OK so you decide, eventually, to be responsible and worry about money (or lack thereof). It’s a dry topic, but one day you’ll get an AHA moment and realize you’re head has been buried in the sand for way too long.
I am by no means a financial adviser, but what I do know is that all my income is taxed, and if I can find a way to lower my taxable income (legally) then I will end up paying less taxes will still making the same amount. So I talked to a financial adviser friend, and learned a lot – more than the tax reduction information. So here’s a few things to think about as you try to get your money under control (it’s never too late).
Tax Reduction Options
In Canada (Ontario), there are plenty of tools to work with in order to do that, especially if you have kids – here are a few ideas that can help lower your taxable income:
- TFSA – This is money from your income (already taxed) but the interest is nontaxable
- RRSP – This gets removed from our taxable income and you can be in a lower tax bracket paying less taxes (but when you use it upon retiring it will be claimed as income then)
- RESP – This gets removed from our taxable income and you can be in a lower tax bracket paying less taxes government may make payments depending on your contribution – becomes taxable when used for Education purposes)
Other things I learned about that I thought was important was life insurance. Insurance for me, my wife and yes even kids. So the sooner the better and I got told this many times but until I had kids I didn’t really care. Now I’m paying the price for the delay but better late than never, and could always get worse. For my wife and I, I contribute to Life insurance so if one of us dies the other gets some money, if both of us die the kids get it. I invested in a life insurance (with disability coverage) that’s also an investment, so the money I put in actually goes into investments and in a few years I can choose to take it back with the interest I got from it (assuming I don’t die and have my wife claim the policy).
I only contribute for 10 years and get covered forever (but the payments are quite pricey). Some also get salary coverage (if you loose your job and income due to a disability, but the instalments get way steeper and I still have the options of withdrawing the investment amount is an option. So look at the whole package you’re signing up to.
For my kids, the sooner the cheaper. I got them both life insurance in case God forbid something happens to them. This is not a way for me to get money, but for them, when they grow up and have kids to have been already contributed and covered until their old age, easing their burden. It is about 100 dollars a month for 20 years. Once they reach a certain age (say 18), they can make their own contributions. Otherwise, they will end up paying crazy amounts because of the delay as I am doing now.
Investment Property Sale
Also worth thinking about, if you have more than one property, this little tidbit. If you have a rental property that is not your main residence and decide to sell it, the government can take p to 50% of its value in fees and taxes. Before you sell, you make it your prime residence and then sell it to avoid this. Does not matter if you put it in your spouse’s name or not you are both treated as one. Alternatively, you can put it in another persons’ name, but that is also considered a sale when you transfer and you’ll pay the government’s horrific fee. So watch out.
Last Will and Personal Directive
Last tidbit worth sharing is that a Will is the most important thing you can do, whether you have kids, on your own, just married. It keeps changing as your life, your money and your debts change. But make one. This is the most important thing you can make, there are plenty of free kits and cheap ones that you can use that suite the jurisdiction you’re on, as well as software and apps that can manage it (TimeSecured App is one example, see my blog on Wills for details).
Otherwise, it will take ages to divvy up your money to the people that need it, and they will be forced to pay your crazy debts. It will also help with kid guardianship and include assets that you have which people who will have to deal with it on your death may not know about.
Equally important is a Personal Directive will, which is used when you have a big accident and you end up in a coma or life support. It says whether you want to stay on life support or unplug, where you want to donate your organs or not, etc. It gives people permission to make those decisions when you are unconscious saving them a lot of confusion, headaches, heartaches, and potentially costs. These two you need to do ASAP –not to be preachy but these two are a definite must.