REGISTERED RETIREMENT SAVINGS PLAN

This is the one investment every Canadian who qualifies should take full advantage of.

I am passionate about managing your money and controlling debt, but I am extremely enthusiastic in encouraging everyone to take full advantage of opening a Registered Retirement Savings account.

Last week I was invited to speak to a group of ladies about RRSP. They wanted to know more about it, some of them already had one but did not know much more than the upfront tax sheltered benefits.

It’s the time of the year when information about RRSP is all over the place; on Bill Boards, Radio, TV and when you turn on computer. Everyone tells you that you have till March 1^st to contribute to your RRSP to take full advantage of the tax sheltered component.

Here are two more reasons why everyone should have RRSP especially young adults just entering the workforce.

1.       FIRST TIME HOME BUYERS PLAN

 The plan works like this; if you have contributed to your RRSP for the past number of years and you have decided to purchase you FIRST HOME the Government allows you to take a maximum of $25,000 from your RRSP and put it towards purchasing your first home.

 If you have a partner, the partner is also allowed to put up to $25,000 towards the purchase of the home with fifteen years to put the funds back.   

These funds can be used during the purchase period to put towards your down payment, to buy furniture, pay your lawyer’s fees or pizza for your friends who have helped you move.  After you have been in your home for two years you will receive a notice with your income tax forms to reinvest one fifteenth of the amount you withdrew from the RRSP. 

 If you withdrew $25,000 the amount you would need to reinvest would be $1,666.67 annually but if you did it every pay day and you are paid bi-weekly the total would be $64.10 a pay.    That is a very affordable and doable plan.

It’s a big win for you. You have just given yourself an interest-free small mortgage that will be paid off  in 15 years.

 

 

  2.   RETIREMENT

 Once you have decided to stop working and you are now depending on a reduce income, you may begin withdrawing from your RRSP to enable you to maintain a comfortable life style. Because you are now retired your tax rate will be significantly lower than when you were working.

I am sure you have all heard of someone one who is quite upset that they are now paying tax every time they withdraw from their RRSP.  Let me tell you about Violet.  I met Violet a number of years ago when I worked downtown.  Violet got on the bus a few stops after me every day on our home from work. She was older than me (she told me she was 69 years old at that time) so I would give my seat to her.  One day Violet and I were riding on the Bay bus and there was a sign about RRSP and how it was the time to do it.  There was also a table that showed that if you started investing at the age 20, stopped investing at the age of 30 but leaving the investment in place and someone else started at the age of 30 and continued investing until 65 that the person who started investing at the age of 20 would have more money than the person who started at 30 and stayed invest to the age of 65.

 I remembered so well, when Violet looked at the ad and smiled, then she looked up at me and said…

 “My dear I hope you are taking advantage of the great privilege the Government of Canada have given us to save for our retirement. You see I did not open a RRSP.  I never thought of being older and that is why today I am working at 69 years old just to make ends meet. My Canada Pension and Old Age Pension is not enough to meet all my financial needs. If only I had made that decision I would have the choice of taking a vacation during the winter or staying home and just relaxing. Please do not make the same mistake as I did.” 

I had already opened my RRSP and was happy to tell her that I had.

So now when you see and hear the ads about investing for your future and you think, “Well, I have all the time in the world” remember the old saying that TIME AND TIDES WAITS FOR NO ONE. Or better still, look at the older person sitting next to you and remember Violet.  Do you want to be the next Violet?

Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com

Calm Down Take Your Time

Calm Down Take Your Time

Rome was not built in a day.

Yes, the Prime Rate is going up and mortgage rates are going up. We created 93,000 jobs last month and the cost of homes decreased slightly year over year. Our economy is booming again! All of these are very powerful information that may cause your blood pressure to rise and stimulate your adrenalin.

Stop, take a deep breath and think this through before jumping into the housing market.

Just in case you are not quite ready I have a few things I would like you to think about:

• Have you been saving to buy a home?
• How long have you been at your present job? (You need to be in your present employment for 1 year – 18months (and not on probation.)
• Have you requested an employment letter from your employer?
• Have you check your credit report?
• Do you have any late payments or unpaid bills?
• Have you paid off all your revolving credit?
• How much money do you have to use for your down payment?
• Do you have a Registered Retirement Savings Plan?
• Did you know that your last deposit into your Registered Retirement Savings plan has to be there for 89 days before you can take it out to use as part of your down payment?
• Is your down payment liquid? And can you access it immediately?
• Have you decided what type of house you want?
• Do you know where you are planning to buy this house?
• Have you been to your bank to request a Pre-approval?
• Do you have any idea the mortgage amount you qualify for?
• Have you chosen a Real Estate Agent?
• Is he or she recommended by someone you trust?
• Have you chosen a lawyer?
• What are your closing costs (including your lawyer’s fees)?
• Do you know how much notice is required to give to your present landlord?

Before you begin your search, you should have answers to all of the above questions. If you are unable to answer them with confidence then you need to do some homework.

Remember: Don’t let yourself get caught in someone else’s wind. Mortgage rates are rising and you do not have to feel pressured to move quickly. Without a plan, moving quickly into something you did not plan for can create mountains of grief and turmoil.

This is, for most of us, the single biggest purchase we will ever make in our life time so take the time necessary to make the best of it. Prepare your plan for purchasing your home.

Use the above questions to help you realize whether you are ready to make the purchase. The points above will certainly help you make the right choice at the right time not when someone else is making their plan. Start with the following:

• Create a Plan – a SMART Plan.
• When do you want to buy this home?
• Where? Location?
• Why? (E.g. I am tired of renting.)
• What type of home?
• What will it cost you, how much you want to spend?
• Who is involve, are they also ready to buy a home?

These are things to consider before beginning your plan to purchase. There may be some things you have taken care of already and there may be some items you just found out about. I recommend that you purchase a note book or a device to record your notes (e.g. your phone), whichever you are most comfortable with to write things down as you go along. This applies whether it is just a thought or a question you have for your bank, a friend or family.

First check the website of real estate companies to look at houses for sale in the area you want to live in. You can take a virtual tour to check the sale price and the various styles of houses or condominiums. I would stay away from going to an OPEN HOUSE until all your ducks are in a row. Failure to do that might cause you to make a decision you will regret for a very long time. Open houses could cause sales pressure by the listing agent and if you are not prepared, things could get out of hand very quickly.

Buying a home is a wonderful experience and you want to keep it that way. When you have made an offer you want to feel confident that you have done the right thing. This will also prevent you from not staying up late at night questioning what you have just done.
If you have followed the points I gave you, I know for sure you will be extremely happy with your decision to purchase your home at the right time for you.

Go ahead you are ready.

Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com</em

On The Bus

I had to take the bus home the other day from work. After waiting for a few minutes, the bus came and I got on and I found a seat. A few minutes later, a young couple boarded the bus and sat in front of me. It was hard to not listen to their conversation, especially since it had to do with money. I wasn’t taking notes, but here is my recollection of the conversation. Since I don’t know their names, I’ll just refer to them as “Him” and Her”.

Her: “I bought a really nice pair of boots on sale today.”

Him: “You need to stop spending money like we have it in a bottomless pit.”

Her: “I don’t want to talk about money right now.”

Him: “When would you like to talk about money? You constantly say you will discuss it latter, but you never do.”

Her: “Why should I talk about money when you talk about money for the two of us and then for the rest of the world? It’s always about money and more money with you.”

Him: “Someone needs to talk about money in this family because it will never be you and we are just falling deeper and deeper into debt. Do you know how much you charged last month?”

Her: “No, I have no idea. I need something and I buy it. I have a job. I make good money. Why should I live like I am a person on Government subsidy?”

Him: “Because of our future. We need to sit with a Financial Advisor and work out a plan for our future.”

Her: “That’s living on a budget and I will never be on a budget. I can’t stand the idea of being restricted.”

Him: “You will not be restricted on a financial plan. Everything is taken into consideration, like all our plans for our future and all our goals, like owning our home, saving for our retirement, saving for life emergencies, saving for a vacation, and being debt free. While creating a Financial Plan we tell the Financial Planner what we want, when we want it and he devises a plan to suit our goals. It is not a budget but a plan just for us. It would not be a plan that would suit our friends – theirs would be different.”

Her: “How do you know so much about this stuff anyway?”

Him: “I went to my bank and while I was there I read something about Personal Financial Planning. I have it right here would you like to take a look at it.”

Her: “No, but tell me a little more about this Financial Plan. You said we can plan a vacation but you don’t want to spend money. How can we go on vacation and you don’t want to spend any money?”

Him: “That is not what I have told you. What I said was, I do not want to go on a vacation and then come home to a credit card bill waiting for me. With a Financial Plan we would designate the amount we want for our vacation. We would decide a year from now, so in our case since we get paid every two weeks, we would divide the amount by 26 which represents how many pay periods we have in a year, and that amount would be place from our cheques on payday automatically into our vacation account. At the end of the year, we would have the amount we allocated for the vacation. Just think that we could have the vacation of our choice and have no debt when we are back. How does that make you feel?”

Her: “Do you really mean we could have a vacation at this time next year if we did this financial plan now?”

Him: “We can have that and lots more like a home of our own in, say, 3 years, pay off all our credit card debt, regular saving and retirement savings.”

Her: “What do we have to do to get this plan in action?”

Him: ”We need to make an appointment at our bank and talk to the Financial Advisor. I believe we would have to see him a few times to get everything set up.”

Her: “What about money for food and entertainment, clothes, and pocket money?”

Him: “This is all discussed and is considered in the plan. After it is set up, we will have a road map of our financial journey detailing what we want and when we will arrive at the end of our journey. We meet with the planner once a year to revise our plan and make changes if our goals change. We also make the changes in our plan; for example, when we get a salary increase the new plan would be revised to plan for that money. If there are any other life-changes during the year we also meet with the Planner to make the changes.”

Her: “I’m beginning to understand this financial planning better. When can we make the appointment? I am fed up with all this credit card debt and would like to have our finances in order. It would be nice not to have you so angry at me all the time.”

At this point, the bus arrived at my stop and I had to leave.

That was so amazing, can you imagine how I felt being able to hear a conversation like that? I was so proud of that young man. As a Financial Advisor I was glad to see a young couple facing a possible lifetime of being caught in the Debt Spiral and one person realizing what could happen if they let themselves be dropped into a financial abyss.

I really admired his tact and the way he drew her in, to understand how important financial planning can be and that it is very different from a budget.

Sometimes is it very important in a relationship to do your homework in order to encourage the other person to see what the change in behaviour can make.

Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com