By Sheryl Smolkin

As I write this on March 31st, it is for the second time because I closed the completed document the first time without saving it. I can only attribute this oversight to an early April Fools’ Day joke from cyber space!

Here are some interesting blogs I read this week:

For those of you who prefer cash back credit cards over travel cards, Tom Drake on the Canadian Finance blog rates the Best Cash Back Credit Cards of 2015. Top of the list is the Scotiabank Momentum VISA Infinite Card which offers a full 4% cash back on gas station and grocery store purchases. You also receive 2% cash back on your recurring payments and on drug store purchases. All other purchases earn a 1% cash rebate. 

The Big Cajun Man aka Alan Whitton writes on the Canadian Personal Finance blog about his daughter’s experience trying to find a student line of credit to attend Chiropractic College. The only financial institution willing to fork over enough money was the National Bank of Canada. However, by mistake they set up the loan as a personal line of credit. As a result, the very next month there was a demand for payment. Although the error was fixed, Whitton had to co-sign on the loan.

Five unconventional ways to get your financial act together from Kerry K. Taylor aka Squawkfox resonates with me. She suggests we can save money by throwing out fewer grocery products and curbing our collecting. We just renovated our kitchen cabinets and I couldn’t believe the number of stale-dated packages we pitched and how many marginally useful kitchen gadgets we have collected. Did we ever really need  six sets of barbecue skewers?

Why “Healthspan” trumps “Lifespan” by Dan Richards is a guest blog on the Financial Independence Hub. Financial advisors spend a great deal of their time with clients who ask, “Will I run out of money?” But Richards says according to new research, an equally pressing question is “How can I enjoy life in my 60s before health issues creep in.?

RRIFs 101: Using your nest egg by Preet Banerjee on Tangerine’s Forward Thinking blog fills in the blanks for readers who understand how RRSPs work but were not aware that they must be converted into RRIFs at age 71 and that beginning the year after, minimum fully taxable amounts must be withdrawn.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

See Part 1 .

Every family has multiple financial priorities. If you have small children and a big mortgage it is often daunting to think about saving for anything more than a family night out at a local fast food restaurant.

But one way to manage your money is to pay yourself first by allocating specific amounts to savings and having these amounts moved into different jars (or accounts) as soon as your paycheque is deposited into your account.

In Part 2 of the series “how to save for retirement” we will focus on several of the tax-assisted or tax–deferred savings plans available to you and some tips for using them effectively.

1. Government benefits: Every working Canadian must pay into the Canada Pension Plan or the Quebec Pension Plan until age 65. In addition, Old Age Security is payable to Canadians or legal residents living in Canada who lived in the country at least 10 years before age 65 and Canadians or legal residents living outside Canada who lived in the country at least 20 years before age 65. Lower income OAS recipients may also be eligible for the Guaranteed income Supplement (GIS). But changes to government benefit programs mean you can take benefits later or in some cases earlier (with a penalty). When developing a retirement savings plan you should understand how these programs work and the benefits you can expect to receive. You also need to decide when it makes the most financial sense for you to start collecting CPP and OAS.
2. Saskatchewan Pension Plan: The Saskatchewan Pension Plan is a defined contribution pension plan open to all Canadians with registered retirement savings plan (RRSP) room. You can contribute up to $2,500/year or transfer in up to $10,000/year from another unlocked RRSP. Low fees (one percent/year on average) and consistent returns (average of 8.13% over 28 years since inception) make SPP an excellent investment. The program is very flexible because how much you contribute and when is up to you. Funds are locked in until your selected retirement date, between ages 55 and 71.
3. Registered Retirement Savings Plan: In 2014 you can contribute 18% of your previous year’s income to a maximum of $24,270 to your RRSP minus specified amounts contributed to other registered savings accounts. Unused contribution room can be carried forward. You can find your RRSP limit on line (A) of the RRSP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment from the Canada Revenue Agency.
4. RRSP withdrawals: One weakness of an RRSP as a retirement savings vehicle is that you can withdraw money at any time. If you do withdraw RRSP funds you will pay tax on withdrawals at your normal tax rate, the contribution room is lost and you lose the benefit of future tax-free compounding. However, the Home Buyers’ Plan and the Lifelong Learning Plan permit you to withdraw amounts from your RRSP in specific circumstances without triggering a tax bill and require you to repay the money, usually over 15 years. 
5. Tax deductible: Contributions to SPP, RRSPs and other registered pension plans are tax deductible. If you participate in one or more of these plans and have not already arranged to have less tax taken off at source, you may get a hefty income tax return. There are lots of ways to spend this windfall including taking a vacation or paying down debt. However, in his book The Smart Debt Coach, author Talbot Stevens says reinvesting your tax returns into an RRSP is the best way to get the full benefit of compounding in the plan. 
6. Deferring tax deduction: There is no minimum age for an RRSP. In order to make contributions to an RRSP account, a minor needs to have earned income the previous year and have filed an income tax return. If a thrifty young person or anyone with a low income makes RRSP contributions, deferring taking the tax deduction until they are in a higher tax bracket means they will get a bigger bank for their savings bucks. The last RRSP contribution a taxpayer can make is in the year they turn 71.
7. Tax Free Savings Account: A Tax Free Savings Account (TFSA) allows you to currently save $5,500 a year. Contributions are not tax deductible, but investment earnings accrue tax free in the account. If you withdraw money, you can re-contribute the amount to the account in the next or subsequent years without any penalty. You can only begin making contributions at age 18 but there is no upper age when you have to stop contributing. How do you decide if a TFSA or an RRSP is best for you? Gordon Pape says TFSAs are better for short-term savings goals and if you don’t want to undermine possible eligibility for government benefits like the GIS. But if your income will be lower in retirement he suggests saving in an RRSP.
8. Automatic withdrawal: Whether you participate in a company pension plan, SPP, RRSP, TFSA or a combination of all or some of the above, set up automatic withdrawal so a specified percentage of your income is moved into these accounts every payday. David Chilton made “pay yourself first” a popular mantra in The Wealthy Barber, first published in 1989. If savings are skimmed off the top, you will learn to live on less while you get on with the business of day-to- day living. And when you do retire, you will have a significant part of the nest egg you need to live on.
9. Automatic escalation: To find out how much you need to save for retirement, you need a financial plan. But in a recent column in the Globe and Mail, personal finance expert Preet Banerjee suggests that in the absence of a plan, the rule of thumb should be at least 10% or as much as you can save. In other words, you are not going to have enough if you keep saving a flat dollar amount each year. But if you select a percentage of income and ensure you increase your contributions every time you get a raise, it is more likely that you will reach your retirement savings goal.
10. Consider insurance: Nobody expects to become disabled or die young, but it happens more often than you think. Regardless of how much you are saving for retirement, an unexpected loss of income can derail all of your short and long term goals. You may have some life insurance, disability insurance and maybe even critical illness insurance at work. Review your coverage with a financial advisor to determine if you need more individual coverage or if you can afford to self-fund the risk. 

In Part 3 of this series we will focus on some basic investment principles that will help you grow your retirement savings. 

Also read:
Retirement savings alphabet soup
SPP or TFSA?

By Sheryl Smolkin

Do you have a spring or summer wedding coming up? Squawkfox aka Kerry K. Taylor discovered H+M now has a Grecian style wedding gown on sale for USD$99. This happily married lady says if she were looking today she would say yes to this dress! The 38 comments (the last time I checked) are even more interesting with lots of great ideas on how to save money on a beautiful dress you may only wear once.

Whether or not to tip the people who provide you with services and how much is a perennial dilemma. On When Life Gives You Lemons Add Vodka, Sarah Greesonbach discusses how much it costs to get a massage and why your tips may be an important part of your massage therapist’s compenstation. Money saving idea: If you need a massage for therapeutic reasons, make sure you see a registered massage therapist in case you can claim all or part of the cost on your employee benefit plan.

In a recent Globe & Mail column Preet Banerjee had some great information on discounts for seniors and you don’t always have to be over 65! For example, by signing up for a membership with the Canadian Association of Retired Persons (CARP), you can get an annual gym membership to GoodLife for $400 per year (plus tax) as long as you are 45 years or older. The cheapest CARP membership is $14.95 per year.

Tim Stobbs writes an interesting blog on Canadian Dream: Free at 45 about adjusting to having a higher self-worth as your savings grow. He says the first most obvious change is that you gain the ability to self-insure for more minor events. For example, you don’t have buy the extended warranty on your appliances because if something stops working you can just buy a new one.  Later on when you have even more saved, you can raise your home insurance deductible since you can comfortably handle greater risks.

There has been considerable press recently about the number of illegal, unpaid interns in both Canada and the U.S. However Cait, a Blonde on a Budget says that an unpaid internship, writing her own blog and writing posts for other blogs she is really passionate about have led to her current full-time job with RateHub.ca.

“My boss saw that I could manage numerous projects with multiple deadlines, I obviously want to learn new things, and she loved that she never found any spelling mistakes in my posts.” Of course, Cait had been trying to build up her writing portfolio, but until that job offer came along she wasn’t conscious of the fact that her blog was a portfolio in itself.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

By Sheryl Smolkin

In his new book “Stop Over-thinking Your Money,” Globe and Mail personal finance columnist and television personality Preet Banerjee says personal finance is a lot like physical fitness. In order to be in better shape, everyone knows they have to work out and eat well. A personal trainer delivers results, not by showing clients a new way to perform sit-ups, but rather by simply making sure the sit-ups get done.

Similarly, in this book Banerjee discusses in five simple rules how to think about money and focus on the 20% of what you really need to know in order to be in top financial shape.

Rule 1: Disaster- proof your life 
Investing is only one of many factors that affect your personal finances. If you are going to retire well at age 65 you have to put away money for a long time. But if you die, lose your job or become disabled before then, your long-term plans could go up in smoke. That’s why he says disability insurance, life insurance and an emergency fund should be the foundation of your financial plan. Wills and powers of attorney must also be taken care of early on. 

Rule 2: Spend less than you earn 
Spending less than you earn is the cornerstone of financial stability. It allows you to eliminate money stress and begin creating wealth. Here’s where you learn how to budget. Banerjee highly recommends Kerry K. Taylor’s electronic spreadsheets on Squawkfox.com. By starting with your old or current budget, the many undesirable things you spend money on like take-out coffee, fast food breakfasts and debt repayments will jump out at you. Then you can create a new budget and start tracking your spending more diligently. Surplus can be allocated to savings. 

Rule 3: Aggressively pay down high interest debt 
Thou shalt not carry credit card balances! When you have high interest debt, the amount of cash flow it ties up on a monthly basis is painful to calculate. Banerjee shows how you can transfer high-interest balances to low interest balances using a line of credit. Then he recommends developing a plan of attack for paying down your debt. While he acknowledges that changing spending patterns to alleviate debt is easier said than done, he says the only way to keep your finances on an even keel is to save more before you spend. 

Rule 4: Read the fine print 
From today forward, he instructs readers to read every word on any document they put their signature on. Gym memberships, cellphone contracts, loan documents. You name it. He gives the example of a friend whose wife could not collect on his mortgage insurance because the policy was underwritten at the time of death. The policy said it was invalid if he had any alcohol in his bloodstream while operating a motorized vehicle (a snowmobile in this case) when he died. In contrast, a life insurance policy underwritten at the time of purchase paid out within two weeks. 

Rule 5: Delay consumption
The fifth rule is simply an extension of the first. Stop worrying about keeping up with the Joneses. As you earn more money or get a bonus don’t get caught up in lifestyle inflation. And avoid the monthly payment trap. Think seriously about whether house renovation is actually an investment and if the personal gain from expensive hobbies is really worth the cost.

Throughout the book Banerjee keeps returning to the message that if you wait to make a perfect plan you may never start. And in the beginning, building up lots of money depends more on putting money away than making money grow because of smart investment decisions. You can control how much you save but you have almost no control over market performance, he says.

This book is an accessible, quick read but like any guide, it is up to you to buy into Banerjee’s five financial rules and implement them. He calls them the roadmap to an easy “A” in personal finance.

But when you are ready for a more sophisticated “A+” strategy he would be happy to provide additional guidance along the way. Who knows? That could be his next book, But until then, you can find him on twitter @preetbanerjee. He is looking forward to hearing from you!

You can buy a hard copy of Stop Over-thinking Your Money online at Chapters/Indigo for $13.68. An ebook from Kobo can also be purchased and downloaded.