadian Travel Hacking. Steve also happens to be the founder of Grocery Alerts Canada, which is a website that posts the latest deals and coupons.

The book is broken down into easy to understand categories like air travel, accommodation, land transportation, and cruises. There are a lot of helpful pictures and graphs to help illustrate how various programs work, such as the Aeroplan program. A ton of information is provided about the Canadian Frequent Flyer Programs and which credit cards should be used to achieve the most points.

I like how at the end of each chapter there is a “Tools” section with references and websites that are relevant and might be useful to the reader. :)

14-12-travel-hacking-book

My favorite section in the book is about price matching for hotels. For example, Steve explains how to use an aggregator site like kayak.com to check if the current Expedia hotel booking you have is the lowest price. Of course the book also suggests alternative accommodations like AirBnB and hostels.

Some of the money saving strategies in the book like using Priceline and Hotwire may not be helpful to everyone, such as myself since I don’t really use those companies to travel. But I’m sure those tips will be useful to others who are already using those services.

The book goes into which credit cards allow one¬†to accumulate miles the quickest, and provide the most value. It also suggests ways to reduce or even completely waive the annual fee on credit cards. Steve also mentions the spending traps that so many travelers get lured into like casinos, spas, and alcoholic beverages on cruise ships. By avoiding these traps travelers can still enjoy the fundamental experience of a cruise, without spending money on overpriced luxuries. For those who like to rent vehicles there’s a section about avoiding unnecessary upsells at the rental counter.

There’s something in this book for every traveler. I learned a few things from it that I wasn’t previously aware of, which I’m sure will be of use in my future travels.¬†If you’re interested to purchase¬†this book you can find more information about it here. The digital version¬†is $10, and the paperback version is $20. ¬†If this book can save people hundreds of dollars on their next vacation then that sounds like a¬†pretty good value.

Dec 022014
 

We often become what we repeatedly do because we are creatures of habit, and usually the best way to form a habit is to start early. :)

In a book I once read, Secrets of the Millionaire Mind, there’s a story about a successful professional who makes a six-figure salary and lives in a nice house with expensive cars. But for some reason he never has any savings. Despite his high income¬†he’s always in debt. His net worth is negative, his investments tend to under perform, and he’s living paycheque to paycheque. The root of his financial struggle lies in his childhood. When he was growing up his parents were poor. They resented rich people, and blamed economic inequality and other social problems on money. Growing up in a household where money was considered bad¬†and corrupt gave him the notion that having a money is bad. As an adult being wealthy would give him a sense of guilt. So whenever he makes money he would subconsciously try to spend it all. Many people lack the skills to take care of their own money because they were either never given the proper management tools to begin with, or were simply misinformed. By not forming good financial habits at an early age consumers might have a hard time getting out of debt when they become adults.

A recent survey by Consolidated Credit, a non-profit credit counselling service, shows that roughly a third of consumers had to turn to family or friends for financial help at one point.

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Not surprisingly the biggest challenge for many when facing financial hardship is being unable to pay for housing.

Becoming financially literate.

The way to tackle financial literacy can be done on two fronts. At home parents need to make financial education a priority in their household. At school there should be a full length course for basic personal finance. Children have to learn to work with money instead of being afraid of it or being told that money will lead to problems. The lack of knowledge is usually what leads to economic problems later on in life. It’s important to instill in children responsible¬†spending habits and budgeting skills from an early age. :) As Aristotle once said,¬†“Good habits formed at youth make all the difference.

¬†¬†¬†‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ‚ÄĒ
Random Useless Fact:
Some 40% of Canadian families carry an outstanding balance on their credit cards, with a median amount of roughly $3,000.