Celesta Financial

Tax Free Savings Accounts compared to RRSPs

2012-02-09T18:24:00.000-08:00

A Tax Free Savings Account (TFSA) can be used as an investment account and is not just for savings.

You can invest the funds in a TFSA in all of the same types of financial products that can be used in a Registered Retirement Savings Plan (RRPS) e.g. cash, GICs, bonds, mutual funds,segregated funds, exchange traded funds (ETFs), real estate investment trusts (REITs),options and warrants.

TFSAs are useful for both long term and short term savings as you can access the funds without any tax consequences. There are some major differences between a TFSA and an RRSP such as:

There is no requirement to convert a TFSA into a payment option at any age (i.e. RRIF)
Contributions to a TFSA are not tax-deductible and there is no related refund
Withdrawals do not result in lost contribution room - the same amount can be put back in the following year
Withdrawals are not considered as income for tax purposes and will not affect your eligibility for income-tested government benefits and credits such as the Guaranteed Income Supplement (GIS) or the Age Amount on your income tax return
Your contribution room increases by $5000 each year, independently of your earned income

Investing the funds in a TFSA and creating a profit will increase your contribution room even further if you withdraw those funds and then recontribute them in the following year. For example, if you invested $15,000 and made a profit of $15,000 you could cash in your investment, withdraw all of the $30,000 and thereby create contribution room of $30,000 to add to the $5000 room available for the following year.

Of course, doubling your money is not so easy and investing in products that could give you this kind of return comes with considerable risk. Also, be aware that if your investments in the TFSA go down in value and you decide to cash in your investment, you would lock in your losses and decrease your contribution room available. Before deciding which products you will put in your TFSA you need to consider the time frame for your investment and how much risk you are willing to accept.

For more information on TFSAs visit Tax Free Savings Accounts and Canada Revenue Agency TFSA facts

Failing to plan is planning to fail - especially when it comes to money management

2011-10-13T18:54:00.000-07:00

It all starts with a budget. Most of us hate the "B" word but it will be the most important step in getting an idea of where all your money goes every month.

Budgeting is really not difficult once you make up your mind to get started. An Excel spreadsheet will make it easier to track, sum up and modify your budget as you go. Best to make it a family affair if you are still talking to your spouse about money! Start with the biggest items like mortgage or rent, car expenses, food, credit card payments and don't forget your "Latte Factor" - those unnecessary little expenditures on which we waste our money. David Bach who coined and trademarked the phrase has a great site with a calculator to help you with this part. See Latte Factor.

Just for one week, track every single expense. Keep all your receipts and enter them in your budget sheet. You may be surprised at how the seemingly "little" things add up. Keep going! A month of keeping track is even better.

Now that you see where the money goes, you can start planning on where you can save and invest. Even a little savings will make a difference if you do it long enough on a regular basis. Try saving just 1 or 2 dollars a day to start.

Even a small sum like $50 a month can build a nest egg of over $100,000 if you start at the age of 21 and stop at age 65, starting with an initial sum of $1000 and assuming a 5% rate of return. Try out some possible scenarios on the calculator below to see how you can benefit from regular saving and investing.
Calculator: Advantage of early investing

Keep it up! If you get a raise or unexpected money put that in your "nest egg" fund and forget you have it. Some other ideas for saving:

Walk instead of taking the car for short trips. You will gain an extra bonus of better health!
Take your lunch to work or "school" ( yes, I am talking about all you college and university students)
Check out the free online movies instead of going out and paying to see the same movie
Make extras when cooking so you have a quick meal ready in the freezer instead of ordering pizza

Send me your ideas and comments for other ways to save and still have fun!

Financial education –start small and start young

2011-08-29T22:13:00.000-07:00

“The number one problem in today's generation and economy is the lack of financial literacy.” Alan Greenspan

Success in life is often measured in terms of the piles of accumulated "things" we possess but we are really missing the point of success by limiting ourselves to this measurement stick. A good financial education will give us the possibility of obtaining not only material riches but the riches of experience which enable us to put deposits in our Memory Bank. Financial knowledge will also give us a good understanding of maintaining, conserving and sharing our accumulated riches. If our children learn to manage money responsibly it will not end up managing them.

Ideally we have to start teaching finance when kids are small, trusting and ready to soak up information. Perhaps you have heard of the 3-Jar method of teaching good financial habits? It is often used with young kids but adults could benefit from copying the idea of allocating their funds into three"jars". One jar is for

SAVING (tough but necessary) -

one is for SPENDING (Yay!!) and

one is for SHARING (riches are better shared).

Kids taught to handle their allowance or gifts of money in this way will end up being able to manage money wisely..

I think that elementary and high school curricula should have mandatory courses in personal finance so that kids will hopefully avoid some of the pitfalls of poor financial decisions due to lack of knowledge. Learning Finance can actually be fun!! What's more, there is a payoff for doing well in the course - a sound financial education is a great investment in a comfortable future. We owe it to ourselves and our kids to teach them to not only control and manage their money but to share their wealth with others.

"He had heard people speak contemptuously of money: he wondered if they had ever tried to do without it." Somerset Maugham in: "Of Human Bondage"

Turbulence in the markets? Here's a strategy for sleeping better at night.

2011-08-12T12:16:00.000-07:00

You have heard it all before - "What goes up must come down". This applies so very well to the stock markets and can cause untold grief to those who are not well prepared for the roller coaster ride. There are several strategies you can use to help you breathe easier when the next wave comes along:

1) DIVERSIFY: follow the old adage about not putting all your eggs in one basket. Have a mixture of fixed income and stocks and cash.

2) UNDERSTAND WHAT YOU ARE BUYING: do not buy shares in companies you do not understand. Buy companies you deal with or indirectly use on a regular basis.
3) GO BASIC: some of the safest stocks to buy include Canadian banks (the Big Five, TD, BMO, RBC, ScotiaBank, CIBC) utilities (Enbridge), pharmacies and related companies (Shoppers Drug Mart, Johnson & Johnson, Proctor & Gamble), low-cost restaurants ( Tim Hortons, MacDonalds), transportation (CN, CP and Westjet), energy (oil and gas equipment e.g. Mullen Group). Real estate can be a good investment as Real Estate Investment Trusts (REITs e.g. RioCan, Chartwell or an ETF Reit) See More on REITs.

4) RIDE OUT THE VOLATILITY: do not jump in and sell your investment when dips in the market happen. Follow the trends and take opportunities to use your cash to buy good companies at cheap prices.

5) INVEST IN HIGH QUALITY SEGREGATED FUNDS: your investment will be covered with guarantees to protect you against major losses.
6) KEEP SOME CASH for buying opportunities. Remember, when everyone is selling that is the best time to buy and when most are buying, it is a good time to sell.
7) EDUCATE YOURSELF ON FINANCE: read Jeremy Siegel's "Stocks for the Long Run" and the update on an old classic- Benjamin Graham "The Intelligent Investor" See The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

For more information on segregated funds and more ways of protecting your investment: Contact us at Celesta Financial

The Wealthy Barber returns - with a new book on managing your money wisely

2011-07-13T22:10:00.000-07:00

David Chilton, author of "The Wealthy Barber" a popular book on personal finance has now written a sequel to this one as "The Wealthy Barber Returns". It is due to hit the shelves in the fall of 2011.

Here is a short piece of the book in which he show us the dangers of the "Diderot effect":

"One of the finest pieces ever written on the saving/spending challenge was an essay penned way back in 1772 by the witty and wise French philosopher Denis Diderot. It was entitled Regrets on Parting With My Old Dressing Gown: Or, A Warning to Those Who Have More Taste Than Money.
In it, Diderot eloquently chronicles how his beautiful, new, scarlet dressing gown came to wreak havoc on both his mood and his finances. Soon after receiving the gown, it became apparent that his surroundings, though formerly very pleasing to him, were not in keeping with the gown’s elegance. He felt compelled to replace his tapestry, his art works, his bookshelves and chairs and finally even the beloved table that had served as his desk. Eventually, a poorer Diderot sat uncomfortably in his stylish and now formal study. “I was absolute master of my old dressing gown, but I have become a slave to my new one,” he lamented.
All of us have some Diderot in us. Therefore, the reference “group” you often need to be most wary of is not your affluent friends, or even your wealthier work colleagues; it’s you, yourself.
Few things influence your spending decisions of today more than your spending decisions of yesterday.
Spending begets spending."

Click on this link to see more of this excerpt from his new book After 21 years...The Wealthy Barber Returns.

Synergy - Life, Disability and Critical Illness insurance - all rolled into one solution

2011-07-04T12:20:00.000-07:00

Every day we face risks - and every day our lives could be dramatically changed by some event either within or beyond our control.

LIFE HAPPENS!

Effective risk management should involve a plan to minimize financial consequences for ourselves and our loved ones.
A recent, innovative and unique insurance solution - Synergy from Manulife Financial can provide you with a cost saving bundle of insurance for LIFE, DISABILITY and CRITICAL ILLNESS - all in one policy. Coverage lasts until age 65. Conversion of the life insurance portion into permanent insurance with no medical underwriting is an option.

To learn more about how this could be the right product for your needs please Contact us at Celesta Financial

Children's Arts Tax Credit - new in the Canadian federal budget

2011-06-20T21:23:00.000-07:00

In addition to the Children's Fitness Tax Credit there will now be a 15% Children's Arts Credit available for the 2011 tax year.

The next time you file your income tax return you will be able to claim a federal tax credit for your child's drama, music, sculpting or painting classes. The maximum benefit is $75 ($500 x 15%.) and you should keep your receipts. Eligible children will be 16 or less at the beginning of the tax year.

The definition of “eligible activities” covers most non-sports related programs that contribute to the development of creative skills or expertise in artistic or cultural activities. The child has to be registered for eight consecutive weeks or five consecutive days and the activity cannot be part of their regular school program. For more details go to the CRA website at Children's Arts Tax Credit. For more on the new budget see Budget 2011.

Pay yourself first and build a nest egg of savings - the easy way

2011-06-10T22:15:00.000-07:00

There is a certain Buddhistic calm that comes from having....money in the bank. ~ Tom Robbins

See how the power of starting early and saving even small amounts regularly can make an enormous difference to your wealth. To get an idea of the benefits of investing on a regular basis you can use this tool from Fiscal Agents- Savings and Investment Centre:

Calculator: Advantage of early investing

Even a small sum like $50 a month can build a nest egg of over $100,000 if you start at the age of 21 and stop at age 65, starting with an initial sum of $1000 and assuming a 5% rate of return. Try out some possible scenarios on the calculator above to see how you can benefit from regular saving and investing.

Your funds could be regularly invested in high quality mutual or segregated balanced funds and/or a ladder of GICs. In Canada, up to $5000 per year of these funds could be be tax sheltered in a Tax Free Savings Account (TFSA). For those who are comfortable taking on a bit more risk you could allocate a larger portion of the money to mutual funds and/or segregated equity funds. Contact us at Celesta Financial for some options in these areas and kick start your savings plan right away.

"A penny saved is a penny earned." Benjamin Franklin

The most precious gift you can give your child is a good education.

2011-06-03T11:04:00.000-07:00

"The main hope of a nation lies in the proper education of its youth." Erasmus

Much of your child's success in the future depends on their post-secondary education and this is becoming increasingly costly. By 2027 it could cost you more than $114,063 for a 4-year university program if your child is living away from home. Your child may be faced with huge student loans that take years to pay off unless you plan ahead to make funds available for them.

A Registered Education Savings Plan(RESP) is a tax-sheltered plan in which you can save for the post-secondary education of your child. You can also take advantage of the Canadian government grants of up to $500 per year and in the case of lower income families, an additional amount as a Canada Learning Bond.

By starting early to save in an RESP you can help to ensure you have the funds available when your child is ready to attend college or university. CONTACT US for more information on how to start an RESP plan that will help you fulfill your dreams for your child.

"Education is not preparation for life; education is life itself." John Dewey

Product Allocation and Asset Allocation - do you know the difference?

2011-05-24T19:23:00.000-07:00

Putting all your eggs in one basket is never a good idea - ask those who invested all their disposable, and maybe even some borrowed funds, in Nortel stock what can happen!
Asset allocation is used to spread your risk among several different types of assets including:

cash and cash equivalents including money market funds,
fixed interest securities (GICs, term deposits, government bonds, corporate bonds),
equities (preferred stocks, common stocks etc).

Conservative asset allocation strategies, when properly applied, can be effective in protecting you from big swings in the market. However, asset allocation by itself is not enough to fully protect your retirement nest egg..

Product allocation,on the other hand, is a way of further diversifying your investments and involves placing your assets into three distinct product categories to help provide a sustainable retirement income.

An entertaining and useful explanation of this strategy is presented by a math professor and an investment advisor in "Pensionize your nest egg".

For more information about how to get started on your own personal pension plan you can contact us at Celesta Financial to learn more about how we can help you achieve your goals for retirement. You can also learn more details about this concept of retirement planning at a website developed by Manulife Financial. See Help my savings last.

The many faces of annuities

2011-05-24T18:11:00.000-07:00

Annuities have come a long way. There are now many options and riders that can be added to enhance their value. Morningstar has an interesting read on this topic entitled The many faces of annuities .

Your thoughts can make you richer - in 21 days

2011-05-19T21:47:00.000-07:00

Napoleon Hill's famous book "Think and Grow Rich" originally published in 1937 during the Great Depression gave us some useful principles on which we can begin increasing our wealth and living richer more productive lives. His ideas are still valid even if a bit out of date. A new book entitled "The Wealthy Spirit" by Chellie Campbell goes a step further and challenges us to use affirmations for 21 days and prepare for positive results. You can create your own positive affirmations or use suggestions in the book such as "People love to give me money"! but you really need to believe it works in order to see results. Try it out and see what happens!

Your beliefs about money can hurt you

2011-05-19T14:40:00.000-07:00

An interesting study by Klontz et al on Money Beliefs and Financial Behavior in the Journal of Financial Therapy indicates that your beliefs about money can be harmful to you. People who focus on money worship, money avoidance and money status usually have less money than the people who don’t. For a good summary of the study see this article by Angela Self at the Globe and Mail: Your money beliefs could be hurting your bottom line.

Tax bill too high? Time for a post-mortem.

2011-05-18T13:35:00.000-07:00

Tax bill too high? Time for a post-mortem|Morningstar

Trouble with the taxman?

2011-05-17T19:25:00.000-07:00

Having issues with your notice of assessment from CRA? The Taxpayers Ombudsman may be able to help. See http://www.oto-boc.gc.ca/dlng-eng.html

Defined benefit pension plans

2011-05-12T14:37:00.000-07:00

Defined benefit pension plans are becoming more and more rare. You can create your own equivalent to this type of plan. Contact us to find out how.

Also see http://tinyurl.com/Defined-benefit-pension-plans

Defined-benefit pensions on the wane

www.theglobeandmail.com

Financial crisis appears to have fuelled a growing shift by companies to defined contribution plans.

Best rates for a GIC

2011-05-05T14:36:00.000-07:00

Nervous about the market and wondering where you can get the best rates for a GIC? Contact us at Celesta Financial for GIC and short-term deposit rates that are consistently among the highest available -- typically significantly higher than the retail rates posted by Canada’s ‘big five’ banks.

http://celestafinancial.com/ContactUs.aspx

Take a close look at your finances

2011-05-01T14:34:00.000-07:00

Now that your tax return has been filed it is time to take a close look at your finances to see how you can save tax for the next year. Take a look at this useful site for updates on new tax rules http://www.taxtips.ca/

TaxTips.ca - Canadian Tax and Financial Information

www.taxtips.ca

TaxTips.ca - Canadian tax, financial and investing information and calculators for individuals and business

Tax Free Savings Accounts

2011-04-19T14:32:00.000-07:00

Tax Free Savings Accounts - more is better. See http://tinyurl.com/Tax-Free-Savings-Accounts

Jonathan Chevreau: Everyone benefits from TFSAs | FP Comment | Financial Post

opinion.financialpost.com

Poor benefit by avoiding clawbacks — an advantage unavailable to rich A sleeper in the upcoming federal election is the Conservative proposal to double contribution limits for Tax Free Savings Accounts, once the deficit is eliminated.

http://celestafinancial.com/ContactUs.aspx

Were you a first time home buyer in 2010?

2011-04-05T14:30:00.000-07:00

Were you a first time home buyer in 2010? On your tax return don't forget to claim the credit for this. It could be $750 in your pocket! http://www.cra-arc.gc.ca/nwsrm/fctshts/2010/m01/fs100121-eng.html

Fact sheet - First-time home buyers' tax credit

www.cra-arc.gc.ca

The HBTC is a non-refundable tax credit for certain homebuyers who acquire a qualifying home after January 27, 2009, that is - closing after this date.

Investing for stability and growth

2011-04-04T14:28:00.000-07:00

Ask us about investing for stability and growth in funds that received the Lipper Award in 2010, including one with an annualized 14.1 per cent gain over the past 3 years.

http://celestafinancial.com/ContactUs.aspx

Beware of schemes that promise you a 100% tax deduction

2011-03-27T14:27:00.000-07:00

Beware of schemes that promise you a 100% tax deduction through buying tax losses. See http://tinyurl.com/Beware-unorthodox-tax-shelters

A scheme to save 100 percent of income tax? No thanks | Canadian Capitalist

www.canadiancapitalist.com

Larry MacDonald wrote a post today on a scheme to reduce up to 100 percent of your income tax. The scheme purportedly involves purchasing tax losses from R&D

Good-bye to the Canada Savings Bond

2011-03-23T14:25:00.000-07:00

Say Good-bye to the Canada Savings Bond: http://tinyurl.com/Canada-Savings-Bonds-the-end

The long slow death of the Canada Savings Bond

www.theglobeandmail.com

With the rock-bottom interest rates on offer, the once-loved investment has lost its allure

Tax changes as a result of the new budget

2011-03-22T14:23:00.000-07:00

Tax changes as a result of the new budget by the federal government in Canada: http://tinyurl.com/Proposed-Tax-changes

Eight tax changes you should know about

www.theglobeandmail.com

Highlights of the 2011 budget’s new credits, including programs for families and students, and the loopholes it closes

Do you have a child who is disabled?

2011-03-12T14:23:00.000-08:00

Do you have a child who is disabled? Take advantage of the tax sheltered plan: http://tinyurl.com/Registered-Disability-Savings

The Registered Disability Savings Plan | MoneySense

www.moneysense.ca

Have a child who is disabled? Wondering how to shelter some money so your child has a stash of cash available later? The RDSP lets you grow money - tax-free - until it is needed.