The odds of striking it rich by winning the lottery are slim. But a smaller cash windfall in the form of a company bonus, an inheritance, or a tax refund is a far more likely scenario for many Canadians. So what do you do when you hit the jackpot and land a lucky cash windfall? Here are 7 smart ways to deal with the cash and not regret it in the morning. 1. Pay Off Your Credit Cards
I don't mean to rain on your moneyed parade, but paying off your high-interest debt and killing your credit card balance is a smart use for found cash. There's no financial investment that can beat the guaranteed 19% or higher after-tax return of eliminating your credit card debt.
Think you'd rather hit the shops and splurge? Try this free Credit Card Calculator first to see how much your plastic is really costing you. 2. Settle Your Car Loans, Lines of Credit
After eliminating your high-interest debt, take an honest look at the costs of carrying your lower-interest debts, such as car loans and lines of credit. Paying down these debts with a windfall could get you out of the red and into the black fast, giving you more options in your financial future. 3. Pay Down Your Mortgage
If you're free from consumer debt then you're really in lucky territory. Consider adding your new found cash to your mortgage so that you can own your home sooner. If you've got a mortgage with prepayment privileges, then 100% of your paydown goes to principal, and you'll drastically reduce the amount paid in interest to the bankers. 4. Ramp Up Your RRSP
You want to retire, right? Well, investing your windfall in your RRSP not only reduces your taxable income, but helps your money grow tax-deferred. This 5 Minute Guide to Your RRSP is a great place to learn more about contribution rules, and these 3 Places Worthy of Your RRSP Account offer a few places to stash your cash. 5. Top Up Your TFSA
It's a good idea to have some money put away in an emergency fund for a rainy day. A good place to shelter your money is in a Tax-Free Savings Account, where you can save up to $5,000 of your windfall annually and pay no tax on earned income. Need convincing? Here are 5 Ways a Tax-Free Savings Account Can Make You Rich. 6. Invest in Your Child's RESP
Investing your company bonus in your kid's Registered Education Savings Plan (RESP) won't get you a tax refund, but the investment earnings grow tax-free as long as they are in the plan -- plus, you can qualify for up to $500 per child each year in government grants. How's that for a bonus? 7. Go Ahead -- Spend It!
If you've made it this far down the list and you're debt-free, then go ahead and spend your windfall. Life is short and a simple splurge is well-deserved when your debts are paid in full and you're in excellent financial shape. Your Turn: What would you do with a financial windfall?
It’s almost that time of year when the kids take a break from the books for a fun-filled winter week. Your family may be heading south to a sunny destination for March Break, or maybe you’re still hoping to get away! If you’re staying closer to home, there are tons of awesome activities to be found right in your own town. Here are some top tips for taking a well deserved break…without breaking the bank.
- Take a last minute holiday. There is still time to book a “fun in the sun” getaway the whole family will enjoy. Check out Flyerland.ca for daily alerts in Travel Specials. Daily travel alerts and My Holiday Home Rental in Florida www.flyerland.ca.
- Save on “staycations”. Holiday at home with Attractions Ontario and receive up to $850 in savings on popular Ontario entertainment venues. A few dollars in discounts here and there can add up to big savings—and big fun!
- Day tripping. Instead of spending the week in front of the TV or computer, get outside and get active! Plan a day trip and take the gang to Bird Kingdom or go cross-country skiing, snowboarding, ice skating or hiking.
- Special city savings. Spend a day in the city…and stay the night! Explore your local cities and take advantage of super savings on weekend hotel stays. See Flyerland.ca for the best deals near you.
- Mid-week dinner deals or lunches for less. Check with your favourite restaurants for dinner deals during the week and treat the whole family to a night out! Or go for a day of shopping and take the kids to lunch—it usually costs a lot less than dinner.
- Movie night sleepover. Host a movie marathon complete with sleeping bags, PJs and lots of popcorn! Check out Wal-Mart, Rexall Pharma Plus and Shoppers Drug Mart for great deals and savings on DVD’s and snacks—visit the Flyerland.ca site for special deals.
- Let the games begin! Bring out the classic board games for a day of fun! Get everyone together for a Monopoly Match, Twister Tournament or Sorry Showdown. Stores including Zellers and Wal-mart offer discounts on toys and games—check their flyers on Flyerland.ca.
- Plan a theme day. Do your kids love baking, crafts, sports or have other special interests? Create a theme day by planning events around their favourite hobbies. Check out Michaels, Fabricland, Sportchek and SportsMart for all supplies.
The rules for buying a home and refinancing a mortgage have changed. On Tuesday, Finance Minister Jim Flaherty announced tightened measures to prevent homebuyers from getting into financial trouble when interest rates rise.
Those most affected by the new rules are maxed-out homeowners looking to roll consumer debt into their mortgages, and real estate speculators flipping numerous properties. Flaherty's three new mortgage rules take effect on April 19, 2010. Here is what they mean for you.
Rule 1: New five-year fixed rate mortgage standards
Under the new rules, borrowers must meet the standards for a five-year fixed rate mortgage, even if they choose a mortgage with a variable rate or a shorter term. This change is meant to protect prospective homeowners from rising interest rates in the future, but it could make qualifying for a mortgage more challenging.
For example, even if you opt for a variable-rate mortgage with today's interest rate of around 2%, then you're still required to afford today's five-year fixed rate of 3.89-5.39%.
You are more likely to get a preferred mortgage rate if you have good credit. Be sure to check your credit report and raise your credit score before meeting with lenders.
Rule 2: New refinancing limits
The second rule lowers the maximum amount homeowners can borrow when refinancing their mortgages to 90% of the value of their home, from 95%.
"We want to discourage the tendency some people have to use a home as an ATM," said Flaherty.
Rule 3: Bigger down payment required for speculators
The third rule requires a minimum down payment of 20%, raised from 5%, to qualify for government-backed mortgage insurance on non-owner-occupied properties. This final change is aimed to "discourage reckless real estate speculation," said Flaherty.
Regular homebuyers are not affected by this rule.
Minimum down payment and 35-year mortgages unchanged
Canadians scrimping to save the minimum 5% down payment and looking to stretch the amortization period to the maximum of 35 years to decrease monthly payments can breathe a sigh of relief. These limits remain unchanged under the new rules.
Your Turn: Do the new mortgage rules go too far to protect Canadians, or not far enough?
With the RRSP contribution deadline looming, the advertising blitz is on to get your attention and retirement dollars. If you're a newer investor, you may be looking for that perfect place to open your RRSP account. There are several choices to consider.
Choosing where to open an RRSP account is different from deciding what to invest in. Since an RRSP is just a container to hold eligible investments, the key is to open your RRSP account at a financial institution that meets your needs.
You don't need to stick to just one RRSP account either -- you can open several RRSP accounts at a variety of financial institutions as long as you don't exceed your total contribution limit. Then, at each institution, you can choose among the firm's various investment options for your RRSP account.
- Mutual fund fees can eat into your retirement savings, see how with the Portfolio Fee Calculator -- results will shock you!
For now, let's look at the advantages and disadvantages to opening your RRSP account at a variety of financial institutions.
1. Your Bank or Credit Union
Opening an RRSP can be as easy as walking into your regular bank or credit union and filling out the paperwork.
- Pros: Your RRSP account is located at the same institution where you bank, providing a familiar place for you to get started. Plus, they often have ready-made portfolios making it simple for new investors. The "Big Banks" can offer many investment types, including GICs, mutual funds, and index funds.
- Cons: Investments are often limited to the institution's offerings, and account fees and mutual fund fees may be high.
You may also consider opening your RRSP account with an online bank where account and fund fees may be less expensive.
2. Your Employer or Group RRSP
If your employer offers a group RRSP plan and matches contributions, then you could be in for some free money.
- Pros: Contributing to your RRSP every pay period helps you consistently build your retirement savings, and getting your employer to match contributions could help you retire sooner. Your company sponsored plan may offer low-fee and no-load mutual funds -- be sure to ask!
- Cons: Many group plans are limited to the predetermined investment options your employer offers. There may also be plan fees and rules for when and how you can withdraw funds from your account.
Joining a group plan is easy; just contact your Human Resources department and fill out the paperwork. Your contributions are then taken from your pre-tax pay as payroll deductions, reducing your income tax immediately. Your contributions are deposited into your RRSP as specified.
3. An Online Broker
If you're a do-it-yourself investor, then opening an RRSP account with an online broker may be for you.
- Pros: Online brokers give you a centralized place to invest in mutual funds, exchange-traded funds (ETFs), stocks, bonds, and a myriad of other investments from a variety of fund companies.
- Cons: It may be overwhelming for new investors to build their own portfolio, but there are many investor sites online (for example, MoneySense) if you're willing to learn. Be sure to look at account fees, MERs, loads, and transaction costs before signing up with an online broker.
The Globe and Mail does an annual review of online brokers and gives you the top tips for opening an account that's right for you.
More on RRSPs:
Your Turn: Do you have more than one RRSP account? Got any tips to share?
The 2010 Olympic Games are at home in Canada and that’s cause for
celebration! If going to the live events is not in your plans or budget, you
can still be a team player and show your pride and support for our Canadian
athletes. Here are a few winning ideas for enjoying the excitement of the games
while taking home gold medal savings. Go Canada!
- Host an Olympic party. Invite your
fellow sports fans over to watch the events. All that cheering will make
you hungry, so before the games begin, head over to Loblaw’s, Sobeys, No
Frills, Save-On-Food, Price Smart Foods and Wal-Mart for snacks and hors
d’oeuvres. Check the grocery flyer category on Flyerland.ca and stock up
when they’re on sale.
- Cheer on Canada at a theatre near you.
All across Canada
select Cineplex locations will be broadcasting the Olympic Games. You can
catch all the action with other proud Canadians—it’s the next best thing
to being there!
- Buy a big screen TV. Imagine how
much more thrilling the games would be to watch on a big screen! Now is
the perfect time to upgrade your home entertainment centre. You could even
win your very own 42” Samsung Plasma TV courtesy of Bad Boy just by
entering on Flyerland.ca. Enter the
contest today!
- Got 2010 on the brain? Throughout
February and March, if you use your Visa at any Rexall or Pharama Plus
locations and be eligible to win $2010 each month for a year. Think about
all the great sporting activities you can do with that!
- Sport your Olympic gear. Support
team Canada
by wearing your official 2010 Canadian Olympic team apparel. Purchase your
gear at The Bay and if they’re sold out, try Zellers—they carry all the
same spectacular stuff.
- Take a ski vacation. If seeing the
beautiful scenery of Western Canada
during the games motivates you to take a holiday, plan a ski getaway.
Check out Flyerland.ca for daily deals from TravelAlerts on Flyerland.ca.
- Organize your own Olympic games. Watching
the games can inspire any armchair athlete to join in the fun! Head
outdoors and set up your own winter sporting events in your backyard such
as an obstacle course, sled races, skiing and more—use your imagination!
- Create posters and cards. Show
your Olympic spirit by making cheering signs to take to the games (if
you’re lucky enough to be going) or to local events. You can also create
motivational cards to send to your favourite athletes. Visit Flyerland.ca
and check out the Michael’s flyer for all the supplies you’ll need.
By Debbie
Frye, General Manager, Flyerland.ca
Saving for retirement can be tough. Depending on your income and financial obligations, it's not hard to feel the pinch in your pocketbook right before the RRSP deadline.
Wouldn't it be nice if you could grow your RRSP without contributing extra cash? Well, it is possible! With a little bit of planning and these three smart strategies you can bulk up your RRSP savings and grow your retirement without any additional dollars.
If you're new to RRSPs, then check out The 5 Minute Guide To Your RRSP.
1. Contribute at the beginning of the tax year
If you're contributing to your RRSP at the end of the tax year, then you're missing out on a full year of compound growth. Over time this tax-free growth can add up to thousands of extra dollars.
For example, let's assume you're putting $5,000 into your RRSP annually. At a conservative rate of 3%, here's how the money adds up after 25 years:
Total RRSP by contributing at start of tax year: $187,765.21
Total RRSP by contributing at end of tax year: $182,296.32
Difference: $5,468.89
By switching your contributions to January 1st, the start of the tax year, you're giving your RRSP additional time to grow for free by harnessing the power of compound interest.
2. Don't give the government an interest-free loan
I used to rejoice every year when my RRSP contribution earned me a nice little tax refund. In hindsight, getting an annual tax refund is akin to giving the government an interest-free loan. Who wants to do that?
If you make regular RRSP contributions you can request to have fewer tax dollars deducted from your paycheque by filing a Request to Reduce Tax Deductions at Source (T1213). The form is easy to fill out -- the instructions are explained in Stop giving the government an interest free loan!
Besides, paying less tax throughout the year makes it easier to boost your RRSP contributions, fund your Tax-Free Savings Account, or even pay down your mortgage.
3. Defer Your RRSP Deduction
If you're expecting a big raise next year, consider deferring your RRSP deduction for next year. By contributing to your RRSP today and saving your tax deduction for when your income is greater, you could save big on taxes tomorrow by lowering your tax bracket.
For example, a $2,500 RRSP contribution made at a marginal tax rate of 23% earns you a $575 tax refund. But by deferring this deduction to next year, when you know you're income is at a higher marginal tax rate of 37%, you could earn a $925 refund.
By deferring your deduction one year at a higher marginal tax rate, you end up with an extra $350 for the same $2,500 RRSP contribution -- this is essentially a guaranteed 14% rate of return. Now add these newly found additional dollars to your RRSP and continue to watch it grow!
Your Turn: Do you use any of these strategies to grow your RRSP without contributing extra money?
The most romantic day of the year is almost here. We know you want to treat your sweetheart for Valentine’s Day, but a candlelight dinner, roses, heart-shaped candy and elaborate gifts will cost you a pretty penny. But take heart—this selection of unique and low-cost ideas for gifts and celebrating will show your special someone how much you care. With just a little imagination you can make lots of magical memories without spending lots of money.
- Look for Valentine’s Day deals. Many restaurants are offering two for one deals and other promotions for this romantic day to entice people to get out and celebrate.
- Plan a cocktail party for two. Instead of an expensive dinner, go out for fancy cocktails. Many upscale restaurants and boutique hotels offer a luxurious lounge for drinks and hors d’oeuvres. Get dressed up and go somewhere swanky without the expensive dinner tab.
- Save with weekly specials. Valentine’s Day is on a Sunday this year, but if you wait until the beginning of the week to celebrate you could save a bundle. Also, look for restaurants with low or no corkage fees—the lowest rates are usually Monday to Wednesday.
- Heat things up in the kitchen. Cooking a romantic dinner together is a fun way to spend quality time without the reservations, line-ups, crowds and big bill. Check out weekly grocery flyers such as Wal-Mart and Loblaws on Flyerland.ca to get the best bang for your buck. Be sure to find a sitter for the kids and turn off the TV, phone and blackberry.
- Get your pulse racing. Celebrate this special day by getting outside and active. Try cross country skiing, a romantic skating date or a long walk through a scenic area of your city, followed by delicious hot chocolate in front of a roaring fire.
- Give a gift from the heart. It’s tempting to buy something pricey for your sweetie, but often unique gifts can be the most memorable. A day of pampering including sleeping in, breakfast in bed, a massage and bubble bath is a thoughtful, inexpensive gift—and fun for both of you! Check out Rexall Pharma Plus on Flyerland.ca for all your pampering essentials.
- Save on the sitter. This Valentine’s Day, share the babysitting responsibility with friends. You take all the kids while they head out for night on the town, and then switch the next night.
- Plan a secret escape. Check out travel and hotel deals outside your city and plan a romantic getaway. A mini-holiday is the perfect way to say “I love you.” View the Travel Specials on Flyerland.ca
- Special Valentine's Day cards for kids. Visit Flyerland.ca and download our Valentine’s Day cards. It’s a great gift for kids to give to their parents.
- Make your own Valentine’s Day gifts and cards. Get the kids involved in making gifts for parents and teachers. They can also make cute and thoughtful cards for family and friends instead of buying them. Check out Michael’s for their vast selection of crafty materials, and don’t forget to download the 40 percent off coupon available on Flyerland.ca.
By Debbie Frye, General Manager, Flyerland.ca
Getting started with an RRSP can be a smart way to lower your taxable income today while saving for your retirement tomorrow. If you're new to RRSPs then this 5 Minute Guide is for you.
What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a tax-deferred personal investment account that is registered with the federal government. The primary purpose of your RRSP is to help you save for retirement.
Why contribute to an RRSP?
If you're just starting your career then retirement may seem eons away. But there are many advantages to starting your RRSP sooner, even today!
- Tax Benefits Today: Contributing to your RRSP yearly can greatly reduce the amount of income tax you pay in that year. By contributing throughout your working career, you can realize tax benefits at a time while your income is generally highest.
- Tax-Deferred Growth Tomorrow: Your RRSP can benefit from compound growth for decades since your contributions are sheltered from tax. You won't pay any tax on your RRSP until it's withdrawn.
- Taxed at Retirement: Paying income tax on your RRSP withdrawals upon retirement may be an advantage since you may well be in a lower tax bracket than when you were working.
- Maintaining Your Lifestyle: Starting an RRSP sooner may also help you maintain your lifestyle in retirement regardless of how much you qualify for under the Canada Pension Plan (CPP).
- Get Your Employer Match: If you're lucky, your employer may offer RRSP matches up to a percentage or dollar amount. It's wise not to leave this free money on the table, so head to your human resources department and ask if such a program exists at your company.
Who can contribute to an RRSP?
All individuals with earned income taxable in Canada can contribute to an RRSP up until the end of their 71st year.
How much can you contribute?
The amount you can contribute each year is limited to 18% of your previous year's earned income and up to the maximum dollar amount for the year. The RRSP contribution limit for 2009 is $21,000 and will be $22,000 in 2010.
If you contribute less than your limit, you can carry forward any unused contribution room to any future year. There is no expiration date on unused RRSP contribution room. You can find your RRSP contribution limit and any unused room on your Notice of Assessment, a letter the Canada Revenue Agency (CRA) sends you yearly after filing your tax return.
How do you open an RRSP?
You can open an RRSP account at any bank, credit union, discount brokerage, or mutual fund company. Your employer may offer an RRSP program as well.
When opening an account, be prepared to answer a series of questions to help your financial advisor understand your risk tolerance and retirement time line. Returns can vary widely depending on market conditions, risk, investment type, investment fees, and time line -- so it's important to answer each question carefully. Also, be sure to ask about the fees associated with each investment.
Your banker or financial advisor will use your answers to find the investment portfolio that's right for you. Your RRSP investments can include GICs, stocks, bonds, index funds, exchange traded funds (ETFs), savings deposits, T-Bills, mutual funds, and others.
RRSP Deadline
The RRSP contribution deadline for the 2009 tax year is March 1st, 2010.
Now that you've read the guide, go ahead and test your RRSP knowledge with the RRSP Quiz.
More Quick 5 Minute Financial Guides:
Your Turn: Are you contributing to your RRSP this year? How are you saving for retirement?
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January 2010
