Posted by Canadian Dream on September 17, 2010
I was told a story the other day of a couple under going a separation and the fact that the one spouse had likely not considered the full consequences of that decision in terms of money. The fact that the separation would like force them both into a significantly reduced lifestyle didn’t appear to register (at least at that time). I sat there in almost shock during this story since it literally would be impossible for me not to at least consider the money part of the decision.
Then again, I like money. So for me I tend to consider the financial aspects of my decisions on a fairly regular basis. In some cases, I might just not let the money drive the decision, but at least it crosses my mind. I would guess for other people who don’t like money, that they spend a lot of energy trying to avoid dealing with it. These people often don’t know how badly they are in debt and are scared to open their bills. Then taking it to the other extreme there are people who LOVE money to the exclusion of enjoying their lives or are so caught up with collecting more money they turn into cheapskates who won’t spend a dime extra even if it saves them an extra $1 in the long term. Neither of these love or hate relationships with money are helpful in the long run.
I think a healthy relationship with your money starts when you like it (at least a little bit). That way you are interested enough to care for your money by feeding it (savings) and will still remember to clean up after it (taxes). You don’t have to like cleaning up after your money (after all no one likes cleaning the kitty litter box), but you do have to do it. Also when you are at the ‘like’ stage with your money you are not afraid to yell at it when need be (or your adviser) if it doing something dangerous to itself (like wanting to invest 100% of your RRSP into a IPO).
Your money if you treat it right will grow up and defend you from the unexpected in life. It may only start off the size of a small kitten, but give it time and it should grow into a lion or tiger and be able to take down that evil beast called ‘work.’ On the other hand if you fail to feed your money enough you will end up with just a house cat which is cute, but not big enough to take down the work beast without some help. Or if you feed you money too much you end up with your beast that you have no control over and you are the one who ends up being the pet instead of the master.
In the end you should strive to like your money, regardless of how old you are. Even if your money is still small in your 40′s you still have time to grow a lion. After all, anything will grow fairly quickly with the proper feeding and care. It just takes the right attitude. So do you like money?
Posted by Canadian Dream on September 16, 2010
This is a guest post by Clinton, a 37 year old teacher from Ontario, who also wants to retire at 45.
My spouse and I have been school teacher’s in Ontario for about a decade and earn a good income. We have two children and live in a nice home in the suburbs. You will find us at swimming, baseball, soccer or another sporting event, two or three times a week. And I also want to retire at 45.
To date I’ve just about always have had a job. I had a couple of different paper routes when I was 11 and started working as a dishwasher in a local restaurant when I was 13. I was always employed throughout high school and university.
When I was in my late teens I felt like I had to make an employment decision for the future. With two generations of school teachers in my family, it was the obvious way for me to go. But I felt that I took the safe path when I became an elementary school teacher. I believed I could be a great entrepreneur and hold a number of small businesses, but the safety and security of the teaching profession drew me in.
By the time I had turned 29 years old, I knew that I wanted to have the choice to retire at 45, although it took me four years to actual take any successful actions towards this goal. Now at age 37, I know what I need to do and how to get there. So what is my plan? The major elements are:
1. Reduce Bad Debt – Credit cards, LOC used for personal purchases.
I’m focusing on paying for larger consumer goods, vacations and renovations outright. We used to purchase large items on credit cards and lines of credit. Then we spent a year to pay them back. Instead we now save up for these purchases in our TFSA.
2. Aggressively pay down the mortgage on our principal residence and reuse the equity to invest.
For example, on Dec. 31 2009 our principal residence has a readvancable mortgage of about $340,000. As you pay down the principal, amounts below 80% LTV becomes available as a secured line of credit. Now the mortgage part of that account currently sits at about $280,000. Ninety percent of the principal payment came from a real estate investment transaction. The other 10% comes from holding a prime-.9 variable mortgage while making payments as if we had a 5 year fixed rate mortgage at 4.5%.
3. Create alternate streams of income that act to replace our current income.
In particular, I am working to create income streams that are not co-related to an hourly wage as much as I possible. I really found it easy to pick up projects, contracts and various extra positions that paid me between $30-50 hour. I used to do a lot of this type of work between the age of 29-33, but I found that I was not leveraging my time effectively enough to achieve a balance of the goal of retirement at 45 with a healthy family life. Now, I am now trying to use my time more efficiently to create many little streams of income that will add up to something much bigger.
But don’t teachers have a great pension plan? Why retire early?
I would say that 99.9% of teachers in the profession are working towards a full pension and retirement in their 50′s and 60′s. You just do what you’re supposed to do – day in and day out and one day you reach the magic number of 85, then you retire. In Ontario, a full pension means the 85 factor, which basically is the age of the teacher + the number of years in teaching = 85. At this point you can retire with a full pension. I would also estimate that close to 20% net of every pay cheque goes towards that pension plan. For me to retire at 45, I would see my pension drop 2/3rd from $58,000 a year to $18,000 a year. In addition to the lowered pension amount, I would not be able to access those funds until I was 50. You can see why most people would want to work towards that full pension.
For me early retirement has a number of meanings. I really want to have the lifestyle that our family is living right now, without the obligations of our current employment. I want to be able to develop many of the business ideas that I have, write a few books, and do much more traveling as a family. To me that is worth giving up a full pension. You could say I’m not your average teacher.
Posted by Canadian Dream on September 15, 2010
If you have ever worked two jobs in your life you know it can be a little stressful at times. It often can become very stressful when you finally get around to doing your taxes and realize that you weren’t paying enough tax all year. So how do you avoid an end of the year surprise tax bill? Actually it’s not that hard with a few steps.
- Determine what you should be paying in tax. The problem with two jobs is they both only assume you have just one job. So at least one of your jobs should be taxed at your marginal tax rate (for example 35%) while typically your employer is only taking off the lower tax rate (for example 26%). That leaves you holding a tax bill for the missing 9% (35%-26%). To find out your tax rates just head over to Taxtips.ca and find your province. You just look up your rate for both jobs as a single job and add them together to find your marginal tax rate.
- Pay more tax during the year? A common solution to knowing you are going to have a higher tax bill is to fill out at TD1 form at one employer to have the additional tax deducted. This way you make sure you are paying the missing 9% or what ever you owe. The problem with this method is you are assuming that you will just pay the tax bill instead of looking at a different option.
- Avoid the tax bill entirely. Another solution is the save your extra ‘tax owing; money into an RRSP if you have the contribution room. That way you are building some savings and creating a tax break to offset your extra tax bill. This becomes a little easier to save since you can use the very money you would owe in tax to fund the RRSP.
I’m personally have two jobs this year and I’ve decided to skip #2 and instead I’m using #3. The great thing about this option is it allows you a larger free cash flow during the year to do what you want. For example, for the first half of the year I paid down my mortgage a bit faster and for the last three cheques of the year I’ll be putting the extra money into my RRSP to reduce my tax bill.
This solution seem nice until you realize that getting an accurate estimate of your tax owing can be a little complex as you add in a few extra complications like: investment income, income from a small business, determining your EI and CPP over payment (since they are getting deducted twice) and then any other tax credits you qualify for. Basically to do it right you would have to do your taxes twice: once as an estimate and then again when you file. I’ve decided to skip the detailed estimate and use a rough one. I might be wrong, but I should at least be close.
If you have two jobs or multiple income sources, how to you plan for your taxes?
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Filed Under: Tax
