Archive for January, 2010

Planning For Education

Wednesday, January 20th, 2010

Now that the school year has come around again, you’ve probably spent some thinking about how to fund your child’s (or children’s) education without indebting the whole family to the government and to the banks. The good news is, from a tax and investment perspective, there has never been a better year to bring education funding into your financial plan.

Using a combination of two widely available investment programs, you can put your family ahead of the game: the Registered Educations Savings Plan (RESP) and the Tax-free savings account (TFSA). The RESP is a tax-deferred savings account that allows you to save money for your child’s education (or the education of an unrelated child whose educational needs you are looking out for) without worrying about paying tax on the earned interest or dividends. When you contribute to an RESP, unlike the similarly named RRSP, the contributions are not tax deductible – so keep in mind that this strategy won’t get you a refund cheque. What you will get (assuming you’ve taken advantage of this program when the child beneficiary is young enough) is a partially matched government grant that will add potentially hefty contributions to the savings plan.

When you contribute to an RESP, you will receive a 20% matching contribution in the form of the Canada Education Savings Grant (CESG). The maximum CESG amount for each year is $500 (With a lifetime maximum of $7200). Using this strategy, it wouldn’t be practical to deposit more than $2500 into the RESP on a yearly basis, since you won’t get any more matching dollars over that amount. The grant, along with your RESP contributions, will grow on a tax-free basis. When the RESP beneficiary withdraws the money to pay for educational expenses, the income is taxed in the young one’s hands. Considering that most students have very low annual taxable income, and considering the tax deductions and credits available for most full-time students, the amount of tax they should expect to pay after withdrawing RESP money is usually fairly low – if anything at all.

The Tax Free Savings Account is another useful tool for stashing away long-term education savings. Like the RESP, investment growth inside the TFSA is not taxed while it remains invested. Unlike the RESP, there is no government matching. That’s okay – the TFSA has a special perk which more than makes up for that. When funds are withdrawn from the TFSA, none of the growth is taxed. At all.

Each year, every Canadian over the age of 18 is allowed to make a flat $5000 contribution into a TFSA. In the case of a two-parent household, it’s not unusual for the higher income earner to make all of the contributions (i.e., deposit $5000 into his or her own account, then deposit another $5000 into the account of the lower income-earner), to get a nice break on taxable investment growth. Which means that $10,000 of savings per year can grow tax-free in every household.

Now here’s where the fun part starts. You can contribute $2500 each year to your child’s RESP (and pick up the $500 grant), and then deposit any extra available savings (up to $5000) in your TFSA. When your bright, young prodigy hits 18, you can then withdraw the funds tax-free from your own TFSA, and deposit it into a TFSA set up in the student’s name. The student can then withdraw the funds as necessary, pay no tax on the withdrawals and, at the same time, you have freed up room to make TFSA contributions for your own long-term savings.

Being financially fit includes giving your children a headstart on their education, helping them understand the true value of money and making sure your family doesn’t get saddled with debt for that academic pursuit.

Many Blessings,

Andray Domise
Independent Financial Advisor
Change your life one dollar at a time, with REAL help for building wealth and reducing debt:
http://www.andraydomise.com

Education Savings Plan FAQ:

Question: Registered Education Savings Plan?
How much does a provider or agent (or whatever they are called) make? I was told by someone that they make up to 1500 dollars on every child they register.

Answer: Depends on the company and payment structure, but usually its based on the underlying investments. On average around 2-3%. But that isnt a direct expense to you. It is usually paid to them by the company they work with/for.

Question: What is the best type of long term savings plan to save for my children’s education from middle school up?
I plan on having my children attend private middle school and up and want to start saving. We live in Maryland.

Answer: Your best bet is to talk to a financial adviser that can tell you what is best for your individual situation. As far as a starting point, either a 529 plan or Coverdell Savings account.

Question: What is the best college savings plan for me?
My savings account is with ING and I can’t complaint. Yet, my plan is to work to get a master’s degree sometime around 2010. I’m doing my BS in education.

Answer: Since you will need the money relatively quickly, you should stick to a safe and conservative investment vehicle. I would move money for your education to a 1 year CD.

Question: Do you have or do you plan to start a savings account for your child’s college education?
And did your parents have one for you?

Answer: Not yet and I don’t know if we will. My parents didn’t have one for me, but they still helped for part of my college and the rest I have student loans for. There is a part of me that doesn’t think it’s a parents responsibility at that point. My husband parent’s had an interesting deal with him. They didn’t pay for anything until he finished, but now they are paying back his student loans.

Question: What are some options for saving for my childs college education?
My child is 11. I am a single parent. Should I buy into my states college credit savings plan? What if my child ends up with a sports scholarship, would I lose those college credits? Should I buy bonds instead?

Answer: There are many ways that people save and fun their child’s education. Two popular ones are state sponsored college plans, and 529 Plans.

You would have to read through the specifics on your state sponsored plan as it will have provisions for scholarships and also if the student decided to attend school out of state.

A 529 plan gives you more flexibility. 529 refers to the lines in tax code that say – for money invested in the plan, any growth is available to you tax free when the funds are used for education. There is no provision as to what state the funds are used in, and there is a provision included that deals specifically with scholarships and how to withdraw equal parts from the plan to offset those. Many financial services companies carry these plans – an example is American Funds, also Oppenheimer. The plan has professionally managed portfolios and options that can automatically move to safety as the student gets closer to college. See your financial advisor who can specifically explain the plan to you.

Question: How are you saving for your child’s college education? Specific Plans, etc.?
I’m looking into beginning college savings plans and was wondering what plans you are utilizing to save for your child. We are looking into a UPromise account which is a dressed up 529 account but are there other plans that are as effective?

Answer: We put aside $20 dollars a week for our daughter and at every $500 we put in in a 12 mo. CD. We started when she was born so she’ll have a good start for college between what we’ve saved and the intrest it draws.

Question: What is a tax-free savings account in Canada?
I saw an ad at my bank about opening up a tax-free savings account. That surprised me, because how is the government supposed to know how much you have in your bank account? I never saw that anywhere on the tax forms. I thought the government only taxed you based on how much you make per year. What does a tax-free account mean and should I get one?

Answer: If you have a bank account and earn interest on your money, that interest is taxable. So if you have a lot of money in the account and make, let’s say $200 in interest, that $200 is taxable. The government will know how much you made in interest because the Bank will tell them and issue you (and the Gov’t) a tax form indicating how much money you made in that account.

A Tax Free Savings account is one where the money you earn on your savings (the interest) is NOT taxed; you get to keep it all. You will likely have a maximum of $5000 that you can put into such an account each year (which is more than most people need) and all the interest grows without being taxed. The bank will register that account with the government so they know there will be no tax owing on the interest you make. It was established to help encourage people to save for retirement.

Question: I have vested Restricted Stock Units. Is it smart to transfer them (in kind) to a tax free savings account?
I’ll probably sell them in 3 years or so and I expect that they will increase in value.

Answer: If you transfer any property into a TFSA, you will be deemed to have sold them at whatever their fair market value is on the date of transfer. In the case of stock, this would normally result in you having to report a capital gain. You would not be able to claim a loss as the TFSA would be considered an affiliated person, and the transaction would fall under the superficial loss rules.

Is it smart? Well, essentially, you would be stopping any taxes that will accrue on gains after the transfer. In addition, you would no longer be taxed on any dividends that are paid from the stock as these amounts would be paid to your TFSA. That last would not necessarily be an advantage due to you having lost the ability to use the dividend tax credit.

Hope that helped. You’ve got a decision to make, and a few things to consider before you do it.

Death and Taxes – Estate Planning Mistake #1

Wednesday, January 20th, 2010

Every year, billions of dollars are transferred from one generation to another in Canada. Unfortunately, many of us don’t take the proper precautions to make sure our wishes are carried out in the event we should pass away. I’ve heard everything from “I don’t want to think about a will right now” to “If I make out a will, I feel like something bad is going to happen to me.” By ignoring the need to draft a comprehensive will, something bad will definitely happen to your family.

Let me be the first to admit: At some point after I publish this article, I am going to die. It will probably be at 105 years old (and due to being shot by a jealous husband rather than natural causes) but it is going to happen. Life is a pre-existing condition with a 100% mortality rate, which means you are going to die too. Hopefully not for a very long time – but it is going to happen.

You do have a choice, though. You can choose:

  1. Have an orderly transfer of assets, with the lowest amount of taxes paid, while protecting your family from disputes, debts and heartbreak.
  2. Family disputes, debts and heartbreak; allowing the government to intrude into your private affairs, making them as public as possible without the help of neon signs and a loudspeaker.

For the next few Death and Taxes posts, I’ll lay out the most common mistakes we make with estate planning and how to avoid them.

Mistake #1: Not Having a Will

This is the biggest, most common mistake. It’s also the easiest to fix, which is why it simply shouldn’t happen. A will lets everyone know your intentions for your assets and how they will be distributed in the event of your death. It also lets you choose who is responsible for managing the estate (The Executor) and who will be the guardian of any children still under the age of 18. By having a will, your estate should be managed responsibly and you may be able to save money on taxes and probate fees. There are many ways to go about having a will written, but I always, always recommend visiting a competent estate lawyer.

Have a conversation about your wishes for when you pass away and have your lawyer draft a will that fulfills those wishes. I’ve heard grumbling about the price of drafting a will (usually in the $500 range, but the price can go up if your financial and property affairs are more complicated), but think about this for a moment. Consider the time, taxes and grief involved in sorting out an estate that has not been organized by a will. If time is money, it will always be more expensive to not have a will than to have one. If you don’t prepare a will and die intestate, the provincial court will appoint someone to administer the estate. That person usually ends up being a spouse, adult child, grandchild, parents or siblings.

If no one is willing and able to take on the administrator’s role, then the province will appoint someone to take that role instead. This person, the Public Trustee, will:

  1. Make funeral arrangements
  2. File the tax returns
  3. Pay creditors, and
  4. Charge fees all along the way.

By allowing a Public Trustee to take over the administration of the estate, you are letting the government dish out your hard-earned money and property. The same government we hardly trust to spend our tax dollars responsibly is now responsible for the entirety of your assets. And charging you a fee to split up your assets in a way that you might not even want.

I don’t think I need to explain any further why going without a will should NOT be an option.

Many Blessings,

Andray Domise
Independent Financial Advisor
Change your life one dollar at a time, with REAL help for building wealth and reducing debt:
http://www.andraydomise.com

Estate Planning FAQ:

Question: Adding a name to a clear deed…..no relation single person with no children any advice estate planning?

Answer: Contact whoever records deeds in your county. There is probably a filing fee and a simple form that can be used in this case. If more is required they can tell you what is needed. If the purpose is to let this person have the property when the other passes be sure to also put on the deed the following: Joint tenants with right of survivorship and not as tenants in common.

Question: Where do I get no cost will and estate planning and forms?

Answer: Books stores sell do it yourself will kits. The library will have books on basic estate planning.

Question: Is an elder law atty and an estate planning atty the same?

Answer: No. Elder law attorneys specialize helping the elderly deal with their assets and, in particular, help them plan their estates in ways to best make them eligible for entitlements or enter nursing homes etc.

Estate planning attorneys specialize in assisting folks, of any age, plan to transfer their assets at and before death in ways to both give the assets to loved ones and to minimize tax burdens.

Question: Estate Planning or lack of it?
My Uncle is 90. My brother, sister and myself are heirs to the estate. My father is the executor and has power of attorney. Other than the usual $12000 yearly gifting no planning has taken place. I understand the estate tax laws change in 2010. What should we do?

Answer: Speak with a financial planner with expertise in estate planning immediately. A will is ok, but if you are talking about $2.5 mill you need to consider options like a family trust. There are 2 reasons for this:

#1) a Will is public knowledge…anyone can open the paper and see when a will reading is.

#2) A Will is contestable in the courts.

If there is no other documentation a will is a good thing, but in a case of a somewhat large amount of an estate like this, you need an estate planners advice to create a plan for any potential tax bill’s that might be passed on when the estate changes hands, etc.

If your uncle is 90, get on the horn right now and get some kind of plan in place.

Question: Looking for ideas for estate planning when you have no children.?
I have no children and in the event that my husband dies before me, I don’t know who to will my belongings to. There are no nieces or nephews, either. I don’t own much but I do have a few nice things.

Answer: Do you have any other living relatives? You can give them your items but if you don’t want to, you can always bequeath it to a close friend or a charity that you like…perhaps UNICEF or WWF (World Wildlife Fund)?

Question: Anybody have experience or recommendations on self prepared estate planning (will kits, etc)?
Which are best and do they stand up?

Answer: It depends on your estate…if you have a large one, hire an attorney to prepare one. If you have a small estate, then here are some recommendations:

1) Nolo Press;
2) If you’re in California, the California State Bar has a free will on their website.

Question: Info on estate planning / pre-planning funeral?
Trying to create a checklist of all I’d need to pre-plan for funeral etc – estate planning info. Recently lost a relative so subject is on my mind – and would like to be sure that our lives are properly organized so that if (when!) it’s TheEnd it would be less stressful for family members. Hopefully they will be very old family members by then! In addition to info about wishes for funeral, organ donation, etc., and location of bank account, mortgage etc – what else does one need to have in order?

Answer: You should have a will drawn up with codicils regarding who gets what at the time of your death. Also, and very important, you should decide about a Living Will. Do you want to have extreme measures taken to save your life if necessary? Or just let nature take its course. In case of an auto accident, for instance, this could mean a great deal to your family. They’d know what your wishes were.

Question: How should we set up our estate planning with two sets of grown children from previous marriages?
We don’t want to exclude our children but they really don’t see eye to eye with each other. Should we just include the grand children? Some parents won’t use the money for them. Yet some of our children think we should leave it to them divided up 8 ways. Can you help? It will be in the range of several thousands.

Answer: Consult an attorney and a Financial Planner, esp. one that focuses on the psychological side of estate planning. While I do agree to an extent that this is your estate and your collective children should not dictate your choices; you will obviously care what their opinions are. Discussions of mortality and money can be tense in the best of circumstances, but it sounds like the contention between your children and your spouse’s children add another layer to this.

Working with an estate planner will help you and your spouse explore exactly what you want to happen and what problems might arise. The he/she will help design an estate plan that takes those items into consideration.

Estate Planning Mistake #2 – Not Drafting a Will Properly

Wednesday, January 20th, 2010

Occasionally, I’ll have someone admit grudgingly that it makes sense to draft a will, but then they perform a near 180 by saying “I’ll just buy a will kit from Grand & Toy.” Or worse, “I’ll just write one up myself and leave it in the jewelry box.”

Look, if you’re going to do this, do it properly. Drawing up a will by your own hand (“Holographic Will”), can cost you even more than if you had done nothing at all. Not only are you leaving open the possibility that your instructions won’t be interpreted correctly (e.g., defining exactly what your assets are, how they will be valued, how they will be divided, etc.), but you’re also running the risk that your will won’t comply with the province’s statutory requirements.

Now you’ve complicated matters and your family is spending more money for lawyers to properly analyze and come to an agreement as to how the estate should be managed. Worse, the will might be thrown out altogether, causing wasted time and putting the whole process back at square zero (i.e., not having a will at all). If you’re reading this as you get ready to open up the will kit you bought at an office supply store, take the following steps:

  1. Put the box back in the plastic bag along with your receipt.
  2. Go back to the store and return it.
  3. Use the refunded money toward paying someone to do the job properly.

Also, don’t assume that the will you made out before you were married or re-married will automatically include your current spouse. The first priority (well, perhaps second priority) after the ceremony is over should be getting an up-to-date will.

Many Blessings,

Andray Domise
Independent Financial Advisor
Change your life one dollar at a time, with REAL help for building wealth and reducing debt:
http://www.andraydomise.com

Estate Planning FAQ:

Question: What are the best estate planning tools for a newly married couple?

Answer: The best thing you can do is to write your wills and name a health care proxy – the health care proxy is the person who will make medical decisions if you can’t. Once you get married, usually this is the spouse but if your family disagrees with the spouse, then there could be disastrous consequences (e.g. the Terri Shiavo case). Also, make sure to update your payroll info with new marital status and make sure to update the beneficiary designations on pensions, life insurance, etc.

Question: Estate Planning: Now that home prices are often lower than the outstanding liablility, how do you pass on to your spouse?
Do they have a choice not to accept home because more is owed on it than the value of home. Is there a certain clause to include in a will or living trust?

Answer: Buy a life insurance policy that tracks the outstanding balance on the loan. The premiums are very reasonable. If you die the debt is repaid.

Question: Estate planning – what legal document can be used?
Person#1 would like to give legal guarantee to Person#2 that specified property will be left to Person#2 after death of Person#1. What legal document can be used for that purpose?

Answer: An irrevocable trust.

Question: What forms are needed for estate planning for a us citizen abroad?
My father has land in asia under his name and recently passed away. In order to transfer ownership to my mother, does anyone know what forms I would need to do this? Other than bringing proof that he is my father, land deed and new person’s ID.

Answer: Of course you’ll need the proof, any relevant paperwork, an ID might help but a passport would be better. If you or your mother happen to have citizenship in that country that would probably secure your right to the property. The countries in Asia have very different laws. You need to find out about your specific country. Talk to a lawyer in that country.

Question: What does an estate planning attorney do?

Answer: They generally set up legal arrangements for someone so that when they die, their asset will avoid having to go through probate court and will avoid having to pay estate taxes. They also set up arrangements related to paying for long term care (nursing home, etc.). They do a lot but all of it has to do with preparation for growing old and dying.

Question: Estate Planning: What happens to a property loan in the event one spouse passes before another?
Living trust established, in process of being funded with title being transferred to trust. What happens when there is not sufficient life insurance to cover existing liability on home?

Answer: The remainder of the loan would still be due at the existing payment rate unless other arrangements are made with the lender (or refi with another lender). Note that paying down part of principal does not typically allow you to skip payments or make the payments smaller (unless interest only or flexible payments), it just ends the loan sooner (less payments until fully paid off), and results in less total interest paid over the life of the loan.

Question: How do I tell my sister in law that my Mom’s estate planning is none of her business?
The sister in law is concerned about assets going into probate after my Mom dies. She assumes my Mom is doing nothing. I think there are other concerns that she is not telling me. I understand her concern, but feel this is an issue between me, my siblings and my Mom. I don’t know for sure what my Mom is planning, but from some things that she has said, I think she is doing something. At this point I am not pressing the issue and I am giving my Mom the chance to make the first move. If she doesn’t, I or one of my siblings will bring it up when we feel the time is right. It is not my business to tell someone else my Mom’s business.

Answer: Just talk to her reasonably. Tell her you understand her concern about probate and you feel the same way, but you feel you want your mom to decide on her own. Also let her know that if you don’t feel your mother is doing anything then you or one of your siblings will broach the subject with your mother. Let her know that you understand her concern, but that you and your siblings are aware of the situation and you will handle it.

Question: Estate Planning ? If I already have a will with all the other papers,such as Power of Attorney etc. and have all accounts w/POD or TOD to my children except for my house do I need to create a Revocable Trust or not? Couldn’t I just have a TOD on my house also to avoid Probate? Creating a Revocable Trust gets pretty pricey.

Answer: A simple, general answer is that avoiding probate would be nice for all of us but it may or may not be worth it. You might want to consider the cost of the probate process (this is capped in most states) v. the cost of writing a revocable trust and keeping it updated. Your situation might make a revocable trust advisable because of other concerns you have that a will may not cover – that’s another good reason to see a few attorneys to figure this out. The first attorney you talk with is not necessarily the right one for you.

Death and Taxes – Estate Planning Mistake #3

Wednesday, January 20th, 2010

There’s a lot of misinformation floating around about how certain assets are taxed when the owner dies. I’ve heard that RRSPs are not taxed if beneficiaries are named on the RRSP application. This is only partially true and if you think you’ll be able to leave RRSPs to your adult child with no tax consequences, they are in for an unpleasant surprise.

I’ve also heard that the principal residence passes free and clear to the named beneficiary. This is also only partially true. The principal residence isn’t taxed at death but it is still part of the estate and thus subject to probate fees. There will very likely be some price to pay on the principal home.

Let’s start with RRSPs. RRSPs aren’t just passed to the beneficiary tax-free unless they qualify as one of the following:

Your spouse
Your financially dependent child or grandchild under 18 years of age
Your financially dependent child or grandchild, of any age, who is physically/mentally disabled

We’ll call the people in this category “qualifying beneficiaries.”

When you pass away your RRSP assets are deemed disposed, meaning that you have sold all of your RRSP assets at their Fair Market Value (FMV). The entire amount of your RRSP savings is then added to your income for the final tax return. Your estate is then responsible for paying the taxes on that RRSP. If you have been a diligent saver and have a large amount of RRSPs to pass on, they will likely be taxed at a high marginal tax rate (MTR). One of two things will happen:

The other savings/investment assets in the estate will have to be used to pay the tax bill first, before being passed on to your non-qualifying beneficiaries; or
The tax bill will be subtracted from the RRSP assets

Either way, Canada Revenue Agency will get its share.

Next, your principal residence. This situation gets messed up when people try to avoid paying a bill. Your principal residence is not taxed when you pass away. If you leave your principal residence to your children, they will not get a tax bill. However, the residence is part of the estate, so there will be probate fees. In Ontario, those fees are 0.5% on the first $50,000 of estate assets and then 1.5% on any amount over $50,000.

Example: if your entire estate is valued at $500,000, you can expect to pay $7000 in probate fees.

In order to avoid paying the probate fees, it has become popular to name children and other beneficiaries as joint tenants. This is where people often get burned. When you name a non-spouse as a joint owner on your property, they are now a 50% owner of that property, meaning that you have just given away half the ownership rights of that property. If you sell the property and your adult child doesn’t live in the home with you, they are on the hook for the taxable capital gains resulting from the sale. Normally, a principal residence exemption would apply on capital gains resulting from the sale of the home. However, that exemption becomes totally non-existent for your joint owner’s half of the interest in the home for every year the joint owner does not live in the home with you.

Additionally, if they have outstanding debts, their creditors can now come after their interest in the property. Your property. Worst of all, if your adult child gets taken to the cleaners in a divorce case, their 50% interest in the home is fair game for the ex’s lawyers.

And all of that doesn’t even consider the cost of the legal paperwork to put their name on your home. Ask yourself if all of this risk is worth avoiding the probate fees.

Here’s an example of how an “equal” share of assets in a will can quickly become unequal:

Jim, a resident of Ontario, passes away. He owns a mortgage-free home worth $500,000, a mutual fund portfolio worth $500,000 and an RRSP portfolio worth $500,000. The adjusted cost base (ACB – the net cost of building that portfolio, including contributions) of his portfolio is $250,000. He sets up joint ownership on the house with his son Jack, leaves his RRSP portfolio to his daughter Jill, and his non-registered mutual fund portfolio to his other son Jesse. Here is a basic rundown of what will happen (not including deductions, credits, etc.):

Probate fees on $1,000,000 estate: $14,500

Tax payable on $500,000 RRSP portfolio (46.41% MTR): $232,050

Tax on $250,000 capital gain in the mutual fund portfolio (46.41% MTR): $58,012.50

The taxes and fees payable ($304,562.50) will be subtracted from the non-registered mutual fund portfolio.

So Jack will receive the $500,000 home, Jill receives the $500,000 RRSP portfolio, and Jesse receives only $195,437.50. Granted, it’s nearly two hundred thousand more than he started out with, but this kind of unequal distribution is what leads to nasty estate disputes (and even lawsuits) between family members. Is that really what Jim wanted for his children?

Is that what you would want for yours?

Many Blessings,

Andray Domise

Independent Financial Advisor

Change your life one dollar at a time, with REAL help for building wealth and reducing debt: http://www.andraydomise.com

Estate Planning FAQ:

Question: What do you think about this type of estate planning?
My grandfather says that houses can only stay in the family for so long because once a family gets too big, it’s hard to share it… (like a summer house). So, can you keep a house in a family for more than 2 generations? Of course it depends on how big the family is; ours is really big! The descendants become like strangers I guess because they are far removed from the original owners (grandparents). So, it there a way to improve/fix this dilemma so the house can stay in the family indefinitely?

Answer: Most likely your grandfather is alluding to the fact that it is difficult to have a house in which everyone owns a piece as the family grows from one generation to the next. Sooner or later there will be family members who aren’t interested in the house and wish their share in cash. Someone has to inherit the property. If it goes to one child then the others usually get money instead or something of equal value. If all children get a share then the problem starts as they pass their share on to their children until it becomes impossible.

Question: Financial Planning versus Estate Planning, which is the higher priority?
If you had an extra $1000 and all things being equal, which is more important at this moment, meeting with a financial planner or getting your estate planning documents in order (trust-we have one child, will, durable power of attorney and HCPA/AMD) for my wife and I? The idea being that on average a good fee-only financial planner or attorney to do either thing will cost $250-$300/hour (in the Washington DC area).

As far as financial background, we have life insurance, we contribute monthly to a 401K and Roth IRA and I have a defined benefit pension (yes they still exist). We are paying down debt, but I still feel that we could use a good financial review (not to sure about our allocations in the Roth and IRA’s). We DO NOT HAVE A WILL or other estate planning documents… and this is beginning to concern me… should it?

Answer: All the financial planning in the world isn’t going to be worth squat if you don’t have the legal power to protect it.
You need a will, living will, power of attorney etc. If you are seriously hurt in a automobile accident and are not able to communicate, your spouse has very few choices without the power of attorney and the living will. You may end up as a “turnip” in a nursing home spending all that money you have worked to save, just to care for you.
Or, if you and your spouse somehow are both killed, what will happen to the child? Think about your family and your spouses family and image that there could be conflicts over who should be in charge, and who will control the finances. Who will be the legal guardians? Who will help your child decide what happens to all the money you have amassed? Who will control that child’s future? Without a will, living will, and power of attorney, there will be problems.
Take care of this planning. Once this is done, then continue your progress on financial planning.

Question: Will and estate planning with a baby?
Did you have a will or other estate planning documents done after your baby was born? Did you see a lawyer, and if so, what documents did you have done? I am most concerned about choosing someone to take care of my son if we both die; can you offer any advice?

Answer: You should definitely meet with an attorney and get your affairs in order. Talk to your husband about who you would want to name as guardian in the event that something were to happen to you, and find time to sit down and speak with the person or couple and make sure that they are willing to be your child’s guardian.

Decide what you want to do with your assets, including any property, life insurance, investments, and retirement funds. You can set up a trust that will help your guardians with the expenses of raising your child, provide for college expenses when the time comes, and the rest can remain in the trust until your child reaches a designated age (usually 25 or 20, depending on your wishes). If you have several children, you may want to provide a sum of money up front for the guardians, because the expansion of their family might require a move to a larger home to accommodate everyone. And then you can set up the trust to provide a monthly payment to the guardians while your child is still living in their home.

Keep in mind that you can name a separate person (or more than one person) as the trustee, which is often advised, so that there is no conflict of interest. So you may also want to give some thought as to who you would want to control the funds in the trust. If there is nobody in your family you would want to name, you can designate your attorney.

You can set up an initial meeting with an estate planner to determine what your options are, and he can also advise you as to whether you have sufficient insurance and investments to provide for your children.

Question: How to deal with a Borderline Personality with regards to Estate planning?
One of my siblings is unfortunately a Borderline Personality,what is the best way for my parents to plan their Estate (Will) with this situation in mind. My parents reside in Quebec, the sibling in question resides in the USA.

Answer: There is no simple answer to this question. A lot depends on how much assistance this sibling needs now in his/her financial affairs, and if the parents believe this person can handle finances on their own. Perhaps your parents could require that the BP sibling get good financial counseling upon receiving the bequest at the least, and if they are not confident of this sibling’s ability to handle the money, set up a trust.

Question: Can you suggest a good book or website for estate planning?
I hear that if a grown (adult) child lives at home with the parents for 2 or more yrs that the parents can quitclaim the house to the child. This would be to avoid (legally avoid) estate taxes on the house if it were willed to the kid.

Answer: I would speak with an estate planning attorney. Most good attorneys will do a free consultation, and give a recommendation depending on your specific needs. Each state has slightly different laws and each scenario is different so it is not a good idea to take advice from people on tv/the internet.

Question: Where on line can I find some useful information on estate planning and tax avoidance?

Answer: Schwab has some good free info on its site. However, you get what you pay for. I would suggest a consultation with a good estate planning lawyer. The best advice is usually proprietary.

Question: How is tax burden minimized when using Trusts in estate planning?

Answer: A trust doesn’t reduce the tax issue. The IRS sees revocable/grantor trusts as continuing to belong to the person who set them up. The savings occur with fewer costs at probate and the ensurance that the titles of the assets go to the intended parties. This is good when a husband and wife have, say, 2.5 million assets and the estate would normally go to the other spouse. With proper trusts in place, if the 2nd spouse dies soon after the first, the same asset isn’t subject to tax in both estates.

Question: What is meant by the term “estate planning?”
Does it mean that, with proper planning, with the help of an expert, a person not rich, and not poor but somewhere in the middle, can insure his savings and other assets for his children after his death? In other words, can he “protect” his assets so that his children will be sure to inherent his money?

Answer: You are correct. It is the a plan that protects your assets from probate and inheritance taxes if done correctly. It also ensures your heirs receive what you wish. Eliminates fighting among your children.
The professionals also encourage you to tell your children your decisions once the plan is complete. At any time you can change, alter or eliminate any part of the plan.

Death and Taxes – Estate Planning Mistake #4

Wednesday, January 20th, 2010

This is probably the most frustrating mistake for the executor to have to deal with. You’ve gone through the time, trouble and expense of drafting a bulletproof will. And then it’s left in a household safe to which no one knows the combination or in a safety deposit box to which your executor isn’t granted access. I’ve been told about cases where wills were left in a secret cubby in the closet, behind a wall and under floorboards. Please do not put your executor through this. They will be under enough stress as it is just managing the estate. No one wants to go rifling through someone else’s bookshelves and sock drawers looking for the proper documents, much less obtaining court injunctions for access to bank deposit boxes or cutting through a locked safe.

Give your executor:

  1. A copy of the will for safe keeping, or
  2. Signed access to the bank deposit box where the will is kept, or
  3. Knowledge of where you keep the will in the home – and easy access to it.

Keeping a copy of the will at your lawyer’s office is reasonable. However, if you have the unfortunate luck to pass away while your lawyer is on vacation and the office is closed for the holiday, an unnecessary holdup will happen.

What did we learn?

It only makes sense to have a properly reviewed will, which is drafted with your unique situation in mind. Always sit down with an advisor or estate planner and work out the details before drafting the will. Better yet, if you already have a will, make an appointment to review your current one. Make sure that it makes sense and that your estate will be distributed fairly (note: not necessarily equally, but fairly). And, as I said before, make an appointment to sit down with a competent and qualified estate lawyer. Your children will love you for it.

Many Blessings,

Andray Domise
Independent Financial Advisor
Change your life one dollar at a time, with REAL help for building wealth and reducing debt:
http://www.andraydomise.com

Estate Planning FAQ:

Question: What’s the best way to create a will / estate plan?
I’d like to write a will and develop an estate plan for my wife and daughter. Are the CDROM/online services (eg Quicken Willmaker) good enough, or should I see a lawyer?

Answer: Depends on how much you have to give and if there will be people fighting for it. If not, Quicken will be fine. If you have sufficient assets, setting up a trust is a good idea. It can be costly depending on what you want. I am by no means wealthy, but with the trust, you can be comfortable in knowing that your specific instructions will be followed.

Question: I am looking for information on estate planning and forming a corporation of my parents assets.?

Answer: You need to call a financial planner you can trust. You should also consider getting a book like Nolo’s series of books on such topics. You can then either choose to use the book or at least learn what to ask and discuss with the financial adviser if you hire one. Remember, they are also doing it to make money so your knowing where they’re coming from will help you a lot.

Question: What is AB trust in Estate Planning?

Answer: They are trusts to which estate assets are rolled on the death of the first spouse and are designed to minimize estate tax liability.

Question: How should an estate plan disbursement be structured?
I have one child and am trying to decide how to disburse a sizable estate in the event of my death.

Answer: You probably need to talk to a probate attorney, as you’ll want to set up a trust for your child, along with a guardian. You don’t want some random idiot getting custody of your child, AND having complete access to the sizable estate. They’ll run through your money, and your little darling won’t end up with a thing.

Question: Attorney Overbilling – Probate Attorney – Estate Planning attorney ?
Well it seems we got burned by a nice attorney – he said he would help us settle our Mothers estate and now he has BILLED us “over” $12.000 dollars charging us 295.00 Per Hour on a 25.000 estate and his job is not yet done – we will have fire him today. What could you recommend us to do in hiring another PROBATE ATTORNEY – Estate Planning
attorney – and how we can protect ourselves against law firms overbilling and attorney over billing?

Answer: What I would recommend in your case is to have a simple memorandum of agreement w/ the lawyer you intend to hire indicating a percentage (w/c you and your family will have to decide upon) of the estate’s value as his professional fee. I would think 20% of this percentage could be his initial payment and balance payable upon completion of the entire work. It’s a simple legal form w/c the lawyer of your choice could prepare or even you could do it. You could get a book on legal forms and presto! Just make sure you read closely the contents of the memorandum of agreement if cited lawyer were to prepare it.

Question: Estate Planning / Life Lease?
I am from a family of 2 children (my brother and myself). As a part of their estate planning, my parents deeded their house & the farm to my brother & I – with a life lease (we have to let them live there and use the land, etc. as long as either one of them survives, without charging them for it.) We cannot sell it, etc. as long as either of them survives. However, can one of us (either my brother or myself) sell his future interest in the property to a third party? Could he do this before my parents pass away? After my parents are no longer here, could one person sell their 50% undivided interest to a third party?

Answer: You can absolutely sell your interest. It will be hard to find a qualified buyer who understands these stipulations. Perhaps you should notify your parents of this. I’m sure their intention was for the two of you to keep the land, not sell it to a third party.

Question: Estate Planning – Living Revokable Trust versus Will?
My wife and I are in the process of estate planning. We talked with 2 different lawyers and have 2 different pieces of legal advise:

~1: Establish a Living Revocable Trust. This allows you to avoid probate on assets that do not have beneficiary designations.

~2: Use a Will. Your major accounts and home will pass to your spouse if you ensure the beneficiary designation forms/titles are on file with the correct information. True, any personal property (not held jointly) without a beneficiary may go through probate, but that will be a small portion of your assets.

My question is this: If a couple has a living revolvable trust, one or both of the spouses pass away, is it advisable to have legal council to execute the trust? The way things are being presented, the Trust is a large upfront cost with no back end costs. The Will is a small upfront cost but a large back end cost. I am curious if the Trust is a large upfront cost and has significant costs on the back end too.

Answer: A trust does have large upfront costs, but it does not have “back end” costs for the remaining trustee. The successor trustee should be able to adequately handle things without the help of an attorney. However, depending on your amount of assets and how much you want the CFG–control from the grave–a will may be enough for you.

The lawyer was correct when she/he talked about correctly titling assets. You can put a POD designation on all bank accounts, saying you want to pay a particular beneficiary(s) on death. This does NOT go through probate. You can put a TOD designation on stock accounts, real estate, etc. which will transfer to designated beneficiaries upon your death–also without going through probate. Any annuities, IRA’s, life insurance you hold will also not go through probate, as these vehicles have named beneficiaries.

A trust is great when you have a complicated estate with over a couple of million in assets.

Question: Estate Planning Question?
My friends mom’s name is Mary. Mary creates and funds a revocable trust. She names her son to receive the income for life and her grandson to receive the property upon her son’s death. What are Mary’s powers with respect to the trust and how will the trust be treated in her estate?

Answer: A revocable trust is one that can be modified and changed at will. Mary has complete control and can cnx the trust at any time. Her son will enjoy the income for life and will pay tax on it. Her grandson unfortunately is in the (GST) area. Generation skipping tax and depending on the value of the trust could pay significant taxes upon his dad’s death.

7 RRSP Planning Tips

Tuesday, January 19th, 2010

Contributing to your RRSP is one of the most beneficial and efficient ways to both save for retirement and reduce your taxes.

RRSPs offer immediate tax relief by lowering your taxable income. There are also ways to lower how much tax your employer withholds from your pay-cheques ensuring that you do not over-pay on your income tax – which is essentially providing the government with an interest free loan for the year.

RRSPs are also designed with the objective of long-term investing. The very nature of this type of investment vehicle is such that there is great incentive to avoid “dipping” into your savings. This encourages individuals to stay invested over the long-run and reap the full benefits of market activities. Remember, the tortoise wins the race.

Any income you contribute to your RRSP is not taxable until you withdraw it from your account. This means your investments can grow on a tax-deferred basis right up until your 71st birthday and fully benefit from compound growth.

Things to keep in mind with RRSP’s

· You have 60 days after the calendar year end to make an RRSP contribution and deduct that contribution on the previous year’s tax return. This usually results in a deadline on or around March 1st

· Generally your RRSP contribution limit increases by 18 per cent of your previous year’s earned income to a specific dollar maximum.

· If you did not contribute the maximum to your RRSP each year, the contribution room not used has been carried forward and is available for use in subsequent years

· The best way to determine your RRSP contribution limit is to look at your most recent Notice of Assessment sent to you by the Canada Revenue Agency after you file your tax return each year

Without Further ado, here are 7 key tips for RRSP planning:

1.) Maximize your contribution

The less tax you pay, the more money you will have working towards your retirement goals. Your RRSP is one of the most powerful ways to protect your investments from taxes. Not only do you enjoy an immediate tax deduction, but your earnings within the plan grow and compound on a tax deferred basis until you withdraw money from the plan.

· A $10,000 RRSP contribution

· Equals $4,500 in deferred tax savings

Remember – a $10,000 RSP contribution could equal $4,500 in tax savings (if you are in the 45% tax bracket)

2.) Spousal RRSP

In 2007, the federal government introduced the ability for couples to allocate up to 50% of their ‘eligible pension income’ from one spouse to the other for taxation purposes. This is called Pension Income Splitting and it could reduce a family’s combined tax bill. “Eligible pension income” is income the qualifies for the federal Pension Income Credit and includes periodic pension income plus RRIF income where you have attained age 65.

A Spousal RRSP is an RRSP for the benefit of one spouse, but the contributions to the plan are made, and deducted, by the other spouse.

Spousal RRSPs are a good strategy if you expect one spouse to be in a lower tax bracket in retirement because they provide the benefit of balancing retirement income between spouses.

3.) Make “tax efficient” deduction decisions

You may not realize that if you expect to have a significantly higher income in the coming years, you can defer taking the tax deduction this year. Make the contribution now but take advantage by claiming the deduction when you’re in a higher tax bracket.

10,000 RRSP contribution @ 29% tax rate

$2,900 in tax savings

$10,000 RRSP contribution @ 45% tax rate

$4,500 in tax savings

4.) Go for growth

Often by playing it safe financially, you think you’ve protected yourself from investment losses. Think again. Sometimes the price of playing it safe is the erosion of your money over time thanks to inflation.

Certain investments often thought of as being safe may not keep pace with inflation, especially after considering taxes. The best way to ensure your investment stands the test of time is by investing in a diversified portfolio.

A diversified approach should include exposure to higher yielding equity mutual funds. If your portfolio is appropriately diversified and tailored to your time horizon and emotional tolerance for volatility, you will ultimately be playing it even safer over the long run.

5.) Tax-Efficient Investing

All investment income earned inside an RRSP compounds on a tax deferred basis, but once withdrawn from your RRSP it is 100% taxable. This includes realized capital gains and dividends.

• Interest income, which is earned from investments such as bank accounts, GICs and Money Market Funds is 100% taxable – the same as withdrawals paid out from your RRSP.

• Eligible Dividend income – which are profits paid out to shareholders of public corporations resident in Canada, non-Canadian controlled private corporations, and Canadian controlled private corporations subject to tax at the general corporate rate (i.e. not eligible for the small business deduction) – are tax preferred. Generally dividend income gives the best tax break if you are in the lowest federal tax bracket.

• Capital gains is the profit you receive when you sell a “capital property” such as a mutual fund for more than its cost. With capital gains you are only taxed on half of the increase in value. These are also tax-preferred.

If you have both RRSP and non-registered investments, it makes tax sense to hold your interest bearing investments inside your RRSP – since they are 100% taxable anyway – and hold investments that produce dividends and capital gains outside your RRSP. This strategy must be implemented to ensure that your overall asset allocation plan remains in place – so it’s important to discuss this with your financial Consultant.

6.) Resist “Dipping” Into your RRSP

Usually there is nothing to prevent you from accessing the investments in your RRSP (with the exception of ‘locked in’ plans). However, you should consider the consequences before you do it.

First of all, withdrawals attract tax at your marginal tax rate. Tax withholding at the time of the withdrawal may be as low as 10% but could be as high as 30%. You need to check with your tax advisor before you withdraw to determine how much more tax you’ll have to pay when you file your tax return.

Secondly, you cannot restore the contribution room. The amount that you can contribute to an RRSP in your lifetime is limited. A withdrawal erodes some of this potential.

7.) Start Early

Contribution Example

When Jim turned 22 he began investing $2,000 per year right up until the age of 30. That’s nine $2,000 installments. When he turned 30, he decided to stop contributing to his RRSP and simply let the accumulated money in his account sit untouched until retirement.

Bob on the other hand started investing when he turned 31 years old and began investing the same amount as Jim, $2,000 per year, but he continued to contribute this amount right up until retirement at age 65. That’s thirty-five $2,000 installments, nearly four times as many as Jim!

As you can see even though Jim invested only approximately a quarter of the amount Bob invested, his investment grew $26,601 more, due to the effects of compound growth.

For any questions please contact me

MARCO CONSOLI

Consultant

TORONTO, ON

email: [email protected]

Web page: http://www.investorsgroup.com/consult/marco.consoli/

RRSP Planning FAQ:

Question: Can I roll my Canadian RRSP plan into my US Roth plan & receive benefit of new tax law allowing IRA rollover?
I am Canadian Citizen & US resident alien living in US and want to take advantage of new 2010 tax law that allows traditional IRA rollover into a Roth, BUT want to use my RRSP Canadian retirement funds to roll into Roth. Can this be done and, if so, how?

Answer: There is no provision in US law to rollover foreign retirement accounts. You can keep the RRSP, or cash it out.

Question: Explain the difference between Canada Pension Plan (CPP) and a Registered Reitrement Savings Plan (RRSP).?

Answer: Canada Pension is a mandatory pension plan that all workers pay into. Their employers also pay a similar amount, currently a maximum of about $2000 per year per employee. Upon retirement, each person receives a pension based on the length and amount of their contributions. The pension is taxable

An RRSP, on the other hand, is your own money which is invested in whatever way YOU choose. There are a broad range of choices in plans, and one can be found for just about any investment viewpoint or desire. Money invested in an RRSP receives an immediate 100% tax deduction, and any investment earnings the plan makes are also sheltered from tax until withdrawal.

At any point, but usually on retirement, the money in the RRSP can be withdrawn in whole or in part. The money is taxable at that point.

A good retirement plan includes both CPP and RRSP funds. CPP alone will be too low to maintain any sort of lifestyle through retirement.

Question: Can over the counter stocks be invested into an RRSP self administered plan?

Answer: Exchange traded stocks can be held in a self-directed RRSP. I don’t even think an OTC is RRSP eligible anyways.

Question: Help in deciding the right RRSP plan in Canada?
I am 26 years old and planning to start RRSP. I have never had one till date. Now, I think its time for me to plan future. But, I am unsure which investor to go to. There are number of RRSP plans offered by different financial groups. I would like to know how to choose the right financial Institute, how to calculate the right amount of money I should invest for RRSP, on what basis should I decide my RRSP and any suggestion of which financial institution is good.

Answer: The maximum amount of money you can invest in an RRSP for the current year is written down in the reply to your tax return for 2008. The Canadian Tax department sends a reply like that to everyone who files a tax return.

And before you choose the financial institution for your RRSP account, you need to decide if you want to invest your money in stocks, bonds, mutual funds, and/or certificates of deposit. Some institutions are better than others in terms of fees and the investment choices they offer.

If you are not sure what type of investment you want for your RRSP. Then choose an institution with the most investment choices and the smallest service charges or fees. And then talk to a financial adviser at that institution to help you decide what type of investment is best for you.

Question: What is the difference between an RRSP and a registered pension plan?

Answer: RPP’s consist of RRSP, MPPP, IPP, & Corporate (Employer Sponsored) DC or DB plans.

RRSPs are not considered corporate/employer sponsored pension plans. As such, are a bit more lax in its regulation. For example, no funding requirements in an RRSP. By comparison, a DB Plan creates a funding liability for the Employer. But they all have the same requirements such has mandatory conversion to a RRIF/LRIF by Age 71. The funding limits vary from RRSP to IPP to DC/DB plans.

An employer could have a Group(ed) RRSP, but its really considered a collection of individual RRSPs. MPPPs, IPPs, DC/DB plans have a much stronger level of creditor protection than RRSPs.

Question: How long can I carry over my RRSP contributions without claiming them?
I’m in Ontario, Canada. I’ve been on sick leave for about 5 years, which means that I have no taxable income, but I’ve still been putting money into my RRSPs. I’m planning to claim the deductions when I start earning taxable income again, but I wondered if there’s a limit to how long I can carry the contributions over without claiming them.

Answer: You have to claim them before you reach age 71. But practically speaking you need to have qualified to contribute in each year that you have contributions. That is you can only have contributions that are $2000 above your accumulated entitlement.

This, and not the number of years would appear to limit the amount you can stash away in RRSP. You might be best to switch to the tax free savings account.

Question: Rrsp and my pay cheque?
Today was my one year anniversary with the company I work for. I received a letter saying it is required that I join an rrsp plan (with the company I assume) and they take 2% out of my pay to put into my rrsp. I don’t want it. Is this even legal? I have never heard that a company can do that and that it was required after a certain time.

Answer: I would say a good majority of large Canadian companies that have setup a corporate pension plan are setup on a Contributory basis. This is not a bad thing!!

An RPP or Group RRSP is good because the taxes withheld on your pay cheque take the G-RRSP into account, so you don’t have to wait for a tax refund in the spring of the following year.

In addition, the company may match your contribution, or even exceed it. Finally, you may find the MERs on the underlying funds lower than an Individual RRSP. 2% is not a lot, and you really should be saving a lot more for retirement anyways.

Question: Can I transfer my pension plan from my former employer into my existing RRSP?

Answer: You can transfer your former employers pension plan into a Locked-in RRSP. There is a difference between an RRSP and L-RRSP.

Although, you should consider whether its worthwhile to actually do. For example, if you are older, and you have a Defined Benefit Plan with your former employer, it may be worthwhile to keep it there as you at least know you have a certain level of income for life guaranteed with 2/3rd survivor benefits to your Spouse.

The Home Renovation Tax Credit – Canada

Tuesday, January 19th, 2010

The home renovation tax credit – A great way to save on tax if you have planned on a home renovation, now may be the time.

This is a tax credit which means that you receive a 15% tax credit for expenses greater than $1000. To qualify for the maximum $1350 tax credit you must spend at least $10,000 of which $9000 is eligible for the tax credit ($9000 x 15% = $1350). This is a temporary tax credit and home improvements must be completed between Jan 27 2009 and Jan 31 2010. Expenditures made in Jan 2010 must be claimed on the 2009 tax return.

Amounts above $10,000 are not eligible for the tax credit, but depending on your marginal tax rate the home renovation tax credit may be a better alternative than other tax saving measures. For example at a 30% marginal tax rate you would need to contribute approximately $4,500 to your RRSP to generate a tax refund equal to the maximum credit available for the home renovation tax credit.

The renovations must be made to a personal use property such as a home, cottage, or condominium. The types of home renovations that qualify, generally must be of an enduring nature and integral to the dwelling. The expenditures include building materials, labour, equipment rentals, and the cost of permits. Examples given by revenue Canada include Renovating a kitchen or bathroom, new flooring, decks, retaining walls, a new furnace, water heater, or painting the exterior or interior of the house. Expenditures that cannot be claimed include normal repairs, carpet cleaning, furniture or appliances, financing costs, or tools that retain a value after the renovation.

If you are condo owner you might be eligible for the credit even if you don’t spend any money on your unit. The share you have in spending on improvements to the common areas of the condo also qualify for the 15% credit. Ask your condo manager to find out if this applies to you.

The credit is also limited to one per family, which includes the tax payer’s spouse or common -law partner and any children under the age of 18 throughout the year. If the taxpayer who claims the credit cannot fully utilize it the unused portion may be transferred to one or more of the other family members.

To further increase the amount of government subsidies that you could receive, determine if the renovations are eligible for the eco-energy retrofit-homes grant. Grants of up to $5,000 are available to offset the cost of making energy efficient home improvements such as adding insulation, and replacing windows and doors. If you are considering a new energy efficient furnace or heat pump, the home renovation tax credit, and eco-energy grant could result in a big saving.

David Lee is Financial Management Advisor, FMA, and has over ten years of experience as an independent advisor and working with major financial institutions. His goal is help people achieve financial freedom and enjoy the freedom to do what you want, when you want that wealth can provide.

Visit our web site at http://www.manifestingwealth.weebly.com for financial resources and and free reports.

Visit http://www.sailingcharters.weebly.com for our sailing articles, resources, and information on our charters in British Columbia.

Home Renovation Tax Credit FAQ:

Question: Am I eligible for the Canadian home renovation tax credit?
I rent my home and I want to replace the carpet but I don’t know if I’m eligable because I don’t own my home.

Answer: The credit is only for work done to property you own.

Question: How come us Americans can’t have a “home renovation tax credit” like Canadians?
I am currently looking to refurnish my abode. I decided to see if the ikea site in canada had different furnishing. To my amazement, they said you can get a tax credit for buying the stuff for renovating your home!

Now, why can’t our politicians give us deals like that!?

Answer: Under Obama’s stimulus bill, you can get a credit of up to $1500 for energy efficient remodeling.

Sometimes you can get local tax break on your property taxes if you remodel and increase the value of your house. It all depends on where you live.

Question: What do I have to keep/show for Home Renovation Credit for my taxes?
I’m reno-ing a basement and know that this qualifies for the Home Renovation Tax Credit. I’m just wondering what do I have to keep so that I’m not scrambling next tax season.

Answer: Other than keeping all your receipts for your renovations, make sure that the people that are doing work for you, have a GST number or their work won’t qualify for your tax credit. The auditors will really look at all the expenses, so make sure you have qualified people.

Question: Home Renovation Tax Credit Question?
Are these expenses eligible for the HRTC?
1) Adding insulation to a house
2) Repairing crack in the foundation and replacing the drywall around it.
Both were done by a contractor. Thanks!

Answer: Yes, basically if the renovation is permanent it is eligible. Here are examples of eligible and ineligible expenditures:

Eligible
• Renovating a kitchen, bathroom or basement
• New carpet or hardwood floors
• Building an addition, deck, fence or retaining wall
• A new furnace or water heater
• Painting the interior or exterior of a house
• Resurfacing a driveway
• Laying new sod

Ineligible
• Furniture and appliances (e.g., refrigerator, stove, couch)
• Purchase of tools
• Carpet cleaning
• Maintenance contracts (e.g., furnace cleaning, snow
removal, lawn care, pool cleaning)

Question: Canada Home Reno Tax Credit – what do you really get back?
I have been reading and searching for info on the Canada Home Renovation Tax Credit (HRTC) and cannot find an answer to my question.

Tax credits usually work by applying against your income. IE: If you made $40,000 and you put $1350 into your RRSP you get the income tax paid on $1350 back, in other words a $400 tax return. In the case of the HRTC, if you made $40,000 this year and you spent the full $10,000 on renovations the government says you get a tax credit of $1350.

So, the question is: Does that mean you get a tax return of $1350, or does the $1350 apply against your taxable income and you get $400 (or some percentage) back?

Answer: The tax credit is 15% of the amount paid for renovations (up to $9000, for a maximum tax credit of $1350). A little background information: The HRTC is a non refundable tax credit. The implementation of non refundable credits is designed so that all taxpayers get the same benefit, no matter the income. The way that’s done is that, instead of reducing INCOME, they just generate a fixed credit on TAXES, based on the lowest tax bracket (15%).

Thus, the $9000 of spending (the credit applies for expenses between $1000 and $10000) results in $9000 x 15%= $1350.

Question: Is the tax credit for home renovations for each household or each person?

Answer: Home renovations can only be used for the person that has PAID for them on the home regardless who is on the deed to the home. The tax credit can only be used ONCE for each household.

Question: Does getting your drive way paved count for the home renovation tax credit?
I want to get my drive way paved and want to know if that counts for a tax credit refund of up to $1300 in Ontario?

Answer: Yes it does.

Question: What percentage of renovations cost qualify for the HRTC?
I am planning some home reno’s and want to know what percentage of the reno expenses qualify for the new Home Renovation Tax Credit.

Answer: The base of the HRTC is 15% of the renovation expense, on expenses up to $10,000. The first $1,000 is a base and does not receive a credit.

For example:
Renovation Cost $7000
Base amount -$1000
Eligible Expense $6000
HRTC $900

Since the maximum eligible amount is $10,000 the maximum credit you can get is $1350 (15% of $9000)

Canadian Income Tax Update For 2009

Tuesday, January 19th, 2010

Income Tax Update for 2009

The Canada employment credit increases from $1019.00 TO $1044.00. This credit is available to all tax payers that have employment income. This is a non-refundable credit equal to the amount of the claim times the lowest tax rate. Personal amounts and other Non – refundable Tax Credits are indexed to inflation so that most credits are increased by 2.5%.

The Basic personal amount and spouse or common-law partner amount were increased from $9,600.00 to $10,320.00. The Federal Tax brackets have been increased so that you can make more and pay less in 2009 than 2008. The lowest bracket on which 15% tax is paid was increased from $37,885 to $40,726, and 22% payable on $40,726 to $81,452, 26% on $81,452 to $126,264 and 29% on income in excess of $126,264.

Canada Child Tax Benefit – The net income level at which the Child Tax Benefit, and Disability Benefit Supplement begins to be phased out was increased to$40,726 for the July 2009 to June 2010 benefit year. Because the amount of the benefit is based on income, taxpayers must file returns in order to receive it. If a person is married or living common law, both spouses must file returns. The basic Canada Child Tax Benefit for July 2009 to June 2010 is $1,340 for each child plus an additional $93.00 for the taxpayers third and each additional child. These payments are not included in income and are thus not taxable.

Universal Child Care Benefit – This is a benefit of $100.00 per month for each child under the age of 6 years and is paid for the purpose of reducing child care costs. This is a taxable benefit and must be reported by the Spouse or Common law partner with the lower net income.

Employment Insurance Clawback – The net income threshold at which EI benefits must be paid back is increased from $51,375 to $52,875. An exception is made for first time claimants who are defined as having received less than one week of EI Benefits in the last 10 years. The clawback is equal to the lesser of 30% of regular benefits and 30% of net income in excess of $52,875.

Home Buyers Plan- The maximum that first time home buyers can withdraw from their RRSP under the Home Buyers Plan has been increased from $20,000 to $25,000. The change applies to withdrawals made after Jan 27 2009. The maximum repayment period remains at 15 years.

First Time Home Buyers Tax Credit- New for 2009 for first time home buyers on homes with a closing date after Jan 27 2009 a personal amount of $5,000 may be claimed. This is a non-refundable tax credit and therefore results in (5000 x 15%) a tax credit of $750.00.

Age Amount- This credit was increase by an additional amount of $1000 above the inflation indexed amount and is $6,408 for 2009. Repayment of Old Age Security Benefits- The net income threshold at which the tax payer becomes subject to the clawback is increased from $64,718 to $66,335 for 2009. This is a summary of the major changes for 2009.

David Lee is Financial Management Advisor, FMA, and has over ten years of experience as an independent advisor and working with major financial institutions. His goal is help people achieve financial freedom and enjoy the freedom to do what you want, when you want that wealth can provide.
Visit our web site at http://www.manifestingwealth.weebly.com for financial resources and and free reports.

Canadian Income Tax FAQ:

Question: How many days can a British citizen spend in Canada before they have to pay Canadian income tax?
How many days can I ,a British citizen spend each tax year as a non resident in Canada before the Canadian Tax Authourites judge me to be liable to pay Canadian Income Tax.I am a tax exile from Britain..Also when does the Canadian tax year begin and end.

Answer: Individuals resident in Canada are required to report and pay income tax on their world wide income earned for the portion of the year (calendar) that they were so resident. This period could be a matter of days, weeks or months, there is no minimum or maximum time consideration. The only consideration is the individual’s status as a resident which is a matter of fact to be determined based on the particular circumstances surrounding that person’s presence in Canada.

If as you say, you are a tax exile of Britain and this has caused you to sever all ties to the UK prior to arriving in Canada, you may well have become a resident of Canada at the time you arrived here. In most cases, persons emigrating to Canada are taxed on the income they earned for the portion of the year that they were present in the country.

Individuals who spend an aggregate of 180 days or more in Canada during a calendar year are deemed to be resident in Canada “through out the entire year” and are required to file a tax return for that year and report income for the year from all sources both inside and outside of Canada. Double taxation of income taxed in other jurisdictions is avoided through the foreign tax credit mechanism provied for under the Canadian Income Tax Act in concert with an array of bilateral income tax treaties between Canada and various countries of the world.

More information on the issue of Canadian income tax liability and residential status can be obtained at the Canada Revenue Agency website.

Question: Paying Canadian income tax on income made from the USA?
Kinda of two questions:

1) Do I have to pay Canadian income tax on income made and taxed by the USA?

2) Are American companies required (or do they even do it) to report earnings to the Revenue Canada or is it up to the Canadian citizen to report it?

Answer: If your a Canadian resident, you have to report your world income (income from within and outside Canada).

1) If your US income has been taxed there, the Canada Revenue Agency (CRA) will provide a foreign tax credit for your US income to be reported on your cdn tax return.

2) American companies are not required to report (and they don’t) report their earnings to the CRA. However, the IRS & CRA do have automatic information exchange under the tax treaty that may allow the IRS to provide to the CRA the earnings of Canadians made in the US, and vice versa.

Question: Do I have to pay Canadian income tax if I work and live abroad but own a house in Canada which is used.

Answer: You have to pay cdn tax for your world income if you are considered a cdn resident. You would be a cdn resident if you have a cdn home, have cdn economic and social ties. For example, if you are paid by a cdn employer for temporarily outside canada, and your wife and kids are still in canada living in your cdn house.

On the other hand, if you have cut off all your cdn social and economic ties, and you are paid by a foreign employer, you may be considered as a non resident of canada. In that case, you only pay cdn taxes on your following sources of cdn income: employment income, business income and disposition of taxable cdn property. If you have rented out your cdn home, you also need to pay taxes on the rental income.

Question: Do I pay Canadian income tax on selling a painting that was given to me as a gift?
I am about to auction a painting for alot of money. Initially it was given to me as a present by a friend who is now 20 years later a famous artist. Do I need to pay tax on the money I make selling that painting at auction?

Answer: Yes, it is considered “listed personal property”.

Question: When was the Canadian income tax first introduced and why was it introduced?

Answer: Income tax was introduced in 1917 as a temporary measure to pay for World War One.

Question: I have a canadian income tax questions?
Does anyone know how many years you can go back to claim medical prescription costs for income tax in Canada. I have never claimed my out of pocket expenses on my taxes. I have health insurance which covers 80% but the 20% I pay out of pocket and I am only now finding out that those expenses could be claimed. How far back can I go?

Answer: You may file the medical claim if the payment is within 3 prior years from the earliest date of the notice of assessment to you, i.e., the normal reassessment period for an individual. Claiming beyond the 3 years requires you to have an excuse, i.e., circumstances beyond your control, for example, you were on a extended sick leave, natural disaster had misplaced your medical records, etc. Another opportunity to claim for a tax return beyond the 3 yrs is that the taxable income for that prior yr is NIL, and you have not requested a “loss determination” from the CRA for that tax return.

Note also that for your “unclaimed” 20% medical expenses your medical expenses must total more than $1,926, or 3% of your net income, whichever is less.

Question: Can my ex and I each declare a child on our canadian income tax return?
My wife and I have been seperated for three years now and I was just wondering if each of us can claim a dependant. My son (4) lives with me and my daughter (5) lives with my ex. because of this neither of us pay child support. I have always done my taxes but i’m unsure this year about whether we can each claim for the eligible dependant. The past couple years only my ex has declared a child.

Answer: Yes if you were the primary caregiver of a child that you supported at some time during the year you may claim the eligible child amount Only one person can claim the child so if there was two children and they each lived with one of you then it is possible for each of you to claim a child. Remember though the eligible dependent can only be claimed if you do not have a spouse if you do have a spouse than only the child amount can be claimed on line 367 and not the eligible dependent amount on line 305.

Question: How much can a single guy earn before he has to start paying Canadian income tax?

Answer: The previous amount was $9,600 federally. However, the system does not work such that you make the first $9,600 and pay no tax. If you are paid $400 a week you will be taxed as that amount will be pro-rated (400 x 52 weeks = about $20K) so they will start to deduct taxes from your first paycheque.

Save Taxes in Canada Using Life Insurance

Tuesday, January 19th, 2010

Income taxes are among the biggest expenses you have to pay during your life. Canadian citizens may very well pay as much as almost half of their annual income back to the government every year. Luckily, there are many tools you can use for managing your finances in a way that you’ll end up with significant savings and cut your taxes dramatically.

A large part of tax savings strategies deal with spreading your earnings through your inner family network and thus getting the benefits of lower tax brackets. In this group of tools you’ll find some very interesting possibilities such as:

  • Family Loans & Accounts Structuring
  • Own & Spousal RRSP Contributions
  • Claiming Home Office & Deducting Home Expenses
  • RESP Contributions
  • Medical Contributions
  • Employing family members
  • Donations to Charity

From 2009, there’s also a new tool in effect called Tax-Free Savings Account (TFSA). It is similar to an RRSP account, but with some significant differences. For example, withdrawals are non-taxable and they don’t affect other government benefits. On the other side, deposits are non-deductible either. There’s a maximum cap of $5000 for the savings every year, which translates to significant savings over the span of multiple years.

Life insurance products also offer significant advantages and can be useful tools for lowering your taxes and paving the way for maximizing wealth.

There are a number of benefits of using it over other forms of investments, for example traditional RRSP accounts and other assets such as stocks.

  • No risks involved: the minimum-guarantee percentage will keep the policy profitable under all circumstances. Life insurance therefore makes sense as one of your primary long-term investment tools.
  • No probate fees: since it is a liquid asset, it’s one of the best ways to pass on wealth to the next generation in your family. In the event of your death, they don’t have to pay any additional probate fees and there’s no tax liability. In provinces like Ontario, these can total up to very large amounts – you’ll be able to prevent these unnecessary expenses.
  • You don’t pay any taxes on the proceeds. Depending on your insurance package, your savings grow sheltered from taxes and you can also use accumulation funds to offset your future premiums with pre-tax dollars rather than after tax dollars.
  • Cash values inside policies can be accessed at any time within certain limits through a policy loan or partial surrender. Often, these financial tools can create the equivalent of a tax-free income stream. However, be sure to understand that straight cash withdrawals are subject to taxation. Consult your advisers first in any case.
  • Donations and charitable giving in the form of life insurance policies are tax-deductible. These are little known options which can involve transfer of ownership to the charity, naming the organization as the policy beneficiary or replacing the donated assets with a new insurance policy that will not affect the inheritance you wish to leave. These options all allow you to give future gifts of significant amounts at modest costs in the present.

These tools are well known by most people speculating on tax cuts and often get advised first. When using them, you’ll need to know the projected amount of income taxes you’d pay before to see which options are the most effective in your individual case. For this, you can use online tools like Canadian income tax calculator.

As closure, it is important to understand that taxes are a complicated matter and they deserve professional attention. Be sure to consult your options with independent advisers first and make only informed decisions.

Lorne S. Marr, President of Lorne S. Marr Insurance Services Ltd. has been a practicing financial planner since 1993 having graduated from the University of Windsor with an MBA. Feel free to visit his business website LSM Life Insurance Canada.

Canadian Taxes FAQ:

Question: Canada Taxes?
Does a Canada resident have to pay tax on his income earned outside Canada, even if its tax exempt in the country where it has been earned.

Answer: Yes, a cdn resident is taxable on his/her income earned inside and outside Canada. Unless the tax treaty with that foreign country specifically provides a tax relief, the tax exempt income in the foreign country may also be taxable in Canada based on the Cdn Income Tax Act.

Question: How much would I pay in taxes in Quebec, Canada?
I currently live in the US and am considering a move to Montreal. I operate a home business, and all of my income is coming from US sources, but I have been told that Canada taxes all worldwide income. Then it seems that the US would give me some sort of tax credit for what I paid to Canada. I expect to make $25,000 before deductions. Does Canada have a similar system as far as self-employment taxes? Do they have a self-employment tax? What abouts would I have to pay for tax, including federal and provincial?

Answer: If you move to Canada and operate a home business, that is CANADIAN-source income, regardless of where your client resides. Only if you are a US citizen would you continue to file and pay US taxes, and receive a Foreign Tax Credit on your CANADIAN return. Yes, if you are a sole-proprietorship, you must pay CPP premiums yourself. This is equivalent to SE tax.

Question: If I go to work and live in Canada, what taxes would I have to pay?
Because here in the USA, I hear you don’t have to pay certain taxes for a few years if you’re not a citizen of the USA. Just wondering if Canada does anything like that.

Answer: There is no tax exemptions for non-residents or non-citizens in Canada. All migrant workers are obligated to pay taxes both before their payroll and after you received your payroll money.

If you do not pay the taxes the government can refuse entry back to Canada at anytime up to 5-10 years from the incident depend on how big the problem (but min.5 years). In addition they have the power to freeze your assets in Canada and if it is a large amount, they can take the money from US as well.

Anyway, yes you have to pay tax on everything you own and earn in Canada regardless of who you are. BUT if you are a:
-refugee working in Canada
-protected person under the Canadian international witness protection program
-some other form of federally regulated tax relief such as single parents, senior citizens, child tax benefits, etc
Then you do get a break from the tax.

Question: Does Canada have taxes? Any laws someone should know if considering moving to Canada?
Does anyone know any specific laws in Canada? Such as school tax, income tax, property tax, sales tax, etc? Are there any laws I should be aware of? Any information helps!

Answer: Yes, all of the above. School taxes are part of the property taxes home owners pay, at least here in Ontario.

Income taxes are based on your residency, and also if we have a tax treaty with the country you are coming from. Canadian residents are taxed on their worldwide income. Non-residents are also subject to withholding amounts, which differ depending on the tax treaty.

I’m assuming you’re planning on living here permanently, so you’d likely end up being taxed as a Canadian resident.

Question: How do you pay taxes when you sell stocks in Canada?
I want to sell some MSN stocks, I have these stocks with US finance company. I will send the stocks using this finance company services and my question is how I need to pay the taxes in Canada?

Answer: Regardless of where they are held, if you are a Resident of Canada, you will need to report the gain or loss of this sale on your T1 tax return, Schedule 3.

Question: I invested in a business in Canada but I live in the united states how would I pay my taxes?
Do I have to pay taxes in both country’s or just business tax in Canada and income tax in the united states. How would my taxes be?

Answer: “Invested in a business” is pretty vague. You definitely pay US taxes on everything. If you bought stock, you would pay Canadian taxes on dividends and interest, but not capital gain. If this is a partnership or sole proprietorship, you would file a return in both countries.

Question: Where to file taxes, Canada or the US?
I’m a canadian who has been working in the US since july of 2003 on a TN visa. I’m a registered nurse. I haven’t filed taxes in canada since I’ve left, and now I’m wondering if I should have? I’ve filed in the US though. I’ve never been employed by a canadian employer, having come to the US to work after I graduated from nursing school.

Answer: Under the US/Canadian tax treaty, generally, wages earned by a Canadian in the US are taxed by the US, not by Canada. There are some exceptions. I would check with the IRS.

Question: Does a teen working in Canada with a part-time job that made around $1000 last year need to file taxes?
I didn’t file it for the last working year, and I’m afraid something will happen, so I’m just making sure.

Answer: If you make any money at all, you need to file taxes. I once filed taxes for 42 dollars (I’m a student and quit my job). If you have any income at all, you need to claim it. You might get a little tax refund! It’s never too late to file it now. Just do it and they probably won’t care that it’s late. It only matters if you owe the government money, then you would get charged interest on the amount that was owed.

Life Stages and Financial Planning

Tuesday, January 19th, 2010

As one goes through life’s stages your goals and requirements will change. What is right for you at age 25 is probably not the same as when you are 55. A financial plan will assist you in reaching those goals, and at a minimum will bring peace of mind. As the American baseball player/philosopher Yogi Berra said – “If you don’t know where you are going you will end up somewhere else.”

The stages and goals in a person’s life generally unfold as follows:

Stage 1: Starting your career – this stage is normally characterized by one central fact – namely you are broke. For some this never changes but with a plan and some discipline it does not need to be so.

Goals:

Pay off your student loans

Purchase a car

Buy consumer goods – furniture, ipods, etc.

Build a good credit rating

Stage 2: Career / Family – you may settle down, get married, start a family. Now it’s time to become serious about financial matters particularly if you have a partner or children who are dependent on you.

Goals:

Purchase a home

Proper insurance coverage

Make a will/Power of Attorney

Start saving some money

Stage 3: Middle Age – middle age is defined as when the phone rings on a Saturday night and you hope it’s not for you. This stage normally involves paying down mortgages and starting to think seriously about retirement.

Goals:

Pay off the mortgage

Put some serious money into retirement savings

Educate the kids

Think about purchasing a cottage or vacation property

Stage 4: Pre-retirement Years – this stage is usually one of heavy savings.

Goals:

Grow your retirement savings

Reduce debt (the goal is zero debt upon retirement)

Plan your retirement life style

Stage 5: Retirement – a well-earned retirement; put your feet up and relax

Goals:

Travel

Make necessary changes to your will

Establish an estate plan

Manage your tax bill

Remember that all plans will change over time. Surprises occur, some good and some bad. Your financial plan should be flexible enough to adapt to changes, but simple enough so that you will follow through.

Financial Planning FAQ:

Question: How would you encourage women to become more involved in their financial planning?
Most Canadian women are disinterested and unprepared when it comes to planning their financial futures, according to a recent survey by TD Waterhouse. If that’s true, how would you suggest encouraging women to become more ‘invested’ in their personal finances?

Answer: I think that this is an over generalization and likely generated by a need for furthering the agenda of TD. My wife is very involved in our financial situation. In fact she is quite a bit more involved then I am for the simple fact that she is far better at it. I would recommend anyone do a little personnel research on the topic before jumping on the band wagon.

Question: Does the Canadian government give any financial assistance to new immigrants?
A family member is planning to migrate to Canada with his family.My question is about any benefits financial and otherwise that the Canadian govt.might be giving to immigrants when they land.Would appreciate any information on this and any suggestions about useful internet sites

Answer: Whoever sponsors immigrants is financially responsible for any and all costs incurred whether it is an individual immigrant or a company that sponsors the immigrant(s). The Canadian government does not have money to give to new immigrants. Until someone has permanent resident status or becomes a Canadian citizen, they do not qualify for any type of assistance. One of the conditions of immigrating to Canada is that you must prove that you are a benefit to Canada and that you are not coming here to drain our financial assets. Coming here with your family and expecting Canadians to fund your life is not reasonable, and would result in being denied a visa to enter.

Question: Are Dave Ramsey’s books/concepts Canadian friendly or does he base most of his advice on the US system?
I would like to purchase the books as a gift for a family member who needs a financial plan but I’m worried that the books are filled with budgeting/investing advice that is useless to him here in Canada.

Answer: The budgeting will work no matter the modern country you live in, Japan, Canada, Spain, US, etc.

Investing is written by an American but he is simple- stick with Mutual funds. Life insurance- purchase term life 8-10 times your income. Disability insurance – get some. Long term care insurance- buy it when you are 60. Health insurance- get some. College savings- use educational savings plan. Don’t use the plans that you have no control over where the money is invested. He does not name funds just tells you what to look for in a good fund. He explains why he doesn’t like single stock, bonds, precious metals, etc.

Question: Financial planning?
I am planning to move out for my first time and I would like to know about how much do I need to have saved in order to live without worrying?

Answer: Experts say that you need to figure out what you spend each month and then times that by 6. Because they say you need to have at least 6 months of bill money in the bank in case you lose you job.

Question: Why do people delay personal financial planning?
People need financial planning at every stage of their lives, whether it be debt reduction, buying a house or a car, marriage, divorce, and the biggest concern of most working people—retirement. Why don’t more people realize that the financial decisions they make today have a direct effect on the life they will be able to afford tomorrow?

Answer: Could be a number of reasons: no discipline, no education in finance, no goals for the future. Personal financing should start IN THE HOME at an early age, hopefully by parents who have a successful financial plan and outlook. Children learn what they live.

Question: What is good financial planning software that can be used in confuction with dave ramsey plan (microsoft money) or something that is very good?

Answer: I set up his budget form (modified to our specific bills) on Excel. Now he has software (about $25) available on his website or subscribe to My Total Money Makeover section of his website and you can do the budget there. Or Crown Financial (originally started by the late Larry Burkett who Dave gives a lot of credit to) has budgeting forms and online software. Both would be the best way to stay completely in line with Dave’s principles. Both of the on-line subscriptions have free trial periods.

If your not interested in those, Quicken is also a very good financial planning software.

Question: Where & how does one start financial planning for oneself?
Please suggest an approach / road map, steps to financial planning that is executable by a salaried individual. I would like to avoid any middlemen or agents.

Answer: Your public library. The first book I would recommend is called “The Automatic Millionaire”. It is nothing groundbreaking or new. I can’t believe this guy got rich off of writing these books. I would never buy one of his books. But I read them at the library. It is full of 100% common sense. Very important common sense. Follow it.

Don’t try anything that involves “tricks”, paying someone else to predict the future for you, or anything like that. (You can predict the future just as well as the professionals.) Personal finance is indeed 100% common sense.

Question: How to have good Financial Planning for single income?

Answer: First list all your expenses over a given time period like per month.

Next list your income.

Add both up–if your expenses are greater than your income you need to do one of two things. A: reduce your expenses or B: increase your income.

Once you have your needs covered, you give yourself something to spend that’s extra but not too much. Set up a regular savings plan with your bank. Even if it’s only a few dollars per month going into a savings account, it will add up. Try not too look at it and let it grow so you will have it in case of a major emergency like losing your job or something like that. Seeing a huge sale on collector dolls on the shopping channel is not a major emergency.

Once you learn to live within your means, everything else is downhill from there. You might buy a book on personal finance. They have lots of them at the local bookstore. Or you can just go to your local library and read them for free!