Planning | Nelmes Financial | Conversations about Money

Posts Tagged ‘Planning’

Simple Wealth Creation Date posted September 23rd, 2011

Sitting with people and hearing their stories, reading many books on wealth creation, it seems creating wealth is simple. Many high net worth people have average incomes, and a great lifestyle. The story seems to always be the same, saved money while quickly paying down their mortgage and avoid other debt. It never seems to take very long for things to really start to grow for them.

It always amazes me how common this story is how simple it is and yet how hard it is for many to get there. I guess it is no surprise with all the marketing to buy, the need to keep up and maintain an image, and the general desire for stuff. The most ironic part is that for those who wait to get what they want, life has more for them and it is much easier to get what we want.

2011 Award Date posted September 19th, 2011

Christopher Nelmes was awarded the Five Star Award for 2011 for highest overall satisfaction by clients, peers and industry experts for the Vancouver area. Complete list of winners and details can be found in the June issue of Vancouver Magazine.

The Unexpected is Predicable Date posted September 19th, 2011

I find that many who are in debt tell a similar story, “I was ok then I was hit by a couple unexpected expenses.” Personally I cannot remember a year in my adult life that unexpected expenses have not shown up, and this is excluding property tax or other annual expenses that often get lumped into the unexpected category. (more…)

A simple tool to grow your Net Worth Date posted June 17th, 2011

Every month most of us receive a list of bills, payments taken from your account, a constant reminder of how much you owe, and the mountain of expenses most face each month. This contrasts the positive statements we get, such as, investment statements, equity and value of your home, which are sent out quarterly or annually in most cases. Taking the time to acknowledged and gauge your success is a simple and in many cases an amazingly effect way to not only visualize your success, but increasing your financial well being.

I recommend keeping at minimum an annual net worth statement. This helps you see where you stand financially, and more importantly creates a map of your financial success. This tool helps clearly layout your progress in building a solid financial future. As your net worth grows it tends to motivate more success in the same direction. I have seen great results from this simple tool. You can follow this link to a simple template to create your own net worth statement, and remember to complete it every year, as this tends to create the best results.

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RRSP Calculator Date posted February 23rd, 2011

It is common to wonder how much difference your RRSP (Registered Retirement Savings Plan) contribution will make. Below is a link to a great online tool that can help you plan and make sure you get the most from your money.

http://www.fidelity.ca/cs/Satellite/en/public/education_planning/calculators/tax

Should I save my RRSP Contribution Room? Date posted February 22nd, 2011

Most of us like the idea of saving on tax, so if you have the money to save in a RRSP and you have determined the tax savings are large enough to make it worthwhile, there are still a few situations where you might want to wait to make that contribution. Below I discuss a couple of situations where even if RRSP’s make sense for you, you may want to hold off investing in an RRSP.

Expecting a buyout? Many companies offer significant buyouts to long time employees a few years before retirement when trying to cut back staff, labor costs or shift the direction of the company. Although a large cheque can be exciting it can also create a significant tax issue. One simple solution to this is to take the buyout and put it in a RRSP. With this option the deduction the RRSP creates offsets the taxes on the buyout. As a lump sum like this will often push you into a much higher tax bracket than usual, this is often a great time to use your RRSP room to save tax, that is if you have enough RRSP room.

High income year. If you get a bonus, or sell an asset (such as a rental house) that sends your income into a higher tax bracket than you normally would be in, this could be worth saving your RRSP room for.

Skip a low income year. If you happen to make less one year than normal, then skipping the deduction that year may make long term sense.

When planning your finances it is important to look into the future and plan for low income years, high income years and any future financial transactions that may impact your tax situation.

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IPP versus RRSP Date posted February 21st, 2011

An IPP (Individual Pension Plan) is a tool that can replace an RRSP (Registered Retirement Savings Account) for small business owners. So which one is better to hold your investments in?

Why consider an IPP (Individual Pension Plan).

As you near retirement the contribution limit is greater than that of an RRSP
In some circumstance IPP’s behaves differently in your estate.
Can be used in different tax planning strategies (Accountant is recommended to discuss these, but can include under funding to devalue a business)

Why would you not want an IPP (Individual Pension Plan)

Annual fees are due to maintain IPP’s
Many more rules and restriction than an RRSP
A more complicated tool to understand.

If you are considering an IPP I would recommend talking to both an investment professional that understands this tool and an Accountant that can explain the tax benefits. These can be a great tool if understood and used in the right planning situation.

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Are RRSP’s Creditor Protected? Date posted February 19th, 2011

It wasn’t too long ago that pensions, some locked in retirement accounts and insurance products were the only protected option for Canadian investors in the event of bankruptcy. For the individual investor only the insurance options were available, as the rest would need to be set up by their employer (if they have one). However as of July 2008, Bill C-12, an amendment to the Bankruptcy and Insolvency Act changed this. This change provides the same protection for RRSP’s, Spousal RRSP’s, RRIF’s and some other registered accounts.

Hopefully no one invests with the intention of going bankrupt, but managing risk is about handling what we did not intend. What this protection provides is a planning opportunity for those who want to protect themselves from this risk. This could be a business person who wants to protect his retirement savings from business risk or a family hit by the financial devastation that can follow illness or injury.

The money does need to be place into a protected account a year before, and before you know of the pending issue. The main purpose of this change as I understand it was to extend the same benefits of retirement savings offered to employees with a pension to those who do not have access to a pension. As always before counting on this protection I would recommend discussing your unique financial situation with a professional as the smallest detail can make a big difference.

A last point would be to consult with a professional before accessing your money if you find yourself struggling financially. Too often I see people cash out there RRSP’s and other protected investments trying to turn things around, when they could have saved those assets and used them to jump start a new financial life.

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How much can I contribute to my RRSP? Date posted February 18th, 2011

Instead of calculating how much RRSP (Registered Retirement Savings Plan) room you have and risk getting it wrong, I recommend looking on your “Notice of Assessment” which is sent out each year after you file your tax return. On this form you will find both your TFSA (Tax Free Savings Account) contribution limit as well as your RRSP contribution limit.

If you contribute to an RRSP plan or Pension Plan at work will also need to be considered when determining how much you can contribute. You are also allowed to over contribute up to $2000. This is allowed without penalty, however you do not get to deduct the over contribution from your income. I would use this as a safety net and do not usually recommed intentionally using this room.

Your RRSP contribution room is made up of 18% of your taxable income from the previous year to a maximum in 2010 of $22,000, added to the unused room from previous years as far back as 1991.

The RRSP contribution limit has worked as a great annual savings target for many. It is very rare to see someone contribute the maximum to their RRSP each year and not have a sizable retirement savings.

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Repaying RRSP Home Buyers Plan Date posted February 17th, 2011

After borrowing from an RRSP (Registered Retirement Savings Plan) with either the HBP (Home Buyers Plan) or LLLP (Life Long Learning Plan), there comes a time when you need to either put the money back into the plan or pay tax on the money. I do believe saving for the future is good, however putting the money back is not always the best option, here is a common example of when back these plans do not make sense.

Example. A young couple wants to buy a house; they decided to use the Home Buyers plan for part of their down payment. A few years later it is time to start putting the money back into their RRSP. Often they have had kids by this time and one of them may be staying at home with the kids. If staying at home they likely have no income, in this case I recommend not contributing to the RRSP for this person, but instead make a contribution in the spouses name who is working.

What ends up happening is the spouse not earning any money will have to pay tax on the RRSP payment that was owed; often this is nothing or small. The RRSP room is lost. However the spouse who has an income makes a RRSP contribution and since they are in a higher tax bracket they receive a bigger tax break. As a result the same money put into an RRSP gets a bigger tax benefit.

I do believe in saving, however just because there is tax owed if the funds are not returned does not mean it is the best place for you to put your money. A little planning here can make a big difference. As always I recommend talking to a professional. If you have any questions and are in BC I am happy to help.