Financial Power

Posted By FP on May 21, 2011

I  find it interesting how often couples don’t talk about money, or when they do, they fight about it. Money is a necessity and its part of our daily lives, so we like it or not couples have to talk about money and have an open communication about how they spend it.

Money talk is often a source of tension between couples. It’s important to express your concern and wish, but you have to have an open ear to your partner.

I grew up in a family where my dad was controlling the money. I wouldn’t say he was in charge of our family finances; he was just controlling and abusing my mom how to spend it. My dad is an abusive control freak and I understand that he went through a really rough time as a teen when the communist regime took over and his dad lost everything they possessed when they had to “surrender” (they were forced to give up everything or they would be dead) their land and belongings. [Read More…]

Category: Money Talk | 3 Comments »
Tags: Money, Money Talk

Posted By FP on December 15, 2010

It’s December, the busiest season of the year. Lots of shopping, cookies to bake, parties to plan for and to attend. For many though, pesky debt responsibilities can dampen their planning and holiday enjoyment. Some might not worry about their debts, thinking they can always get their financial house in order after the holiday.

If you are concerned about your debt obligations, consider adding one more task to your pre-holiday season to-do list. Check if you can use your home equity to consolidate your high-interest debt into a new or existing mortgage.

You can lower your payments, save on interest and can power down your debt faster. In almost every case, you’re better off holding your debt in a mortgage than any other lending vehicle. Why? Because Canadian homeowners can benefit from mortgage rates that are still among the lowest in decades, and as announced in the news, this low interest will not stay this low forever. It’s important to act now, while you have the opportunity.

If you worry about penalties that might occur if you break your current mortgage, then take some time and have your situation assessed. There’s a good chance that the savings each month will far outweigh any penalties.

Let’s consider an example: your current mortgage is $155,000 at a 5.5% and you have a monthly payment of $946. In addition to your mortgage you have a can loan of $20,000 and credit cards maxed out at $20,000. You are paying currently on the car loan and credit cards a monthly payment of $920 this totals to $1,866 a month. Often people are stressed when their unsecured debt payment is close or higher than their mortgage payment.

Solution for this situation could be to get a new mortgage of $202,000 to cover the original $155,000 and the $40,000 in credit cards and car loan, and $7,000 penalty for breaking your mortgage contract. Your new mortgage is at 3.59% and you now have a much lower overall monthly payment of $1,018.

Just consolidating your car loan and credit car loan into a new mortgage with a lower interest can significantly reduce your monthly payments. With this new scenario, monthly payments are $848 less each month, a great improvement in cash flow! But please don’t go out and blow the money! Take at least half or $400 of that cash flow into your monthly mortgage payment and you can reduce your amortization from 25 years to 15.

Today Canadians can call themselves a fortunate generation of homeowners. We can benefit from low mortgage rates to enjoy our lives and out homes – and to manage debt wisely.

Home equity debt consolidation is a golden opportunity, especially if you’re concerned the holiday season might further add to your debt burden. Aside from the debt stress relief and interest savings, restructuring your debt with a debt elimination plan, can also give you a fresh start to a responsible financial housekeeping.

Create a plan for this year’s holiday spending; set a budget and work within that amount. If a debt consolidation exercise gives you new financial comfort, you’ll want to maintain that ease by living within your means during and after the holidays.
Homeowners are recognizing that they need to get smart about debt and get out of debt. Canadians carry huge debt loads, as for the latest updates every on every $100 earned Canadians own $147. This is ridiculous to consider. Many Canadians pay a shocking amount of money on their high-interest debt, whether its credit cards, unsecured loans, tax bills. It all adds up. But if you have equity in your home, there’s no good reason to be carrying high-interest debt.

Once you consolidate your unsecured high interest debts, I would suggest closing your credit cards and having only one to use when necessary, and learn to pay for everything with cash. You can be debt free!

Category: Debt consolidation, Debt Elimination, Financial Plan | Speak Your Mind »
Tags: Debt consolidation, Debt Elimination

Posted By FP on September 14, 2010

“It’s not what you earn but what you keep that’s important”, meaning that you must minimize taxes and maximize cash flow to keep more of what you earn.

Understanding how various forms of income are taxed is helpful to understand what you can do to adjust your income resources where possible to lessen the burden of tax.

As an employee you receive a regular income. As a retiree you still receive your pension which is categorized as regular income too. Interest income is taxed the same as employment or pension income. Every dollar received is taxed at your marginal tax rate.

For the purpose of this discussion, we will use the highest marginal rate in Ontario, which is 46.41%. This means that on every $100 interest income you would pay $46.41 in income tax, netting you $53.59 after tax income. (Just to clarify: Not all of your income is taxed at this level, just that amount above the threshold where the 46.41% begins, which is $127,000. If your regular and interest income is lower, then the marginal rate will be lower too, but for the purpose of this example, just lets use this marginal rate.)

Dividends from Canadian Corporations are better source of income, because they are taxed differently.
Dividends from Canadian corporations are taxed at 31.3% and as a result you keep $68.70 for every $100 received. If you own common shares in a company that appreciate in value (and most companies do) you will trigger a capital gain when you sell your shares.

Capital Gain is the difference between what you paid for the shares and what you sell them for. Now look how the tax changes with capital gain: for every $100 received in capital gain you pay only 23.20% which means you keep $76.80. What’s even more important to understand is – when capital gain occurs you pay taxes only on one half of your gains. The other half is tax free.

One other form of income is Return of Capital (ROC). When you invest in a mutual found, that offers ROC, you can significantly increase your cash flow because the taxes you would otherwise pay are deferred into the future. When the found is eventually sold, the income will be treated as a capital gain, wish is very favorable (just as described above) for investors.

Unfortunately, investments help in RRSP lose the benefit of dividends, capital gains and return of capital. All income from registered accounts is treated as ordinary income and therefore taxes as a regular income.
From a tax point of view, income from an RRSP and RRIF is the least efficient because it must be treated as a regular income. On the flip side if you are taxed at a higher marginal rate while you’re working and looking to save on taxes, RRSP is a great investment to reduce your present taxes and enjoy the benefits of deferred taxation. Many people when they use their income from RRSP’s are in a lower tax bracket as they are while working.

It’s really important to understand what’s the most beneficial for your personal financial situation: both for the present and for your future as well. By adjusting your income sources could help you lessen your taxes.

Do you have any dividends income in your portfolio? Do you focus on capital gain producing investments too? What is your personal strategy to keep the cash flow in your pocket?

Category: Financial Knowledge, Financial Plan, Money Management, Whole Life Insurance-Cash Value | 1 Comment »
Tags: Cash Flow, Dividends, Financial Knowledge, Income Forms, Money managment

Posted By FP on September 13, 2010

Kids are back to school and we are back to our daily routines. Once, the kids start school, parents can choose between school busing or driving their children to and back from school. For many parents, car-pooling to school is the perfect blend of financial and environmental responsibility.

Before you choose carpooling please take a moment to consider these carpooling safety tips. You will be toting around other people’s loved ones as well as your own, the importance of a trusted adult and a well-maintained, reliable vehicle is multiplied.

When it comes to kids carpooling, your number one concern must to be your children’s safety. If you choose to carpool kids, I would suggest to only choose parents you trust. Your kid’s life depends on those who will drive them. I often carpool with parents I know for a long time, and the ones who are volunteering at school. To be a volunteer at school you need to provide the school with an up to date police check, which is a security for your kids safety too. Never trust strangers and parents you only get to know them for a short period of time. Unfortunately, there are sick people around us and you definitely don’t want them around your kids.

When it comes to my kids I trust only those whom I know well. I know it feels strange to ask someone for a police check, but if schools allow their volunteers only after screening them, you should too. The truth is, I too struggle to personally ask for one, so I only allow my kids around people I know have an up to date police check at school. Take time to get to know those people well. Do they have a drinking habit? Are they ok with drinking and driving? Invite them in your home and connect with them. I always say it’s better to be safe then sorry.

Once you clear the background of those whom you’ll trust your kids, here are some things you should prepare your car for its carpooling duties:

• Check your fluids. Make a habit to check your fluid level once a month, especially the level and condition of your antifreeze/coolant. It’s not hard to ‘top off’; just use as recommended.
• Visit your trusted mechanic for a vehicle inspection. They can alert you to any potential problems, and fix those that are necessary.
• Get an oil change. With carpooling schedules, the miles on your car will likely increase. If you have an older car with many miles, consider the Farm High Mileage oil filter. It has a special time released gel additive that helps reduce engine wear by maintaining oil viscosity, neutralizing acids and keeping engine components cleaner.
• Be prepared. As the weather gets colder (and slowly does), make sure your vehicle is stocked with ice-fighting products like winter windshield washer fluid. Have a defrosting spray handy.
• Play it safe. Always have an emergency kit and cell phone in your car in case of emergencies. As the weather gets colder, have extra blankets and warm clothes on hand, along with bottled water and snacks.

Carpooling helps keep our environment in better shape, gives parents some free time and let kids connect better. You and your children can build long term friendships, just please be safe and do it right.

Do you carpool with other parents when it comes to school trips, sport activities? What kind of safety measures you take to make sure your kids are safe?

Category: Raising Children | 2 Comments »
Tags: Carpooling Kids

Posted By FP on August 25, 2010

I often find my clients paying the minimum on their credit card balances. Some of these people are in a situation where they can not afford to pay more, but some would be able to pay the full balance, but they choose not to because they don’t really understand how accumulated debt works.

Why is it important to pay your credit card balance in full?

If you can pay your credit card balance in full each month, you can benefit from the card’s advantages without having to pay interest charges. Paying your credit card balance in full is also the best way to avoid accumulating debt.

If you can’t pay the entire balance, you should at least make the minimum payment. Failing to make the minimum payment can have an impact on your credit rating and lead to a higher interest rate.

Can you afford to pay more then the minimum payment? Then do it! If you only intend to make a partial payment, be sure to do it as soon as possible before the date indicated in your statement. This will reduce your daily balance faster and allow you to save on interest charges.

More complete credit statements help you plan ahead. Starting on September 1, 2010, federally regulated financial institutions must disclose new information on statements sent to consumers.

In the new credit card statement you will see, among other things:

• An advanced notice indicating any change in your interest rate, and the reason for the change, such as the end of a promotional offer or missed payments
• An estimate of the length of time it would take to pay off the balance in full if you paid only the minimum amount required each month and did not make any new purchases. For example, if you had a balance of $1,000, the annual interest rate on your credit card was 18% and you only made the minimum payment (3 percent) each month, it would take you 10 years to repay the balance!!!

To learn more how much you can save by paying your credit card balance faster, talk with your financial planner who will be able to help you understand your financial statements and have a plan to eliminate your debt.

Category: Financial Knowledge, Money Management | 2 Comments »
Tags: Credit Cards, Debt Elimination, Manage Debt, Personal Finance

Posted By FP on August 20, 2010

Loyalty is really important to me, but when it comes to car insurance the question remains:

How much is your loyalty discount really worth?

If you are like most consumers, you might worry that switching insurance companies means losing your “loyalty discount”. The truth is that switching insurance companies may cause you to lose your loyalty discount (IF you had one in the first place), but that doesn’t necessarily mean you’ll pay more for car insurance or that you can’t save a bundle in the end. Remember: multi car (two or more cars) and multi category (home and car) discount is NOT loyalty discount.

The fact is some insurance companies may provide a small discount on your premium if you’ve been with them for a long time, but that small discount can quickly become irrelevant if another car insurance company has a rate for you that is significantly less that what you’re paying. After all, what good is a 5% off of an annual rate of $1,500 (a $75 annual saving) if you could pay $1,150 (a $350 annual saving) with another company?

When it comes to car insurance we have to consider the annual premium we pay and how can we save on our annual premium.

How Much Do Rates Really Differ Across Car Insurance Companies? [Read More…]

Category: Car Insurance | 2 Comments »
Tags: Financial Knowledge, Personal Finance