Thursday, January 30, 2020

How Do We Choose

When someone tosses out a brainy quote, we are likely to pay attention. Ben Stein (an actor) shared the obvious – "The indispensable first step to getting the things you want out of life is this: decide what you want."  This sounds easy enough.  But I honestly see we often face some hard choices at different times in our lives.  We may have decided what we want but with a combination of only so much time and only so much money, how do we choose? 

If we had some ground rules (although they don’t necessarily need to be rules but rather helpful tips), we might be able to lessen the stress in the decision-making.   We are not talking about the decisions surrounding the types of coffees we drink or the different restaurants where we dine…but rather the hard choices, the ones that trip us up. Do we take an annual vacation or save for a down payment on our new home? Do we save for our children’s education or renovate our kitchen? Do we buy a new vehicle or pay down debt?   

Decision-making is quite complex.  Books have been written extensively on this subject; videos on the paradox of choice have been seen shared on TED Talks; and blogs from professionals have been posted about what successful people know about decision-making. All this information is overwhelming when our only desire is to ensure we choose the best option. 

Let’s toss out a few basic tips when you’re faced with a tough decision.

  1. Make a list of the pros and cons about one choice over the other with regards to the timelines and costs.
  2. Take your time in these decisions.  Rather than be impulsive, weigh all the information thoroughly and allow yourself space to think.  
  3. Prioritize the things on your list in order of importance.  You may be surprised you have a stronger desire to put one thing in first place rather than second.
  4. Talk about the choices with your spouse or partner and family especially if the decision impacts them.  Listen to their concerns and opinions. 
  5. Keep in mind you are only able to do the best with the financial resources you have available. Extending yourself into debt may not be the ideal solution to achieve your desired option.
  6. Ensure the things you want (your goals, dreams, and aspirations) are clear and concise.  You want to feel it, see it, catch it, and master it in your mind before you leap into the final pick.  
  7. Finally, acknowledge the proverb which tells us, “all things come to those who wait.” Being persistent and patient in saving for the things you want will pay off in the end.          

Decisions involve both logic and emotions.  Only you can make the best decision for your family and you.  You can invite professionals, family, and friends to weigh in with their skilled opinions and advice.  In the end, the decision will always be yours.  How you spend your time, financial resources, and other treasures, like your talents, is your choice.  The important parts are to trust your decision, move through the motion of following through with your plan, and then see the results unfold.  That’s how you get the things you want out of life. 

If you have an ideal technique to help with decision-making, let the rest of the world benefit by sharing your helpful tip in the comment section.

Thursday, January 16, 2020

You Got This

Elbert Hubbard said, “Self-discipline is the ability to make yourself do what you should do, when you should do it, whether you feel like it or not.” We can be good at self-discipline some of the time, most of the time, all the time, or the extreme--not at all.  But occasionally, having someone come along and say, “You got this!” is a dose of encouragement we all could use. 

At the beginning of a new year, we may be filled with enthusiasm. A whack of giddy-up and go is just what we need but…realistically, some things will drag us down.  In the heartland of the Canadian prairies, we become consumed by the extreme cold weather.  The frigid temperatures tend to suck our energy as we move about our day.  When we pick up a magazine or browse the newsfeed on the Internet, we are reminded of the list of resolutions pushed in our direction to motivate us to take action.  Rather than propel us forward, we remain frozen like popsicles. We are immobilized to take any kind of action…but we must.  Here’s why.  Time does not stand still. 

Our granddaughter, Layla, turned ten years old this month.  I shared with her my memory of the day she was born.  The first time I heard her cry, I knew she was real.  With each passing year, I am grateful to have pictures to remind us how quickly time passes.  We see the growth in her physical body and the development of her personality and character.  But there’s a hidden truth in “the lapse of time”.  The truth is screaming: make the most of it; use it wisely; make memories; and above all, don’t waste an opportunity.  Now, more than ever, we can stay in touch with Layla even though we are miles apart. Sending her a quick note or a snapshot tells her how much we love her. We have no excuse not to be a part of her life with the advances in technology.  Here’s where the importance of time transitions to our financial affairs. 

Do the things that matter most.  Someone once jokingly complained about their "First World Problems". The Oxford Dictionary defines these consortiums of problems as "A relatively trivial or minor problem or frustration (implying a contrast with serious problems such as those that may be experienced in the developing world)."  Most people living in Canada have an array of First World Problems.  But if the truth be told, these are inconveniences we have escalated into problems (for example, a slow internet connection).  We must sort and sift through our financial affairs to determine a potential hidden First World Real Problem (no wills, powers of attorney, or health care directives).  

When we are serious about being disciplined with our finances, we take a hard look at the "Financial Wheel of Life" and make time to address our concerns.  My take is we can't drive life on a flat tire.  Technically, we drive on a flat when we neglect to take action in specific areas.  Thankfully, we don't have to work on all the areas at the same time.  If we take small steps in each part of the financial wheel, we will get the job done.  These areas are:  Financial Management, Asset Management, Retirement Planning, Risk Management, Estate Planning, and Tax Planning.  When professional financial planners were asked about their New Year's Resolutions in this Reader's Digest article, their action steps fell into one of these six areas.  If it's on their list of resolutions, maybe we should consider following their lead.  Just in case, you need help, look outside your sphere for some motivation. 

What can be better than devouring a chocolate-dipped ice-cream cone, witnessing a beautiful sunset, or listening to a favorite song?  All these are indeed treasures. Most certainly, the greatest treasure (or motivator) comes when you receive the gift of words from someone who believes in you and your abilities. The value in encouragement is priceless.  No matter how difficult your tasks appear, they could always be worse, like eating alive frogTake heart. Take action...because "you got this!"

Thursday, January 2, 2020

A New Year Brings New Tax Changes

Both small and large tax savings lie in waiting for us to grasp. Some are handouts from the federal and provincial governments and others are strategies we have to put into practise.  Unfortunately, taxes are a way of life for Canadians.  Our tax dollars help to pay for government programs and services. On the flip side, we have financial goals and dreams, too, just like the government has theirs.  Every cent we can save for ours is invaluable. 
As always, it’s not a surprise to see the tax brackets modestly increase each year to adjust for inflation. But a much-welcomed surprise and an unusual adjustment is to the Basic Personal Amount (BPA)--what I refer to as our tax-free zone. For 2020, the proposed Basic Personal Amount is $13,229 whereby personal income tax does not apply on these first dollars of income. The bonus is these small tax-free gifts will continue in the forthcoming years. The Federal government’s intention is to increase the BPA over four years until the amount reaches $15,000 in 2023.

This year Canadians with income above this minimum threshold will hardly notice the difference. The tax savings will equate to $174 ($13,229-$12,069)x15%) when you compare the Basic Personal Amount in 2019 of $12,069 to the newly proposed $13,229.  The increased savings will come with time. 

The priceless suggestion is to make time to assess and analyze where your income will land, both on the federal and provincial ladders. This practice is most beneficial as one year ends and another begins.  The tax brackets help to pinpoint your marginal tax rates.  If you are conscious of saving for specific goals, I always encourage looking at the amount of income tax you have paid by year-end. 

Your last pay statement of the tax year or T4 information slip provides valuable information.  Seeing firsthand the amount of income tax deducted from your gross income may shock you into action and cause you to plan different strategies to keep some of your hard-earned dollars in your pockets.

During your working career, a useful and practical strategy is contributing money to an RRSP (Registered Retirement Savings Plan).  This is especially applicable when your income falls in the second tax bracket and higher. In the diagrams below, the ladder draws your attention to the fact that as your income increases so does your marginal tax rate.  All Canadians start at the bottom. 

The tax savings, derived with deposits to an RRSP, generates a tax refund for other financial goals.  This ripple effect creates a dual bonus.  As you save for your retirement, you have additional cash to pay down credit cards.

Here’s a basic example: 

All year, you have diligently saved $100 each week so by the end of the year, you have tucked away $5,200 in a daily savings account.  Now you are contemplating your goals for the year.  You stare at your retirement savings and credit card statements and wonder what to do.

One possible strategy is depositing your savings into an RRSP investment vehicle to reduce your taxable income for the year.  Once your tax return is filed, you receive a tax refund for your top-up contribution.  I choose to think of this as having your cake and eating it too. 

The math tells us.  Your annual income is $55,000 (which falls in the second tax bracket).  A contribution of $5,200 deposited to an RRSP refunds $1,066 ($5,200 x 20.5%). Now the refund can be applied towards your credit card.    The dual purpose is you have saved for your retirement and reduced your debt.  

This quick glance looked only at the federal side of taxable income and tax credits. Our provincial governments also offer different packages of tax rates and credits.  The tax savings exist on two levels.  The tax side to wise financial planning can be complicated.  With an array of tax planning incentives and strategies, you may need some assistance to decipher which apply to your family and you.  A new year always brings new tax changes to help us.  Ensure you make the best of a taxing situation with sound financial advice.