TAX-FREE SAVINGS ACCOUNT:

The average Canadian taxpayer has a poor selection of income tax reduction opportunities to utilize.  However the Tax-Free Savings Account started in 2009 has changed that. 

Your wealth building strategy should include using this tax reduction opportunity as the starting point for creating or managing your investment portfolio.  It will help reduce the amount of taxes you have to pay which will provide a greater return from your investment activities.  Other significant advantages are also available. 

The major points of the Tax-Free Savings Accounts are:

1.  The contributions are not a tax deduction.  However earnings in the plan are non-taxable.

2.  Legally the plan can be started when 18 or older and continues for the remainder of your lifetime.

3.  Presently the yearly contribution limit is $5,000 but there is a formula for later increases.

4.  The plan can be built to generated income streams free from taxation.

5.  The ability to shelter investment earnings from taxation will allow the opportunity to build a significant tax free retirement plan.

6.   A feature called contributions in kind allows investments already own to be transferred into the plan (however it will be a deemed disposition, so any increase in value for those investments will be subject to taxation calculated on date of transfer).

7.  The yearly contribution limits not used (based on each December 31 year end) are carried forward year-to-year. 

8.   All withdraws are non-taxable.  Any amounts withdraw can again be put back into the plan in a latter calendar year subject to your unfilled lifetime contribution limit. 

9. The paperwork for yearly contributions are reported to Revenue Canada by the financial institutions administrating your plans.

10. Subject to your contribution limits, most investments are allowed except real estate and non-arm’s length investments (agreements between related parties).  However get professional advice before you decide what to contribute because the non-eligible investment penalties are severe.

11.  You are allowed to contribute to your spouse’s plan without invoking the attribution rules.  Generally the attribution rules means, the spouse who contributes to the purchase of the investment (without being fairly compensated) must report the income earned from those investments.  

12.  The investments in the plan can be used as collateral in leverage to buy other assets or used to guarantee loans at a reduced interest rate.

Features of the plan can be used for greater wealth that was not previously available to the Canadian tax payer and will be featured in future blogs.

MONEY SKILLS:

In order to become more prosperous you should develop a few practical principles called money skills. 

These simple money skills only require a flip-flop from old bad habits to new better habits and principles.  You can increase your prosperity by using new knowledge and develop that knowledge to develop new ideas and principles that develop into better habits.  By utilizing better habits and knowledge you develop a process to restructure your life to build money making goals, to feel better and see progress and better opportunities.  Plan big, work out the details, follow through with the little but important steps and steadily climbing higher, getting more and finally reaching the bigger goals developing them one at a time into where you are multi-tasking greater wealth and achievements.  What you are able to achieve will be determined by your creative and thoughtful determination and leverage using money skills, ideals, knowledge, and important networks.  The more effort and time the more results.

The first money skill is to realize that only a structured saving plan works.  Each pay cheque should have a certain amount going towards a Tax-Free Savings Account.  No plan means no savings.  Goals should be written down and followed each payday.  Write it down what you are saving for and review each day to ensure goals are met.  Your goal could be, “I am saving $200 each pay cheque so I can have $5,000 at the end of the year in the Tax-Free Saving Account that will go towards a down payment on a house, or my own business, or that education that will lead to a better paying job , or to build a tax free income stream, or a retirement plan, etc.”

The second money skill is to recognize that each dollar is a potential seed to greater wealth.  You should exam every dollar you spend and say to yourself do I need to spend this or should I reinvest it.  When you make a decision to reinvest it put it to the best possible use such as the Tax-Free Savings Account, prepay an expense, bank it, invest it, save into a RRSP savings account, save a down payment for a rental unit, etc.  Strive to find ways to invest your seeds into a reinvestment plan.  Remember the more money you save the greater potential seed for that next step and the closer to completing your set financial goal as planned. 

The third money skill is to find, earn or qualify for windfall money.  You make windfall money happen and count.  You should strive to find extra money to invest and put into savings.  That third pay cheque in the month paid twice yearly for those who get paid bi-weekly is extra windfall money.  The extra cash from yard sales, part time work, overtime work, income tax refunds, GST cheques, gifts, from reducing cost etc. is earning windfall money that should be automatically invested.  Remember your goal is to find more ways to get windfall money to grow your savings to create additional opportunities, income streams and complete more and better financial goals.

The fourth money skill is control.  Control your spending.  Look for bargains in sales, buy used in second hand stores, use newspaper ads, seek yard sales, etc. as an option.  Always check your receipts for any errors before leaving the store.  Buy healthy food to prepare instead of buying convenient junk food/snacks – you will get more value for money spent and will maintain a healthier lifestyle.  Wake up earlier and make a lunch for work, have a breakfast and make a coffee to take to work instead of spending $10 – $20 a day at work to feed yourself.  Always make ways to spend your money wisely to give you more discretionary income for investing and/or making opportunities to buy more of what you desire that is more rewarding or useful for you to get ahead.

The fifth money skill is to be generous.  This is more important then first appears.  Donate 10% to charities for a tax credit.  Charitable donations over $200 give you a tax credit equal to the highest tax bracket.  You will find yourself paying considerably less tax.  In Canada you are allowed to give up to 18% of your earned income to charities for the maximum tax reduction available. 

Being cheap will only tap into your own power instead of the power of true prosperity.  Join into the prosperous expansion of prosperity and the common goodwill towards all mankind.  It brings happiness, well being, health and opportunities that you inherit into your body, mind and soul.  When you look out for others you will work harder to achieve that goal because of the joy it brings to your life and personality that you will want to fulfill and develop more into your life skills.  Tap into the joy of giving and being free to help the less fortunate and prosper in knowing God sees what you are doing and He has no choice but to reward you accordingly.  When you help others – others will help you – you will expect more and receive more.  Like a magnet you will attract in the same measure and most likely receive back many fold more.  Expect the best and it shall come back to you in full measure.

The sixth money skill is to use leverage.  There are many different ways of doing this but the first step is to accumulate assets and knowledge.  Study how others did it and follow the same foot steps.  Network and expand the amount of people you know and interact with.  Joint forces with like minded people either in partnerships or working for you but be careful who you joint forces with.  When you join forces with the wrong people destruction can be severe or progress limited.       

The seventh money skill is to pay for expert advise when you are ready to move forward using legal entities, tax deductions, business plans, real estate purchases, family members, and leverage. 

The eight money skill is having the desire to be wealth.  Find ideas, make goals, create opportunities, plan and fulfill the step to complete them. 

You need to change your thinking to I deserve to be rich and I will be richer and fulfill that deep desire with knowledge, thoughts and with determination and expectation of success.  Feed that desire with thoughts of wealth and fulfillment so it becomes the core belief of your ultimate outcome that you will achieve. 

When you feel like quitting remember think I will succeed, I deserve to be rich, I cannot fail, others made it by trying so that is what I can and must do.  If a plan goal goes wrong don’t quit and say oh well I guess it wasn’t meant to be, or I’ve always failed.  it just means you have to regroup and make and develop more plans to reach the same goal of success and prosperity. 

Remember to be rich you have to think rich but it takes an effort too that you will have to work at.  How rich you want to be is the goal you will have to set and achieve with money skills, desire and knowledge.  Don’t let wrong thinking limit your ability to succeed but always think I will succeed and realize a failure doesn’t mean quit – it means you have to discovery what went wrong and why.   Don’t point fingers at others but instead find how you can correct it and what you should do to make it succeed in one form or another.