David Christianson, CFP, R.F.P., TEP

By now, I’m sure you’ve heard of the new Tax Free Savings Account, or TFSA. These are going to be a big deal, with most investors interested and intending to set one up. They can be opened starting in January, 2009.

That’s right; in spite of all the advertising and articles you are reading about the TFSA, you cannot put money into one now. I have received a number of e-mails and phone calls from people who think they’ve been left out, so I thought this clarification is timely.

However, a number of financial institutions are encouraging you to open them now, so you are ready to make a deposit with them early in the New Year.

(N.B. Though contributions cannot begin until January 2nd, Wellington West Capital Inc. Investment Advisors now have the opportunity to open TFSA accounts for their clients in advance of the official Federal launch date.)

The TFSA will allow all Canadian resident taxpayers over the age of 18 (possibly older in provinces where the age of majority is older) to put up to $5,000 per year into a separate investment account that will be exempt from income taxes on its investment earnings. The annual limit will go up with inflation, in minimum $500 increments.

The TFSA is quite different from an RRSP in a number of ways. There is no tax deduction for putting the money in. There is no tax liability when you withdraw the money. Any withdrawal can be replaced by an additional deposit in the following tax year. In other words, you do not lose any TFSA contribution room by making a withdrawal.

For example, if you deposit $5,000 to your new TFSA in January, then withdraw $2,000 for a vacation in March, you can deposit $2,000 back into your TFSA as early as January of the following year. By then, your limit will have increased to $7,000, since you get a fresh $5,000 limit for a new tax year.

Unused contribution room carries forward indefinitely.

You can use any investment vehicle that you could use in an RRSP. You can contribute existing investments in-kind, but it will be considered a deemed disposition and any gain incurred will be taxable. On the other hand, any incurred loss on a transfer will be denied.

So, if you have a capital loss you want to claim, sell the security and contribute the cash to the TFSA. You will still have to wait 31 days before buying it back if you want to claim the capital loss.

You might consider the TFSA to be a complementary savings vehicle to your RRSP, or use it as an alternative and decrease your RRSP contribution. This means more tax now, but less tax on withdrawal and no negative impact on income-tested government benefits after retirement. These include the Age Credit and OAS clawback.
Conservative investors and advisors think that the TFSA is a great place to put interest-bearing investments (like bonds and GICs), sheltering this interest income which is normally subject to full taxation at that person’s highest marginal tax rate.

More aggressive investors think it’s a great place to put speculative investments that have the potential for significant capital gains. An example here might be a junior mining stock, where a home run could turn a $5,000 investment into $25,000.

Wouldn’t it be great to have that capital gain totally tax-free?

The fly in the ointment is that the capital loss you incur if it doesn’t work out cannot be applied against other capital gains. So this is only a strategy for someone who can afford to lose the $5,000.

For people who have no RRSP contribution room because they do not have “earned” income (from employment or self-employment), or have a large Pension Adjustment, the TFSA may be particularly useful. For anyone holding cash reserves outside of RRSPs, it would seem like an obvious vehicle to use.

Every once in a while the government gets it right.

*     *    *
This article originally appeared in the Winnipeg Free Press on Friday, November 6, 2008.
David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column, ‘Dollars & Sense’ appears Fridays in the Winnipeg Free Press.

Does it seem a little early to be getting into the Christmas spirit?  With Halloween only one month away, marketers are already starting to vie for your attention.  Ads are gearing up to capture the hearts of children, new games and toys are being released as we speak and for us big kids there are other great products like phones and furniture that are being flashed before our eyes like colorful penny candy waiting inside the machines at the grocery store - they are just waiting for us to give in to our urges for new and shiny and then dig deep into our pockets and insert the coin into the slot to receive the fun new prize!

Are you ready for it?  Perhaps this year you can be ahead of the pack by preparing for December 25th, now.  Make a list of all of the must have items for your friends, family, and work exchanges and how much they cost (if you don’t know all of them, then estimate and be generous).  Don’t forget about the other things that come with the holidays: dinners, evening out, parties - make sure you included some money in your Christmas money for bottles of wine or Christmas preserves, new party outfits yourself or for the kids, extra gas for travel, etc…

Total the amount.  What does it look like?  Have you got anything saved up now that you can use to cover that?  Let’s pretent that it comes to $1000.00.  To me that looks like a lot, but i know to people with big families this could be par for the course.  So, continuing with the pretend amount.  Let’s say you can reasonable take 1/4 of that amount from savings without missing it.  So now you only need $750.00.  If you get paid fortnightly (for some of you that may mean bi-weekly or every two weeks), then you have either 6 or 7 paychecks until Christmas.  That means that you need to save about $125.00 from each paycheck to have a Christmas that includes all the fixings, AND keeps you stress-free when it comes to your finances.

For me, the holidays can be stressful because of travel and all the time spent socializing - why not reduce some of the stress by ensuring you are financially ready?

Thanks for reading and come back soon for more tips brought to you by The Money Case.com

When you make spare money, what should you do with it?

Let’s say you get a few extra bucks from baby-sitting, a part-time home-based business or a windfall.  Many people treat themselves to an extravagant meal or a shopping spree.  I feel that your monthly budget should include enough money for dinners out and shopping.  Why not take that extra money and achieve a bigger goal?

My tip for today is to try and use your extra money more effectively:

1.  If you have ANY debt (credit card, car loan, mortgage, etc…) than you could pay down your debt.  If your loan institution will only let you pay down the debt once a year or in a big lump sum, than create a high interest savings account just for the purpose of collecting these monies into a payment.

2.   Make a savings account for something big.  A vacation, a new car, renovations, a back-to-school fund - if you already have an account for these things then put your spare money in that account and get to your goal faster.

3.  Give your money to your favorite charity (or blogger, wink!), keep the receipt and claim it against your taxes.

Keep budgeting, saving and paying down your debt - tips for life and tricks for success!

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Below are the differences between a pie chart and a bar graph:

The pie chart (source, Wikipedia):

“While the pie chart is perhaps the most ubiquitous statistical chart in the business world and the mass media, it is rarely used in scientific or technical publications. It is one of the most widely criticised charts, and many statisticians recommend to avoid its use altogether, pointing out in particular that it is difficult to compare different sections of a given pie chart, or to compare data across different pie charts. Pie charts can be an effective way of displaying information in some cases, in particular if the intent is to compare the size of a slice with the whole pie, rather than comparing the slices among them. Pie charts work particularly well when the slices represent 25 or 50% of the data, but in general, other plots such as the bar chart or the dot plot, or non-graphical methods such as tables, may be more adapted for representing information.”

Bar chart (source, Wikipedia):

“A bar chart, also known as a bar graph, is a chart with rectangular bars of lengths proportional to that value that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar.”

The lesson today?  Make sure that you understand the meaning of the data you are presented, whether it is from your bank, your broker or the personal finance software you use.

p.s. : The money case only uses bar graphs with a clear representation of your spending compared to your budgeted amount.

I hope this helps everyone make good financial decisions,

Denina

Many of you may have already caught on, but just in case, I am very into ethical business practices.  At The Money Case, we strongly believe in socially responsible investing. When investing consider your ethical viewpoints and be sure that you are supporting something does not conflict with your beliefs.  Consider putting the extra effort to find a profitable investment that is also closely aligned with your ethics.  In our case, we feel that minimizing environmental impacts by investing in sustainable business is one of the best ways for the average person to help contribute to the environmental movement in a larger capacity.

We can all do our own little bit by recycling, composting and turning off our high efficiency light bulbs when we leave the room, but often it feels like it is not enough when there are large corporate polluters in our own backyards.  You can feel comport knowing you have made a larger contribution by investing in a local green energy company - for instance, wind and solar energy start-ups are making a huge splash all over the planet, and are growing larger each month.  Or perhaps you would feel more secure investing in a well-established car company that is making hybrid vehicles and breakthroughs in fuel-cell technologies?  If the environment is not your thing, consider investing in companies that reduce poverty, increase literacy, or fund research to eliminate disease.  When you have to make a choice in how to invest your money consider a company that will bring you a solid return in both dollars and contribute to society in a healthy and responsible way.

A friend of mine has recently had to leave a job that paid him minimum wage to do part-time web design and programming. Why did he leave – not because the minimum wage paychecks he was receiving were unsatisfactory, but because the company was actually siphoning an additional third of his income without any explanation as to why this was happening or where the money was. He worked there for two months without any resolution to his problem. My friend talked to other employees at this company and apparently he wasn’t the only person being underpaid. My friend scheduled a meeting with the owner of the company to talk about the problem and then the owner actually had the nerve to never show up.

In Canada, a highly regarded Country that claims to have one of the highest standards of living and an impeccable human rights policy, one would think that this sort of thing just doesn’t happen here. When this occurred to a group of temporary Chinese workers in Alberta, I doubt anyone was surprised, even though every citizen in this country views worker rights as our entitlement and expects everyone – even immigrants and temporary workers, to be treated with respect and equality. This is why it seems even more shocking to me that paycheck siphoning and worker scams are occurring to many everyday people. Maybe that is why the siphoning of paychecks to the temporary workers didn’t cause such as large stir – so many others’ here in Canada have the same problem but don’t know how to solve it.

So why aren’t more people complaining? In my friend’s case, the issue was highly complex. He is afraid to make enemies in his field – no-one wants to have their name ruined in their own industry, and as we all know the internet community is one where who you know and reputation make or break a web-designer. Additionally, there are no policies laid out by our government that can be followed for situations like these. I encourage you to go to the Ontario Ministry of Labor’s website and try to find a policy, section or sentence dedicated to how to get your employer to pay you for missing hours and siphoned wages. It just doesn’t exist. My friend called the ministry and to inquire about what to do about his employer. The ministry told him that i) because he was part-time he had no rights it would basically be his word against the companies and ii) because there was no union the government couldn’t really do much for him and iii) that he could wait 200 days to see if the company pays him his remaining wages, and if not he take the company to small claims court. In summary: he couldn’t even make a complaint to our government. This was not the support that he had hoped to get from our government.

Finally, our economy just isn’t as strong as we all think it is. When you have a job, you feel like you should be thankful whatever money comes your way. The old idiom “bite the hand that feeds you” applies here. When you know that your employer already disrespects you so much that they do not pay you a fair wage – what you were hired to be paid, then what is likely to be achieved by causing a fuss? Perhaps they will pay you even less. Or worse your boss fires you. You know your boss doesn’t care, so you don’t say anything lest you lose your job and your only source of income.

Apparently in the U.S. the house of representatives tired to pass a paycheck protection bill, but it failed. Due to the outrageous campaigning laws that are allowed in the U.S., many employees in the U.S. will have their paychecks siphoned to pay for political parties, their agendas and other causes that their corporations supports, but may have nothing to do with what the employee represents. They are not asked and have no choice in the matter. I can’t believe this is legal anywhere!

All I have to say is that if North America wants to avoid the impending recession, one of issue that needs to be addressed and taken seriously is that of employee rights, wages and creation of effective policies to address unfair employment practices such as paycheck siphoning. Workers need to know that the government will ensure a minimum wage and fine corporations for withholding hours, withholding pay and other types of intimidation. We need to have a strong workforce in North America to increase our standard of living and reduce national debt. Debt is not only created by irresponsible governments, but also by employers that refuse to treat workers fairly, which can result in poverty and lowered standard of living. Economies are driven by healthy populations – where is the health in worker scams?

Finally, if you have been taken advantage of by your employer, be it paycheck siphoning or another unfair practice and you felt that the government could do nothing for you I would really like to hear about it. You can leave me an anonymous comment or send me a private email to denina@themoneycase.com. In my ideal world everyone would be paid a fair living wage and one day I am going to make sure that my government steps up to represent it’s people.

Denina

Hi everyone.

It is important to keep your receipts so that you can go back over your spending and actually see where your money goes. Many people save their receipts so that they can claim certain business and education expenses on their income taxes each year.

If you are keeping your receipts so that you can keep track of your spending or to claim expenses, then you should really consider having a simple and unbeatable system that allows you to organize your receipts and keep them safe.

For this simple system you need only two things: a pen and an envelope. The type of envelope should vary depending on how many receipts you collect, what size they are and what type of beating they tend to take (i.e.; do you put them in a purse and let them get beat-up by many other personal objects hanging off your shoulder, or instead do you carry an organized attacher case?) It may be best to start with a simple letter sized envelope or even a sturdy plastic ziploc bag if you think the envelope will be subject to a lot of wear and tear. Again, a pen with a screw-on and -off cap or push-pen might be the best if you are keeping it in your purse or another type of shoulder bag where it is loose and in contact with valuables. This way, if the pen leaks it will not destroy anything that you love.

So now to the system, this is how it works. Whenever you purchase something, write down the amount and the purpose of the purchase on the receipt and then put it into your envelope. Then when it comes time to track your expenses, all of your receipts are together in one space, labeled and dated. Why is this necessary? Nowadays most large retail-chain stores print receipts on thermal paper and within days it is nearly impossible to read any of the print on this type of paper. Having written the important information down yourself immediately ensures that it doesn’t get lost in time on the thermal paper it is printed on. Also, it is important to know why you by generic items. By the end of the month all gas receipts might look the same, but one of them may have been for a business-related trip. Same with your lunch receipts. When you take the time to categorize and organize when you get your receipts you make sure that none of your receipts get misplaced, faded or lost.

Have a great week,

Denina

I am tired of advertising designed to keep people poor.

I expect that people who have a good product will try to sell it to people in the form of advertising and with the use clever marketing strategies.

My point today is that it isn’t clever nor is it fantastic to sell your product by suggesting to people that if they “buy buy buy” they will “save save save”.

I buy products when I need them based upon their value - does it do what it’s supposed to do and does it do it well? I don’t worry about saving money if I get my money’s worth. No-one should.

Also, there is no country, dimension, or planet on which the mathematics of “spending more to save more” makes any logical sense. If you want to save money don’t spend money on anything except for essentials like food and shelter.

For today, this is all I have to say. Happy Sunday.

Denina

Complaints about financial products, bank fees and the value of financial services have been rising. People expect more for their money - especially when they are paying to make their dollars grow. If you are trying to learn frugality and have decided to pay for expert advice, here are some tips to make sure that your financial adviser is working in your best interest:

1. Fees are normally assessed yearly as a percentage of your assets. Do not pay anything higher than 2% o what is in the account(s) that are being managed by your adviser.
2. Make sure that your adviser can answer all of your questions with direct answers in plain language to a level of detail that satisfies you. This way you can feel confident in his/her abilities.
3. Your adviser should ask you many detailed questions about your financial history, income, tolerance to risk and much, much more. If they don’t , then they probably aren’t working in your best interests.
4. Making time for you is important. If your adviser does not reply promptly to your messages and will not meet with you in person, then you should immediately consider seeking new services.
5. Many banks offer accounts without fees but do not offer as many in-person services. Therefore you will likely need to take a more active approach to you personal finance with these institutions, however they can save you lots of money each month in fees and often provide very convenient on-line services and telephone services.

A good place to start is with free products that teach you how to budget on your own and help you track your spending. There are many free blogs that give sound advice which can also get you started on your journey to financial freedom, but the nothing can ever replace the advise of an expert.

Until next time,

BD

p.s. - apologies for the long break, we had technical difficulties.

Today I spent the afternoon with my mother and grandmother for Mother’s Day. We went for lunch at Swiss Chalet, one of my Grandmother’s favorite restaurants. Then we all went to the garden center and and bought flowers for our gardens. My mother and I paid for my grandmother’s flowers, of course.

Today I realized the tradition behind the garden. For centuries women have been the carriers of important pieces of knowledge. Home remedies whipped up from herbs grown in the garden. How to make great tasting food - again from the garden. Maintaining the life, giving life and the garden is no exception: we provide flowers so that the bees and the pollinators can maintain our food supplies for centuries to come.

The importance of spending mothers day with my mother and her mother, tending to the garden was not lost on me. I felt proud to have inherited such vital, divine knowledge from my family.

When it comes to money, we should also ask what knowledge we have inherited from our families. In our modern family, it often varies who is the keeper of the family budget. In many cases there is no family budget. It is important for mothers and fathers to spend time thinking about what sort of money knowledge they are passing on to future generations. Make a special effort to show your children the good habits that you want them to take away from you and then show their children so that you can leave a family legacy of money tips and tricks - and you can be confident that your children will have more than garden remedies for colds, but also the knowledge that will leave them financially secure, healthy and independent!