Showing posts with label budget. Show all posts
Showing posts with label budget. Show all posts

Tuesday, February 26, 2008

Tax-Free Savings Account—A Savings Plan for All Canadians

From the Federal Budget

Savings provide a means by which Canadians can invest in the future and improve their standard of living. For individual Canadians and their families, the accumulation of personal savings brings the security and peace of mind that come with the knowledge that funds will be available in the event of an emergency or for individuals to achieve their goals, such as starting a small business, purchasing a new home or a new car, or taking a vacation. In these ways, savings contribute to a higher standard of living for Canadians.

In support of the economic agenda set out in Advantage Canada, and to improve incentives for Canadians to save, the Government proposes to reduce the taxation of savings through the introduction of a Tax-Free Savings Account (TFSA)—a flexible, registered general-purpose account that will allow Canadians to earn tax-free investment income.

How the Tax-Free Savings Account Will Work

  • Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
  • Contributions will not be deductible.
  • Capital gains and other investment income earned in a TFSA will not be taxed.
  • Withdrawals will be tax-free.
  • Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits.
  • Withdrawals will create contribution room for future savings.
  • Contributions to a spouse’s or common-law partner’s TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death.
  • Qualified investments include all arm’s-length Registered Retirement Savings Plan (RRSP) qualified investments.
  • The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

The TFSA will provide a flexible savings vehicle for Canadians. Since not everyone is able to save each year, individuals who are unable to contribute $5,000 in a year will be able to carry forward unused contribution room to future years. In addition, in recognition of the fact that most people are likely to have multiple savings objectives at the various stages of their lives—e.g. to purchase a car, home or cottage—the full amount of withdrawals may be re-contributed to a TFSA in the future, to ensure that there is no loss in a person’s total savings room. In recognition of the fact that couples often make their savings decisions and plan for their financial security on a joint basis, individuals may contribute to the TFSA of their spouse or common-law partner, subject to the spouse or partner’s available contribution room.

Canadians will also benefit by being able to use the TFSA to start saving early for a range of needs they may have in the future. Many Canadians may prefer to use a TFSA to save for pre-retirement needs given the absence of tax consequences on withdrawals and the ability to avoid the use of RRSP room for non-retirement savings needs.

The TFSA will also provide seniors with a savings vehicle to meet any ongoing savings needs, something to which they have only limited access once they are over the age of 71 and are required to begin drawing down their retirement savings. Based on current savings patterns, seniors are expected to receive one-half of the total benefits provided by the TFSA.

This is a fantastic new measure for many Canadians. It will benefit low income Canadians the most who may not realize a large benefit from RRSP tax deductions or who have government benefits clawed back because of their income level. It is also my hope that it will encourage investing and saving more than the current lacklustre level.

Friday, January 18, 2008

Consumption

I suggest everyone visit http://www.storyofstuff.com/ and watch. This is the mess we have gotten ourselves in as a society and we need to come up with solutions for a more sustainable way of life for our financial well being, our health, and for our environment.

Tuesday, November 13, 2007

Canadians in Hock

Tip of the hat to reader '/dev/null' for forwarding this news story. Credit card debt is obviously a major problem for many Canadians. It is hard for me to comprehend how much revolving debt many people have and they don't even realize that they are enslaving themselves to the cheap crap they bought on the card.

Growing credit debt is crushing Canadians: study
Updated Tue. Nov. 13 2007 8:46 AM ET CTV.ca News Staff

A new study of Canadians' credit debt finds that a whopping 25 per cent owe between $10,000 and $40,000, and 28 per cent don't even know the interest rate they pay on their main credit card.

The report by Credit Canada and Capitol One was timed for release during their Credit Education Week, and is designed to raise awareness of good financial management.

Laurie Campbell, of Credit Canada, said the numbers -- which don't factor in mortgage debt -- were surprisingly high.

"The numbers are quite startling, even I was quite surprised, but nevertheless, this is truly what we're seeing," Campbell told CTV's Canada AM.

"Savings rates at an all-time low and debt rates at an all-time high so this financial literacy week in my opinion is long overdue."

The study, which questioned 4,000 respondents about their personal credit debt practices, found a disconnect between Canadians' debt levels and retirement plans.

When asked about their total outstanding debt from credit sources and loans, respondents said the following (figures don't include mortgage debt):

$0 -- 16 per cent
$10,001 to $20,000 -- 13 per cent
$20,001 to $40,000 -- 12 per cent
$100,001 to $200,000 -- 9 per cent
$300,001 to $500,000 -- 1 per cent

Two per cent of Canadians said they had six credit cards; while six per cent had five credit cards; 12 per cent had four cards; while the majority, 25 per cent, had two credit cards.

Twenty-two per cent of Canadians said they had only one credit card.

When it came to the average balances people said they carried on their credit cards, 36 per cent said their monthly balance was $0 because they paid off their credit card each month.

Eleven per cent said their monthly balance was between $1,001 and $2,500, 9 per cent had a balance of between $2,501 and $5,000 while 1 per cent had the highest monthly balance of between $20,001 and $30,000.

When asked how their credit card habits could be best described:

50 per cent said they pay their credit card off in full every month.
37 per cent said they pay the minimum requirement each month
10 per cent said they do not have a credit card.
3 per cent said they sometimes/often miss the minimum required payment.

"Certainly what happens with a lot of people is they look at their statement, they see a minimum payment, and say that's what I have to pay and unfortunately they don't look further to find out what the implications of only paying the minimum payment are," Campbell said.

When it came to budgeting, 53 per cent said they have no budget. Another 31 per cent said they have a budget and stick to it, and 16 per cent said they have a budget but rarely stick to it.

When asked when they thought they would be able to retire, respondents said the following:

13 per cent -- never
3 per cent -- between 71 and 76
24 per cent -- between 56 and 60
29 per cent -- between 61 and 65
14 per cent -- between 66 and 70

"The majority of people expect to be able to retire at 60 or 65," Campbell said.

"I don't know how they expect to retire if they're not saving, so there's a real dichotomy between the way people see their future and the way they're handling their money."

When asked what their top concern was regarding credit and debt management, 26 per cent said they worried about not being able to deal with unexpected emergencies.

Campbell said the goal of Credit Education Week is to raise awareness among Canadians about credit debt and how to deal with it, through providing free advice and online resources.

While a strong Canadian dollar has lulled many Canadians into a sense of financial security, people must be cautious, she said.

"People are very optimistic which is a very wonderful thing but you also have to plan for your future and think about where you're spending your money and put your goals in place, that's the most important thing."

Thursday, May 17, 2007

Personal Budgeting

As a financial planner I meet many different types of people, single, married, with children or without, seniors, and anyone else you can think of. Everyone has a different personal budget it seems whether its a conscious choice about how much they spend money in different categories or a 'fly by the seat of the pants' approach which is also a budget of sorts - its just really short term budgeting!

As a general rule, when I find people are in financial trouble, it is likely I will find overspending in some categories and a general lack of savings to help smooth out life's bumps and irregularities. This can be a habitual problem with many people - they spend too much and don't save enough. Many times I recommend that these people start a more rigorous budgeting procedure and a more disciplined approach to spending and consumption.

I was curious as to the average Canadian's budget so I dug up some StatsCan data and put it into a chart. The numbers are for 2005 - click to enlarge.


Generally speaking, Canadians don't save enough and they pay a lot in taxes.

And for interest sake here is my personal family budget.


I know the categories aren't the same but it is interesting to compare. I would roughly fall into the "Couple with Children" category. I spend significantly less on taxes, food, and transportation than average. I also invest and donate far more than average and I pay more on my mortgage than average. This is likely because 1) I live in the most expensive real estate market in the country and 2) I have a very short amortization period. Other differences are that I don't gamble or smoke and I don't have any education expenses.

Tuesday, March 20, 2007

Free For All

It's a free-for-all kind of day today.

We could discuss:

Inflation - it's up
Federal Budget - spending is up, taxes are down (kinda)
Housing - it's silly - inventory is rising, sales are declining
Markets - ambivalent

You lead the way.


Monday, March 19, 2007

Personal Finance: Budgeting

Without a budget, many of us just muddle through, trying to stay one step ahead of our bills, living paycheque to paycheque. If the word "budget" makes you squirm, think of it like this:

  • summarizing how you spend your income
  • creating guidelines for your spending

Thinking of a budget as a financial restriction is a sure way to set you up for failure. A budget is simply:

  • a tool to increase your consciousness of how and where you spend your money
  • a guideline to help you spend your money on the things that are most important to you

How do I start budgeting?
The first step is setting up income and expense categories to track. Basic categories such as housing, utilities, insurance, and food are a good place to start but we also each have expenses that are unique to our personal situation. The plan is to become more aware of where your money goes so you can be more aware about your spending decisions. You can use a budget program, a simple spreadsheet, or a piece of paper.

The next step is to start putting amounts into the fields of the spreadsheet or budgeting program you have decided to use. To get started, gather as many of your pay stubs, bills, and receipts as possible. Work out your average monthly gross income, including average salary, commission, bonuses, dividends, and interest.

Next, go through your bills and receipts for the last three months and list all your monthly expenses on a budget worksheet. Make your categories detailed enough to provide you with useful information about your spending habits, but not so detailed that you become bogged down in trivial details.

Now that you've listed estimates for your budgeted amounts, don't forget to record your cash expenditures. Write them down in a little notebook as you spend the cash or figure out something that works for you. You may be surprised at where your cash goes, especially if you make frequent ATM withdrawals. Some people use credit cards or debit cards to track all of their monthly expenses and carry very little cash.

The Truth Comes Out!

Now that you have successfully tracked your income and expenses, subtotal the income and expense categories and subtract the total expenses from the total income to arrive at your net income and now you know the amount of money you have left over for savings, emergency funds, etc. If the number is negative, your expenses are greater than your income. Don't be depressed because it’s likely your situation can be greatly improved by changing your spending behavior.

If you're fortunate enough to have a positive net income, be sure to transfer most of it to a savings or investment account at the end of each month because extra money left in your regular account has a way of getting spent.

Sticking with the Program

After you've tracked your actual spending for a month or two, you'll be better able to identify where you can make changes to start saving money. Consider it a process of self-discovery. Many people don't have a clear idea of where their money goes until they start tracking their spending, and then they are usually very surprised at how much they spend in certain categories over time. You can't control your money until you know how much you have and where it goes.

Once you've got the budgeting process in place, take an in-depth look at your largest spending categories, research new ways to reduce spending in specific categories, and set sensible goals. Don't overlook the smaller spending categories, either. Sometimes these are the easiest to make cuts in because the spending may be more discretionary, and small amounts can add up very quickly.

If you stick with tracking your income and expenses past the first month or two, you'll begin to see a pattern in your spending, and you'll be able to identify areas where you can painlessly save money that you can use to save. It may sound unlikely, but discovering ways to save becomes a challenge that can be very rewarding, especially as you see your savings grow. Following a budget can set you free from the burden of living paycheque to paycheque and the constant worry that you won't be able to get ahead financially.

Friday, February 23, 2007

THE 2007 BRITISH COLUMBIA BUDGET

From TD Economics - Released on February 20, 2007

HIGHLIGHTS

  • Planning surplus estimated at $2.8 billion in FY 06-07
  • Further black ink targeted over the next few years
  • 10% personal income-tax cut the budget’s centrepiece
  • Announced measures to address the affordable housing challenge
British Columbia’s Golden Decade continues at full throttle, .... Today, the government turned the spotlight on the province’s housing challenge, although many of the measures presented today will accomplish multiple aims.

Fiscal 2006-07 another banner year
Owing to a booming economy, total revenues stormed in $2.7 billion higher than planned .... Not all of the windfall flowed through to the bottom line, as the government booked an additional $900 million in spending, some of which was related to new measures announced today, such as the establishment of a $250 million Housing Endowment Fund. Meanwhile, with the risks to 2006-07 forecasts now having diminished, the government has scaled back its forecast revenue allowance by $550 million. If not used, the remaining $250 million cushion would transform the year-end tally to $3.15 billion, surpassing last year’s rosy performance and the highest on record.


Tax cuts to take a bite out of revenue growth
....


The cornerstone of this year’s budget on the tax side was an announced 10% reduction in personal income taxes for individuals earning up to $100,000, effective January 1, 2007. Although this tax cut was “sold” in the budget as a measure that will help defray the costs of home ownership, the implications are much broader. Indeed, at this threshold or lower, B.C. will surpass Alberta as the jurisdictions with the lowest PIT bill among the provinces. The measure is slated to save an individual earning $50,000 per year $315 and $864 for someone earning $100,000.

Other more modest tax reduction initiatives tabled today included an increase in the threshold for the First Time Home Buyers’ Program for property transfer tax exemption, a beefed up Home Owner Grant and sales tax rebate for the purchase of hybrid cars. Together, these measures are projected to shave about $1.5 billion from revenues.

Program spending is expected to increase by a moderate rate of 4% per year during the forecast period, with much of the increase front-end loaded into 2007-08. There were a slew of housing-related measures, including increased funding for shelter beds, a lifting of the shelter rate for individuals on social assistance and housing support for low income seniors. Still, the usual suspects – health care and education – were far from forgotten. In fact, new funding in these areas still accounted for more than half of the total new spending.

...

Tax supported debt
...


Bottom Line
British Columbia’s improving fiscal path, and falling debt burden, continue to increase its flexibility in confronting head on the province’s longer-term challenges – a fact recently supported by Moody’s decision to upgrade the province’s credit rating to AAA. While housing topped the headlines today, the environment is poised to become a dominant theme in future budgets. The good news is that taking measures to improve the environment – and at the same time dealing with the province’s Achilles Heel, weak productivity – are not mutually exclusive goals. The benefit to both areas of shifting the overall government revenue mix from income taxes to consumption taxes/user fees is case in point.


I don't comment much on politics because it tends to get emotional but I couldn't resist commenting on the BC Budget for 2007 because of the spin it has been given - making housing more affordable for BC residents.

Clearly, by allowing BC residents to keep more of their own money by reducing income taxes and the property transfer tax, it will free up more money to spend or save. They may decide to spend it on housing but they may not. Economically speaking, giving potential buyers or renters more money actually gives incentive for prices to rise, assuming demand will rise with the 'newfound wealth' we will all experience (a few hundred dollars a year is hardly worth writing about but every little bit counts)!

That said, if prices rise, supply should increase as well, providing some downward pressure on prices but I think we've already seen the supply situation explode so I'm not sure the budget will have any significant effect on the housing situation relative to these effects given the relatively minor nature of the tax cut. Assuming the the BC government knows that the BC housing situation is precarious on the pricing front, I am wondering at this point whether the government is going to try to 'take credit' for improving affordability in the future by positioning the budget this way.