Every Canadians Guide to Financial Prosperity

By Debi J Peverill

This easy-to-read book is written by a Chartered Accountant with a sense of humour and a wealth of experience in dealing with financial matters. It is designed to assist any Canadian in achieving financial prosperity.

• Language: English
• Publisher: Painless Financial Training Group Inc.
• Release date: Jul 26, 2018
• ISBN: 9780991787241

Book preview

Chapter 1. Introduction and Disclaimer—Read This First!

Financial decisions are among the most difficult for people to make. This book will help you understand the choices and options at each stage of your life. Ideally, this book will give you enough information to have an intelligent discussion with your financial advisor, accountant, lawyer, or broker. However, it should not replace specific advice given to you by any of these experts. Financial matters change very quickly and you need to find advisors who you are comfortable talking to and who understand your risk profile (more on this later!).

So, the first and most important piece of advice is to find a financial guru who will help you make important financial decisions in your life. A few things to keep in mind when choosing a professional to work with:

•Do your research and interview different experts. Ultimately, you want to choose someone who you feel comfortable with and who you think you can trust.

•Have some idea of what your end financial goals are.

•Find out how your financial advisor gets paid (per contact with you? per transaction?).

This book contains chapters on specific topics such as the smartest use of debt, planning for retirement, and budgeting. There is also a section with specific information geared to each age group.

The book can be read in the order it is written or by picking and choosing which sections appeal to you the most. If you are already 60, then some of the chapters on the earlier age groups will be more for your amusement than to help you out. Unfortunately, it is too late for strategies that take 40 years to work! If you are in your twenties, however, it is not too late for you to take the good advice laid out for you here.

Viewing the table above, you can see that Canadians share some of the same challenges—as they relate to finances—throughout their lives. Each of the areas listed has a separate chapter devoted to it. Read on, learn, and enjoy!

Chapter 2. Retirement Planning

Financial books always include a section about planning for your retirement, as if that is the most interesting thing that will ever happen to you. Do you plan to retire? Some Canadians enjoy their work so much, they’ll simply scale back. Others, unfortunately, will die before they get a chance to retire. Since no one predicts the future with any degree of accuracy, let’s assume you’ll live to a ripe old age and you plan to retire at some point.

How are you planning to fund your retirement? Are you paying into the Canada Pension Plan? Are you putting money into an RRSP or TFSA or do you own a business that you are planning to sell in order to fund your retirement? Do you work for the government or do you have a private company pension? Let’s talk a little about these different possibilities.

There are a number of different vehicles that people use to help them save for retirement:

•Registered Retirement Savings Plans (RRSP)

•Tax free savings account (TFSA)

•Canada Pension Plan (CPP)

•Government pension plan

•Other company pension plan (RPP)

•Old Age Security (OAS)

•Non registered investment accounts

•Selling your business for a huge profit

•Hoping your parents leave you a lot of money

•Winning a lottery

Registered Retirement Savings Plans (RRSP)

The RRSP is a popular retirement planning vehicle. The mechanics are simple. A Canadian resident is allowed to contribute 18% of their earned income each year to an RRSP subject to annual maximums, currently set at $23,820 per year. The amount which is allowed to be contributed, based on the earned income, is called contribution room. If the contribution room is not used up in a year because a contribution is not made then the amount is carried forward until the contribution is actually made. The result? Most people have lots of contribution room because they can’t afford to put that much money into an RRSP.

The amount of your contribution room is shown on the bottom of the Notice of Assessment. This is the piece of paper that the federal government returns to you each year after you file a tax return. This notice of assessment either has a cheque attached because you are getting a refund or has a request for further funds. You should keep this piece of paper as it is often requested by bank officials when you are looking to borrow money. They use the notice of assessment as proof that you declared the amount of income you claim to have earned. If you happen to misplace it, you can always call the nice people at Canada Revenue Agency (CRA) and ask for a duplicate to be sent to you.

When you make an RRSP contribution, you may deduct it from your taxable income, either in the year you make the contribution or a later year. The amount contributed stays in the RRSP and any income earned inside the RRSP is not taxed, until the amount is withdrawn from the plan. You can withdraw amounts from your RRSP whenever you want to, but each withdrawal is added to your taxable income in the year that you make the withdrawal. The institution where you invest your RRSP will withhold some money from the RRSP withdrawal to help you pay the tax, but it is not usually enough money. If you withdraw $5000 or less, the amount of the withholding is 10%. If you withdraw more than that, the withholding is 20% etc.

There is a problem with contributing and withdrawing funds from your RRSP, as the amount you withdraw is not added to your contribution room. As an example, if you had $20,000 of RRSP room and you make a $20,000 contribution then you may not make any further RRSP contributions. If you withdraw the amount of your contribution, the $20,000 is NOT returned to your room and is gone forever. Therefore, it is not wise to contribute to an RRSP if you think that you might need to take the money back out in the near future. The better choice for funds you may need to access is a Tax