Category Archives for "Investments"

The Worst Financial Mistakes that you can Make

By Randall Orser | Budget , Investments , Personal Finances , Retirement

When people are working on their budget or long-term financial plan, they are making changes to their spending. There are some common mistakes that people make when handling their finances that can come back to bite them in the future, but there are steps that can be taken to fix these mistakes.

  1. Thinking that things will work out ok in the end – putting your head in the sand and thinking that things will magically work out means that nothing is going to change.  You have to create a solid plan to save and to follow a budget which will determine how and when you will spend your money.  It is important to know that budget and financial plan are not bad words! 
  2. Relying on your credit cards to get by -  if you do this a few times it might not be too difficult to get out of debt, but if you make it a habit then you are liable to rack up a lot of debt in a short period of time.  Emergencies can and do come up unexpectedly, so you need to be prepared by starting an emergency savings fund.   If you have that you will not need to use your credit card for emergencies.   You need to make a goal to pay off your credit card and to not use it for the next year.  If you do use it make sure to pay it off each month.  
  3. Failing to plan for retirement – you should be making regular contributions to your retirement plan even if you are in your twenties.  The earlier you start the longer you will have for your fund to grow and benefit you in the long run.  Contributing to  a Registered Retirement Savings Plan is also a good way to save on your tax bill.
  4. Giving in to pressure to take the next big step – milestones in your life will affect your financial situation, such as getting married, a career change, buying a house or starting a family.  Only you can decide when you are ready to take these big steps so do not let friends and family rush you into something that you are not ready for otherwise you might resent the step that you took.  

From an article by Miriam Caldwell

Reasons Why Start-ups are Riskier Than Franchise Businesses

By Randall Orser | Investments , Small Business

Thinking about starting your own business?  It is always a risky thing to do and most budding entrepreneurs will do a risk assessment to determine how much financial risk they are willing and able to take. One big consideration is whether to launch a startup business or buy into a franchise.  They both have their pros and cons which mostly involve the potential business person.  Start-ups appeal to people who want to make their own decisions about how the company operates and those who want to turn their big idea into a million-dollar business. 

However, risk assessments have shown that undeniably start-ups are much riskier than investing in a franchise.  Here are some reasons why:

  1. In a start-up you have to build your own brand from scratch.  This is difficult, time consuming and costly and most new business owners lack the resources to do the work so consequently they are only able to grow their business within their own circle of family, friends, and acquaintances or their business fails.  Franchises come with an already built brand which is familiar to a wider audience, this includes slogans, logos, signage, buildouts, team apparel and more.  This means that prospective customers are already familiar with the product or service making it much easier to make sales right from the start.
  2. When you start your own business, you may get lots of advice, but if this is your first time in business you may make mistakes that can be costly.  If you have a franchise, you can draw on the advice and experience of other owners who have experienced the same problems or had the same questions.  The franchise business will teach you how to do things the best and most profitable way.
  3. If you start your own business you have to write your own business plan, sell your idea to prospective investors and banks and try to estimate how much money you will need to establish your business as well as to survive while it is getting off the ground.  If you buy into a franchise, they will help you to draw up your business plan and can often assist with finding financing.   They will also be able to let you know exactly how much money you will need to become a franchise owner.
  4. You will need supplies as well as legal and accounting support to operate your business.  If you buy a franchise can often offer this kind of support in-house or recommend third-party vendors.  In addition, they can often secure products and services for franchisees at a discount due to the volume that they purchase.
  5.  Franchise owners have a support system from corporate teams, regional directors and from fellow owners that can be critical to the success of their business.  Other owners have been there and can offer detailed help to work through problems.  When you start your own business, you are pretty much on your own.
  6.  Starting your own business requires learning how to choose the best location, hire and train staff, market your business and do bookkeeping.  As most new owners are busy doing the work and are not experienced in doing these tasks the new business can easily fail.  Franchise businesses have operational systems already in place and are able to clearly explain to prospective franchisees the types of skills they will need to be a successful owner.

Franchise businesses do come with their own risks and there are no guarantees of success. However, for a prospective new owner who lacks business knowledge and experience a franchise business is a good idea to mitigate risks.

Need Help With Your Return? Where to Get Answers to Your Income Tax Questions

By Randall Orser | Investments , Personal Finances , Personal Income Tax

The April 30th deadline is rapidly approaching.  If you are in a panic about your tax return and need answers to some questions, here are some places you can go for help.

1.  If your tax return is complicated it is always best to get a tax professional such as Number Crunchers® to complete it for you. We know all the ins and outs of tax returns and we can answer your questions and make sense of the chaos.

2. If you still want to go it alone, get a Canadian Income Tax Package.  This used to be mailed out but can now be downloaded and printed from the CRA Website.  The package includes line by line instructions to help you to fill out your return.

3. Head to the CRA website at http://www.cra-arc.gc.ca/formspubs/tpcs/menu-eng.html to find forms and publications by topic.

4. The CRA has an automated Tax Information Phone Service (TIPS) for personal and general tax information.  To find out more go to http://www.cra-arc.gc.ca/esrvc-srvce/tps/menu-eng.html.  Before calling you need to make sure that you have the following information on hand: your social insurance number, your month and year of birth and the total income that you recorded on line 150 of your 2017 return.

5. Tax information for individuals, businesses, charities and trusts can be found at http://www.cra-arc.gc.ca/ndvdls-fmls/menu-eng.html

6. Phone Inquiries – you can reach a CRA representative by calling 1-800-959-8281 but expect to wait a while to talk to someone, they are extremely busy at this time of year.  They do have extended evening and weekend hours up to April 30th, (9am to 9pm local time during the week and 9am to 5pm Saturdays local time) and they do suggest calling Thursday or Friday when the phones are usually less busy.

7. For help with CRA online services you can go to their E-Service Help Desk at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/menu-eng.html.

8. If you need help with a very basic return that does not include bankruptcy, deceased individuals, capital gains or losses, employment expenses or business or rental income and expenses there are Volunteer Income Tax Preparation Clinics offered by the CRA.  These are only to help people who meet their basic eligibility requirements such as maximum income levels.  For more information about locations go to http://www.cra-arc.gc.ca/tx/ndvdls/vlntr/menu-eng.html

Do you Know the Difference Between Tax Havens and Tax Shelters?

By Randall Orser | Investments , Personal Finances , Personal Income Tax

Though both tax havens and tax shelters are used by wealthy people to reduce their income tax payments there is a big difference between the two.

Tax Haven is a locale anywhere in the world that has lax tax laws.  This country will often charge very low or very reduced tax rates.  Many multinational corporations take advantage of the benefits of tax havens creating subsidiaries to shield their incomes from taxation. Tax havens can also provide offshore banking services to non-resident companies and individuals.  Foreigners can easily form an international business corporation or offshore corporation which will often be given tax exemption for a set period of time.  

Because of the strict privacy laws enforced by most tax havens owners of these “shell” companies often remain unknown.  Although tax havens are technically legal the CRA frowns upon them and the public has a poor view of companies carrying out offshore banking activity.  Switzerland is the most well-known tax haven, but others include the British Virgin Islands and Luxembourg.

Tax Shelters are commonly used by all taxpayers as a method of legally reducing their tax burden through the use of specific investment types or strategies.  These are often temporary and require a future income tax payment, but they are useful for those wanting to reduce their tax payments during the years when their earnings are highest.  The two most popular tax shelters in Canada are Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSPs). 

The TFSA was started by the government in 2009 and it allows anyone over 18 to earn investment income tax free up to a set maximum per year.  In 2009 you could contribute up to $5000 which increased to $5,500 per year in 2013 with and $10,000 for one year in 2015.   This allowance is cumulative so that if you had not contributed by 2017 you could invest up to $52,000 and in 2019 your total investment allowance Including an increase to $6000 per year will be $63,500. You can withdraw from your account anytime during the year, but you cannot replace it until the following year unless you have sufficient contribution room for it to be considered an additional contribution.

RRSPs - You can contribute to your RRSP each year up to a limit based upon your income and deduct it from your taxable income.  You will only pay income tax on your investment and the interest it earns when you make withdrawals from your RRSP.  If you have a properly structured investment portfolio you will be able to take advantage of the low tax rate on capital gains and dividend income outside of your RRSP while it shelters your higher taxed investment income.

RRIFs - A Registered Retirement Income Fund is a tax-deferred retirement plan for your RRSP. RRIFs are used by those who do not plan to withdraw their RRSP as a lump sum when they retire but take smaller withdrawals.  RRIFs offer more flexibility and tax savings than lump sum withdrawals, but you must withdraw a minimum each year and report it for tax purposes.  You may withdraw more if you wish at any time.  The CRA will set your minimum withdrawal for each year according to a schedule which will start at 5.28% at age 71 in 2019.

For more information about TSFA’s, RRSP’s or RRIF’s consult your investment advisor or the CRA website 

 

Have you Made Your New Year Financial Resolutions Yet?

By Randall Orser | Happy New Year , Investments , Personal Finances , Personal Income Tax

Looking forward to the new year, some of us like to make New Year’s Resolutions – some we keep, some we don’t, but how many of us make Financial New Year’s Resolutions?  It might be something that you want to think about for 2019.  

Resolve to do Better– we all start off the new year gung-ho about our New Year’s Resolutions then we get disheartened when we don’t see instant results, and we fall off the wagon.  The solution is to start small and be happy with small results rather than expecting a major overnight change in your money situation.  Resolve to manage your money better than you did last year. 

Identify Your Financial Goals– before you can make any progress towards your goals you need to know what they are – repay your car loan? buy a new home? retire early? To increase your chance of success you need to be specific about your goals then outline a plan of attack. Look at your financial performance last year and be honest - did you overspend or overborrow? Reconsider your financial mistakes and resolve to do better in 2019 and it is important to continue to review your progress periodically throughout the year.   

Get a Support System, your spouse should always be part of your team as you should be working together towards your financial goals.  Taking a personal finance class together will help you recognise where you are damaging your finances.  Share money saving ideas with family and friends.

Here are the Five Main Financial Goals that you should consider for the new year.

Start to Budget – Start tracking your spending because before you can commit to sticking to a budget you need to know exactly where your money is going, see where you are overspending and plan to reduce the cash leak in that area.  Use Personal Finance software to help you to easily track your finances.  

Get out of Debt – this is a key goal to taking control of your finances.  Prioritize your debts – organize your debts by their interest rate, pay them off in order of the highest ones first.  Fast track your debt payoff goals, instead of saying “I am going to pay off all my debts this year” which is a big goal, commit to contributing a little more to your monthly payments.  An extra $50 a month can make a big difference.  Think about ways of raising extra money to pay off debts maybe selling unwanted items or taking as second job.

Start Saving Money 

  • Reduce your grocery bill and stop eating out.
  • Find ways to save on utilities, cut ties with cable and start streaming.
  • Close any bank or credit accounts you don’t need, this could save you bank charges.  
  • Call your credit card company to try and negotiate a lower interest rate.
  • Boost your retirement savings and set a monthly savings goal.  
  • Automate as many monthly payments as possible. In this way you make payments without thinking about it, so it becomes a habit to expect these deductions from your bank account each month.  
  • Commit to no-spend days or weekends.  Make this a time when no money at all leaves your bank account, eat at home, find free entertainment and skip shopping.  
  • Get healthy without joining a gym – try doing on-line exercise videos for free and get outside for walks and hikes.  
  • Collect your change – try and use cash to pay for things and keep your change. Throw it into a jar. It is amazing how much you can accumulate over a year, and this money can go towards paying off a debt.

Learn about Money and Finances - Subscribe to a financial podcast (Randall does one every Friday at 11am).  Increase your financial knowledge by listening to the experts.  Alternatively commit to reading at least one personal finance book this year (there are lots to choose from at your local library for free!)   

Learn about investing or re-evaluate your investment portfolio – sit down with your financial advisor to see if your current plan is meeting your goals or if you need to make changes.  Make it a goal to invest a certain amount each month.

Some great ideas to get you started on the road to financial recovery, good luck in 2019.

Five Tips for Setting up a “Uh-Oh” Fund

By Randall Orser | Budget , Investments , Personal Finances

Heading into the New Year is a good time to think about organizing your finances.  

Do you have a fund to cover those “UH-OH” moments? You know when, you lose your job, have an expensive vet bill, or your car breaks down!  Here are some tips on how to plan for these unexpected events by setting up an emergency fund.

  1. Open a savings account that you can access easily - ensure you can make withdrawals while still earning interest.  An Account Comparison Tool will help you find the right one.
  2. Be realistic with your savings plan – don’t worry about starting small. Determine what you can put aside each week or month to start right away.  Aim for a fund which covers 3-6 months of your regular expenses which might seem like a lot of money, but it can be achieved even if you start small.
  3. Make it a habit – set up automatic withdrawals from an account to your savings account or set up a reminder on your phone or computer.  Tuck away small change into a container, you will be amazed how quickly it adds up!
  4.  Eliminate a monthly expense and add it to your fund – simple things like bringing your lunch to work can add up over a month.  Think about things that you pay for now that you might be able to do without.  Here are some suggestions.           
    • Cut one non essential food from your grocery list.
    • Eat what you buy and definitely buy what you are definitely going to eat. Calculate how much money you waste by throwing food away (and Canadians are some of the worst people for doing this!) and it will shock you.
    • Make your coffee at home and take it to work
    • Use discount coupons
  5. Use an expense calculator to add up how much small daily expenses can accumulate over a year.
  6. Look for opportunities to increase your fund – review your goals regularly and adjust your contributions based on your circumstances.  Add any extra money you receive to your fund for example a tax refund.
  7. When shopping at a big box store, calculate how much it will cost, take that amount in cash to pay for your items and leave your bank card at home.  That way you will not be tempted to buy things that you don’t really need.  

There are lots of other ways to painlessly save money - talk to your friends and compare tips and ideas

How to Protect Your Records in Case of Emergency

By Randall Orser | Investments , Personal Finances , Personal Income Tax

When putting together an emergency plan should the “Big One” happen, food, water and shelter will usually be the priorities. However, protecting your most important family documents should also be part of that plan.  

In the aftermath of any emergency event some documents will be immediately important, for example insurance policies.  You can keep physical copies, store electronic copies on a USB, DVD, or remotely and there are free apps on your phone where you can record copies and email them to yourself or a relative.  

For birth certificates or licenses and other one-page documents you can take a picture on your phone, although these will not have legal standing, they may make it easier to replace them. 

The best way to protect your documents is at either at home in a grab and go waterproof and fireproof container (easy to buy), or off-site in a safety deposit box at your bank or at the remote home of a friend or relative.   

What Documents Need Protecting?

  • Government issued Vital Records - such as birth and marriage certificates, passports, citizenship papers, drivers licenses, and social security documents. You should also keep pet ID’s and records.
  • Home and property information, deeds, mortgage information, car titles and appraisal documents for jewelry and other valuables.
  • Insurance Policies – you will need policy numbers and contact information for your homeowners, renters, flood, earthquake, auto, life, health etc. policies. Make sure you read your policy well beforehand so that you know what your coverage is.  It is also a good idea to take photographs or do a room by room video to help you make an inventory your possessions.
  • Medical information – including prescriptions (drug name and dosage), health insurance numbers, physician name and contact information, powers of attorney and living wills.
  • Estate Planning documents, wills, trusts, funeral instructions, and lawyer information.
  • Financial records including tax returns, credit card and bank account numbers and financial contact information.

Having this information easily accessible will make getting your needs met after a disaster a lot easier when many providers will be overwhelmed.

For more information on making an emergency plan visit http://getprepared.ca/

Thinking of Renting Out Your Mortgage Helper? – Here are Some Things You Should Know

By Randall Orser | Home Based Business , Investments , Personal Income Tax , Small Business


Before You Rent Out That Mortgage Helper, here are Some Tips

You’ve been able to buy that new home you want, and it came with an income suite, which can be financially fruitful. To be a good property manager, you should manage your rental as you would a business, which means you need to be an able planner and keep good records (especially for the taxman).
For a first-time landlord, renting out your house to an outsider can be quite the challenge. The following three items are things you should know before renting out that mortgage helper.


Keep Your Property Presentable
You must keep up the property in a tidy manner, no one wants to rent a messy place. You may also get a higher rent if you maintain the property, and keep it looking nice. Your renters will feel more confidence that you are a professional landlord when the residence is maintained. If something needs repairs, fix it, clean up the floors and walls and keep up the landscaping; this makes your rental much more attractive to potential tenants. 
Rental properties will need periodic repairs. If you’re not handy yourself, it is a good idea to find a local handyman you can rely on when needed. Your job as a landlord will be much easier if you can find reliable professionals you can call on when needed. Yes, it’s going to cost you money to maintain the property, however, it could cost you more in lost tenants. Plus, you get to write off minor repairs off the rental income.


Always Get it in Writing
That old adage is never truer than when being a landlord. You need to have a tenancy agreement, though there is no standard agreement you must use. You can look at one of those online law documents services and grab one from there, or chat with a lawyer that specializes in rentals. If you decide to just create your own, it is advisable to have a lawyer check it over for its legality. 
You should include the following details in any tenancy agreement:

  • Start and end date of the rental term
  • Security deposit amount
  • Monthly rental amount
  • The date of the month the rent is due
  • Acceptable methods of payment
  • How rent should be paid
  • If you are allowing direct payments into your bank account, you need to note on the form your bank details.
  • The number of keys you are giving the tenant
  • Who is responsible for utilities and maintenance
  • Any additional fees and disclosures

Depending on your particular circumstances, you may want to incorporate other terms you deem appropriate.

  • Pre-tenancy application form
  • Security deposit receipt for

It may be a good idea to contact a property law specialist to help create the tenancy agreement to your particular needs. The lawyer will be over legal disclosure requirements and explain how insurance can curb your liability.

Acquiring Great Tenants

At the beginning of a successful landlord-tenant relationship you need to get the right tenants. To find financially suitable applicants for your property seek the help of a credit check agency and ask for references from previous landlords.   After that, there are tools that can help you locate good tenants. Look for a local property investment association, as this can be a great resource for networking with other landlords. You’ll be able to get tips, and share yours, that you and they have learned over the years.

Starting Your Own Business – Sole Proprietorship, Partnership or Corporation?

By Randall Orser | Business Income Taxes , Investments , Small Business

Once you have decided to take the plunge and start your own business, the next step is to decide upon the structure of your business.  In Canada, there are three kinds of business structure. Sole Proprietorship (one owner), Partnership (2 or more owners), and Corporation.  

With a sole proprietorship, you would be fully responsible for all debts and obligations related to your business and all profits would be yours alone to keep. As a sole owner of the business, a creditor can make a claim against your personal or business assets to pay off any debt. 

A partnership is a good business structure if you want to carry on a business with a partner and you do not wish to incorporate your business. With a partnership, financial resources are combined and put into the business. You can establish the terms of your business with your partner and protect yourself in case of a disagreement or dissolution by drawing up a specific business agreement. As partners, you would share in the profits of your business according to the terms of your agreement. If you wish to share profits or losses with your spouse, then you must form a partnership; CRA will not allow a split of profit or losses otherwise.

Another type of business structure is incorporation. Incorporation can be done at the federal or provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is separate from the shareholders. As a shareholder of a corporation, you may not be personally liable for the debts, obligations or acts of the corporation. When making such decisions, it is always wise to seek legal advice before incorporating.

Should I Teach my Kids About Taxes?

By Randall Orser | Budget , Investments , Personal Finances , Personal Income Tax , Retirement

I think that one of the inevitabilities of life, taxes, is something that we should learn about early in life. From why we need to levy taxes, how they affect your life, from your job, business, to what you buy, it’s a good thing to know about taxes. Sadly, school doesn’t do this as well as it should, or at all, so it’s up to you parents to teach your kids about taxes. 

Working Teens

Do you have a teen with a part-time job? This is a good time to show them how taxes work and helping them prepare their tax return come the following tax season. With online resources, it would be easy for them, let’s face it their more tech savvy than their parents, to file online. Better yet, get them to find a tax preparer on their own, so they can see what it’s like when they’re an adult and have to deal with their taxes.

The younger we teach them to do something, the better they can handle it as an adult. You’d be surprised how many young adults (early to mid-twenties) come to us, and have absolutely no clue what to do, or even what they need to provide to us.

The good thing about filing a tax return each year the teen has a T4 is that this accumulates his RRSP contribution room, so when they turn 19, they can start to contribute to an RRSP. Or, for later in life the monies they earned as a teen are contributing to that future contribution limit.

Of course, when they turn 19, it’s time to register for the GST/HST tax credit too. If your child has the confidence to figure that on their own, then the better. Get them reading about taxes, and what they need to do for filing their taxes.

Purchases

When your kid, no matter the age, wishes to buy something this is a good time to teach them about consumption taxes (GST/HST and PST). It’s fun to save for something they want, they know how much that toy will cost; however, they go to buy it and now don’t have enough money as they didn’t know about the taxes (from 5% to 15% depending on the Province). They’re now sadly disappointed and have to save more for the taxes.

If you teach that whatever they want to buy they need to think about the consumption taxes, then they know they need to add more to their savings to cover such taxes. Here in British Columbia you need to add 12% onto most purchases, food is mostly an exception except for pets. For example, if your kid wants to buy a toy that’s $39.99 then they need to add $4.80 for GST/HST ($2.00) and PST ($2.80). The kid needs to save $44.79. 

As a parent, you should think about teaching your kids about taxes as early as they would be able to understand. This way the kids won’t be disappointed when buying something, nor, later in life, will they get in trouble with Canada Revenue Agency because they didn’t file their taxes for five years. Ideally, the schools would teach such things too, maybe parents need to start demanding that schools start teaching kids about real life. As Crosby, Stills & Nash sang, “Teach Your Children Well”. 

Resources

Where Your Tax Dollars Go (Department of Finance Canada)

https://www.fin.gc.ca/taxdollar/text/fanfold/pamphlete.pdf

CBC News report, Feb 2018

https://www.cbc.ca/news/business/tax-dollars-1.4545415

Doing Your Taxes (Canada Revenue Agency)

https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/doing-your-taxes.html

Get ready to do your 2017 income tax and benefit return (Canada Revenue Agency)

https://www.canada.ca/en/revenue-agency/campaigns/taxes-get-ready.html

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