If you’re like most people this time of year—I know I am—you’re asking yourself “where did the year go?”. It’s very easy to get caught up in life. We postpone or forget things we promised ourselves we would pay more attention to a year ago. This includes our finances.
If getting a handle on your finances is one of your resolutions this year, here are some simple steps to take. If you’re reading this in June, don’t delay; you can take a step in the right direction at any time. Resolutions aren’t just for New Years anymore.
If you went through life changes, you need to consider how those changes can affect your taxes. Examples of changes that could affect how you file include a new child, a raise in pay, a promotion, separation from your spouse, retirement, or a marriage.
If you find yourself owing money to the government every year, consider withholding more money from your paycheck—BUT only if you are bad at saving money. If you are good at saving money, you are better off keeping the money invested until you need to pay your taxes.
Alternatively, if you get big refunds every year, consider reducing the amount of taxes you pay throughout the year and use the saved cash to invest or save throughout the year. You don’t want to be giving the government an interest-free loan using your hard-earned money.
There’s a good reason most charities see their biggest fundraising dollars come in at the end of the year. Making a charitable donation in someone’s name can make a great holiday gift. And your charitable donation may be tax deductible. It’s a win for you, a win for your loved one, and a win for the charity.
When you apply for a life insurance policy, 401(k), IRA, RRSP, TFSA and even some non-retirement accounts, you will name a beneficiary. A beneficiary is the legal name of the person you want to inherit the proceeds from your accounts or policies after you die.
Even if you have a will—50% don’t—you may not realize it does not control who receives all of your assets when you pass away. Without proper beneficiaries, the distribution of your assets will likely get held up, hurting the very people you are trying to help.
A new marriage will also affect your will, often making it null and void.
In the United States, you’re entitled to one free copy of your credit report from each bureau, every year. The Federal Trade Commission (FTC) website explains your right to a credit report and provides contact information for their authorized vendor.
In Canada, you can get your free credit report from Equifax.
Ensuring that you are properly protected is more important than ever. Review any existing policies such as life, critical illness, and/or disability. I would include homeowner’s or renter’s insurance, car insurance, and health insurance, and ask yourself a few questions:
Going through each of your policies one by one will help you get a better sense of where your money’s going and help you feel a bit more prepared.
Are you overspending or underspending? Now is a good time to review your income and expenses. Modify it where needed. If you don’t keep receipts, you can get a fairly accurate assessment of where your money went by going through your credit card and bank statements.
Going over the past year’s purchases will reveal where your money was spent, and you may discover some shocking surprises. This will motivate you to make some minor tweaks or major adjustments heading into the New Year.
Going through this exercise with friends, we almost always discover opportunities to trim and save money. Look for any automatic payments to remove or adjust. You may be paying more for a service than you thought. Or maybe you’re paying for something you don’t use anymore. Eliminate any automatic payments that aren’t working for you anymore.
When was the last time you visited your gym? Even if it’s a minimal amount of money, if you’re not using it, it’s a waste of money. Same goes with Netflix, Spotify, or anything else for that matter.
8. Optimize your registered accounts and contributions (for Canadians)
Canadians have access to registered accounts with special benefits and rules. The benefits are primarily tax-sheltering or tax-deferral. However, there are specific rules to consider, mainly related to contributions. The start of the year is a good time to review your registered accounts and contributions to ensure you’re optimizing them. Accounts to consider:
Any investment income earned in a TFSA is tax-free. However, there is a contribution limit on your TFSA. You can confirm your contribution room by calling the Canada Revenue Agency (CRA) or logging into your online CRA My Account.
The TFSA contribution limit for the 2021 tax year is $6,000. If you haven’t contributed to a TFSA since it was first introduced, the total maximum contribution limit up to and including the year 2021 is $75,500 — as long as you’ve been over 18 since 2009 and have a valid social insurance number.
Like a TFSA, any investment income earned in an RRSP is tax-free. However, when you withdraw from an RRSP, you must claim it as income and pay tax on the amount withdrawn. The silver lining is RRSP contributions are tax-deductible. This means in the year you make an RRSP contribution; your taxable income will be reduced by the same amount. For this reason, there is a big incentive to make an RRSP contribution, reducing taxes payable.
The more you contribute to your RESP, the closer you’ll get to saving for your child’s post-secondary education. Another incentive to contribute is to take advantage of the Canada Education Savings Grant (CESG), designed for low to middle-income families. If you are eligible, the government will contribute funds to your RESP as a benefit. The government matches 20% of your contributions to an RESP, up to $500 per beneficiary per year, and up to a lifetime max of $7,200.
The Canada Learning Bond (CLB) is money that the government adds to a Registered Education Savings Plan (RESP) for children from low-income families. This money helps to pay the costs of a child’s full- or part-time studies after high school at:
See a list of designated educational institutions.
No personal contributions to an RESP are required to receive the CLB.
The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:
Cheers to a financially stable New Year and many more to come!
Choosing the right financial advisor is one of the most important decisions you will make.
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The family vacation is back, baby. We’re busting out of these four walls and hitting the road, a bittersweet reward for our many sacrifices, hard work, and service to society. The kids earned it too after a confusing year of distance learning, canceled activities, and party-less birthdays.