Why landlords should think twice about making large RSP deposits.

If tax efficiency and minimization is important to you.

Let’s go over a couple things.

For every dollar you deposit to an RSP you get money back either in the form of a larger refund or in a reduced balance owing. So some people want to know how much do you HAVE to contribute to their RSP to ensure they won’t owe. And this can be calculated using all your income, credits and deductions for the year.

When you earn rental income you have the opportunity to deduct expenses like repairs, utilities and interest. Another tool available to landlords to reduce their tax burden is something called CCA (or depreciation). It’s essentially an expense that you didn’t have to pay actual cash for, but is a deduction you can apply (until your rental income = $0) to account for the wear and tear of the property. You are eligible to claim anywhere from $0 to the maximum (which depends on your asset class). So if you (or your tax preparer) calculates that if you claim $2,000 in depreciation, you’d be able to move from owing taxes to a refund, that is an option for you. So this deduction HELPED YOU!

HOWEVER when you SELL your property - all the depreciation you’ve claimed over the years will come back into the equation. Let’s say you claimed $10,000 in depreciation over the last few years of owning your rental. Now you sell it. You will be paying tax on the total amount depreciation you’ve claimed over owning the property. It’s called recapture. And tax obligation this is IN ADDITION to the capital gains taxes you’ll be paying on the sale of the property.

If you sell your income property BEFORE age 71 this is where you’re gonna want to have some RSP room. When you receive the proceeds from the sale of your property you’ll benefit from a large RSP deposit to reduce your taxable income. Depending on the situation and how the asset is held, the year you sell the property will (hopefully) be big tax obligation year for you.

And if you don’t have the RSP room to be able to contribute, you know have one less strategy available to you to help you efficiently plan your tax strategy.

Tips like this + MUCH MORE go down in my FB Group!

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Get a refund by making an RSP deposit

If I told you that depositing money to your RSP today would give you a tax refund in April… would you do it?

You’d probably want to know, HOW MUCH would the RSP deposit have to be? AND how big will the refund be? If you want to find out, keep reading

Easy answer is to take your tax rate and that’s the dollar amount you’ll get back. If you’re tax rate is 34% that means that for every dollar you put in an RSP you’ll get $0.34 back in refund. OH, you DON’T KNOW your tax rate. LOL Totally normal.

If you want to play around with the RSP deposit + your refund scenarios, grab some essentials. Your LAST paystub from 2018 along with any other income (like investment income) and deductions or credits you might be entitled to (like child care, RSPs you’ve already made, student loan, donactions). Head over to an online tax prep service or right over to the CRA site itself and plug in the numbers.

Keep in mind this is an approximation!

Without the extra RSP contribution are you getting a refund? Or do you owe? If you owe, what amount of RSPs do you have to deposit to NOT OWE TAXES? Let’s say without the RSP deposit you owe $1,600 and you figure out that you would have to deposit $2,900 to NOT owe. Is that worth it to you? It’s an extra $1,300 but you essentially get to KEEP it all. Instead of a whole $1,600 going right to the government you are making a $2,900 deposit for future you.

So that’s totally up to you.

One thing to keep in mind is that your RSP deposits you are making TODAY are #1 reducing your tax liability today, your savings are growing tax free BUT when you do take the money out of the RSP you will be taxed like on those withdrawals like they are income. So ideally you want to be strategic with the deposits as well as the withdrawals so that you are being tax efficient.

The best way to do your taxes is in one sitting. To help make sure you’ve got all the documents and papers you need to complete your return grab the checklist CLICK HERE TO GET YOURS

Feeling behind + like as soon as you get ahead - BOOM 💥

One of the biggest struggles I help with (and suffer from sometimes too to be honest) is that just as soon as you think you’re getting ahead life throws you a curveball. Car broke down, expected bill, Christmas, tenant moves out, etc.

A tool that’ll change the feast-famine cycle is the ONE PAGE FINANCIAL PLAN. You need to create yours + I wanna help.

I want you to achieve ALL YOUR goals.

What are they? Let’s lay them out.

Once you’ve got them listed… You might notice that there are opposing goals. For example, I want to sleep more. Since having baby #4, sleep has been missing from my life. And it’s starting to show in my appearance, in my brain function and in my motivation. So sleep is a serious goal of mine. But I also want some ‘me time’. I want some time in the day where I don’t have a child attached to me, someone needing me to do something for them.

The problem is, I can’t seem to have both.

So for RIGHT NOW I need to pick one. It’s not that I can’t eventually have both. It’s that I can’t have both this month. Maybe next month will be different. But if I’m binge watching Workin’ Moms, laughing, relating, being entertained I can’t ALSO be sleeping.

It’s kind of like having 24 tabs open. Because you’ll come back to that recipe, you need that post, I love that outfit… then your laptop dies or you accidentally close the window (gasp.). And it’s all gone… and it’s painful for 2 seconds and then you’re back to the tab hoarding tendency.

Your finances don’t need to be a mess of tabs and DIY projects and articles that you need to come back to. Over 5 days will get all the stuff organized, laid out and get things moving in the right direction.

CLICK HERE IF YOU’RE READY TO START BUILDING YOUR ONE PAGE FINANCIAL PLAN

Financial Success is a Group Sport

Sometimes when we start organizing our finances, you get the feeling of STUCK. It can feel overwhelming to even know WHERE to start. And when there are more than 1 decision-maker-person in the family, it can sometimes feel either like a conflict zone or like the blind-leading-the-blind.

This is why I want to reframe the whole premise of MONEY. There is nothing shameful about your financial situation. Letting go of this attachment that your self-worth is connected to your net worth is going to be the FIRST STEP. Easier said than done I know. But a quote that I think will help is:

 

"A rising tide lifts all ships"

When you do well, others around you will benefit from your good fortune. And vice-versa. When those closest to you are doing great things, this will lift up others around them (aka YOU). So not only will this help you shake off the heaviness of your financial situation, it will also build connection and support while you make the necessary changes to get closer to financial success. And those around you will benefit from your new lightness + positivity towards your financial situation.

WHAT DO YOU WANT

You need to decide - what do you want? Do you want a new car? Reduce hours to part time? Bigger home? Investment Property? Debt freedom? Stop living paycheque to paycheque? A big emergency fund? #Iwantitall. Make a list. What's important to you? You might be surprised of how small the list really is. The reason for this is because while we navigate through our weeks we are constantly bombarded with marketing companies telling us (or even YELLING) what we want. You want a new rug. You want to renovate the kitchen. You want to go to the beach. <insert commercial or FB ad here> And you very well might enjoy having those things. But DO YOU WANT THEM? Probably not. You just want them right then. But given another sparkly squirrel advertisement you may quickly left that goal and pick the more sparkly distraction.

So getting clear on WHAT YOU WANT outside of that noise is important + will allow you to get distracted by those exciting dreams, but not get sidetracked and be able to shake it off quickly and come back to what really matters.

WHAT WILL YOU NOT SACRIFICE

Just as important as it is to cut the overwhelm of people telling you what you want, it's key to decide what you DON'T WANT. You may decide that you don't want to finance things with debt anymore. You may value your time and not want to have to work overtime to be able to afford something. You never want to move. There's so many things that we sometimes 'convince' ourselves is a good compromise to get us what we want... #fomo but by outlining the things we will NOT sacrifice ahead of time, will allow us to come back to neutral when our impatient, #yolo self is trying to buy a new vehicle out of our budget when we said "We will NEVER have a car payment again!"

EMPOWERMENT

The last and most important step is to own the feelings of pride + empowerment when you make smart financial choices. AND empower and support others who are making their lives better financially too! Whether you compliment your spouse for the amazing home cooked meal or help promote your friend's side gig on your social media. A rising tide lifts all ships. As you do well you need to share the joy. As you see other people doing well give them some recognition + a well deserved pat on the back. 

If you are working on your finances and looking for a community of like-minded, supportive money friends, please come into the Your $: Get Ahead + Worry Less Facebook Group.

It's a great place to connect, learn and share ideas. 

Financial Freedom - is that your Goal?

My friend Bob Lai from www.tawcan.com wrote a blog post this summer about “7 money goals to hit by the time you’re 35” and I felt inspired to give my 2¢. I encourage you to check out his website (after you read this … of course). You’ll find his post HERE 👈 but what I love most is getting his newsletter where he shares ALL the info about his portfolio. I love snooping his income, what stocks he’s using + everything in-between. Sign up HERE 👈👈👈

Although his post was about being able to check off some specific things before a specific age, I thought I’d adapt mine a bit for you to check off some specific things you can do over the next 90 days (if you aren't already doing them). Therefore achieving some great financial goals, habits and traction over the next 3 months (regardless of age, net worth, income, blah blah blah).

When I ask people what is their #1 goal is when it comes to their finances, a very common answer is to “Achieve Financial Freedom”. Because I’m nosey + what to help you achieve ALL your financial goals - my next question is “what is financial freedom + how will you know when you’re there?”

I’d love to hear from you: what does financial freedom mean to you?

From all the answers I’ve heard over my career I think I’ve narrowed down it down to 4 things that would fall under the definition of "financial freedom":

• Having an adequate emergency fund

• Not having to check your bank account when you use your debit card

• Knowing you’re saving enough for retirement

• Being debt free

So instead of giving you goals to achieve, I’ll tell you what some simple things you can start NOW to get closer to “financial freedom”.

#1. Know how much you make + how much it costs you to live

There are some numbers that are easy to remember. Your favourite channel, the passcode on your iPhone, your annual GROSS salary, your monthly rental income. But if I were to ask you: how much gets deposited into your bank account every month? Or How much does it cost you + your family to live? Would you be able to answer that?

If the answer is no: let’s change that #adulting

The first step is to complete the cash flow template. It looks like this or you can get your own copy in the workshop: https://www.meghanchomut.com/september

On the left, tally up ALL your NET income. Everything that’ll get deposited into your bank account next month. Your paycheques, your partner’s paycheques, kid payments, government payments, side job payments, everything gets accounted for in that INCOME section.

Next, move on to your expenses. This is your autopay expenses. Any bill that comes out of your bank account automatically. Thinks like mortgage, rent, property taxes, water, heat, electricity, Net Flix, child care, cell phone, subscriptions, car payments, student loan + other debt repayments. That all gets listed on the right.

Then in another column, you list out all the monthly savings contributions you make. Things like emergency fund, retirement, savings for fun, vehicle + home maintenance, savings for Christmas, etc. Whatever you are squirrelling money away for regularly, break it down and total it up.

What’s left?

That is what you have for the month to spend on things you usually use your debit card for. Things like fuel, groceries, hobbies, eating out, kids activities, etc.

So how much does it cost for your family to live: the total of your auto pay expenses + the balance of what’s left for everyday spending.

#2. Have savings that grow + Savings you CASH IN #yolo

To get closer to financial freedom you need to save #thankscaptobvious But I have another word that we have to remember: balance. It’s important to plan for your future, but it’s also important to live your life now. Financial freedom doesn’t have to be something that you are continuously working towards. Financial freedom can mean going on a family trip without dripping into your line of credit. Financial freedom can mean helping out a friend or family member without having to sacrifice your own family’s lifestyle.

It’s all about perspective and keeping in mind that financial freedom doesn’t HAVE to be about retirement or the liberation on knowing you aren’t relying on a paycheque.

#3. Say goodbye to debt

Debt is heavy. Debt can also be a very useful tool, but in short… Debt sucks. It’s like a fire extinguisher. You want to have it ‘just in case’ but you never want to have to use it. But as we move through various stages of life we find ourselves using it, recovering from using it, using it again, feeling tempted to use it, it’s a crappy cycle.

For most, financial freedom is not achieved if you still have some debt payment hanging over your head. So that’s why it’s important to get this debt freedom goal structured and communicated. If becoming debt free is something that’s important to you, you have to create some guardrails and goals that everyone is aware of. Like: “I want the line of credit to be at $3,000 by June.” or “I never want a vehicle payment again” or “we aren’t using the credit card anymore” and then you need the willpower to stick to these. #TeamWork

Tracking your savings + debt and setting the goals is SO SO SO helpful. From my experience when people have a plan, know the numbers and dates they tend to excel even quicker than expected. When I’m working with a couple and I tell them that based on their numbers it is possible for them to become debt free by a specific date - they are so motivated and accountable that 3 months before that day they call me and say “WE DID IT”!! Telling me their exciting news that they paid off their debt.

So what’s your #1 goal when it comes to your finances? Financial Freedom? What does that mean to you? In short the starting point is AWARENESS. Knowing your lifestyle cost. Knowing you have savings for now + later. Knowing the date you’ll be debt free.

If this awareness would be helpful for your family in reducing any finance related stress, that’s why I did the FREE workshop: “Setting up your systems + processes for getting organized and your family's finances on track”. Get access to the replay of the FREE Workshop + the workbook go to: https://www.meghanchomut.com/september. We go over these steps, along with some useful planning tips, savings rules of thumb and grocery shopping tricks!!