As a society we are constantly bombarded with financial information, but many of us are disconnected from managing our financial stress. The truth is most people spend on average about 2-4hrs a month looking at their financial situation, which usually consists of just paying bills and wondering why they cannot achieve their financial bliss. Now that the gift giving and the holiday season is out of the way, let’s talk about saving taxes and creating some strategies. 2008 was very emotional for everyone with our world’s financial and economic challenges. With that in mind, it’s time to refocus and make logical financial decisions for 2009.

Getting started
The #1 priority of your plan or goal should be to allow the government to help you lower your existing debt, especially the high interest rate credit cards, with dollars you thought were gone because of taxes. A plausible way to kick start a strategy like this could be using a Registered Retirement Savings Plan (RRSP) loan. This can be an extremely powerful way to capitalize on the benefits of receiving a tax refund to finance your priorities and propel you towards your financial goals.

What to do
In order to lead yourself in the right direction, start paying attention to your daily spending. Keep track of your financial habits in your cell-phone or small book, and doing a simple 1-2hr weekly family spending analysis on what goes in and out of your household. This is a fantastic way to stop the financial leak and start finding dollars to save interest and repay some of your outstanding debt. To ease your mind start an automatic debt repayment schedule. If you are paying high interest on debts choose a low interest consolidation loan, which would be another way to increase monthly cash to create investment vehicles such as a RRSP, Tax Free Saving Account (TFSA) or even a Register Education Savings Plan (RESP).

The Facts
When looking to protect yourself from tax triggers, an option like the TFSA allows you to earn investment income tax free, and any interest, capital gains or dividend income you earn on your investments is not subject to tax. You can contribute up to $5000 in 2009, fortunately the limit will be increased each year indexed to inflation, rounded off to the nearest $500. Any unused room can be carried forward indefinitely. Withdrawn amounts of your contributions can be reinvested into your account a subsequent year without reducing your contribution room for that year. For example if you accumulated $5000 this year and then withdraw $3000, you would be able to contribute up to $8000 ($3,000 + $5000 limit) the following year.

An absolutely fantastic feature of the TFSA is that withdrawals do not affect eligibility to receive benefits such as Guaranteed Income Supplement, Canada Child Tax Benefit or Old Age Security benefit. Just as like RRSPs assets can be transferred or rolled-over tax-free to a spouse upon your death.

All Investment allocations are exactly the same as RRSP where the amount would be invested in the following options: segregated and mutual funds, stocks, bonds and GICs. Lower tax bracket salary earners can forego the modest tax deductions of RRSP and capitalize on tax-efficient growth of TFSA. For those of you, possibly in higher tax brackets, who maximize your RRSP contribution room annually, can use it as an alternative to have extra tax-free growth also.

When starting young the TFSA is a huge advantage it creates more savings than a regular high interest saving account, since it does not create an annual tax liability. This option is great for saving for post-secondary school, a down payment on a house, home renovations or a future wedding.

Call the plumber
For 2009 consider the quote below and contact us to start your financial plan:


- Article by Garen Lewis