by Owen | May 16, 2022 | Behavioral Finance, Financial Planning, Investment Planning, Retirement Planning, Saving Money
When it comes to financial planning we often focus on the numbers, net worth, debt, rate of return etc. But half of financial planning has nothing to do with the numbers. Half of financial planning is about behavior. It’s about managing our behavior, our expectations, our emotions etc.
When it comes to personal finance, and specifically investing, we are often our own worst enemy. We make financial decisions based purely on emotion, often costing us more money down the road.
One of the most common mistakes we make is checking our investment portfolio too often. Investment portfolios are not something that should be checked daily or weekly (unless you’re day trading, which is a whole other conversation)
Checking our investment portfolios has become even easier with online brokerage accounts and financial aggregator apps like Mint.
But… just because it’s possible doesn’t mean you should.
The problem with checking your portfolio too often is that we don’t feel gains the same way we feel losses, even if they’re worth the exact same amount.
The emotional impact of a $10,000 loss is more than the emotional benefit from a $10,000 gain. It’s completely illogical, but that’s how we feel. We experience the emotional impact of losses more than gains. We remember losses more vividly, and for a longer period of time than we do for gains.
This is a problem when it comes to investing. Even though a well-diversified portfolio should gain over the long-term, it will likely experience some big swings in the short and medium-term. By checking our portfolios too often we experienced all those gains and losses, and because we feel losses more than gains, the net effect is that we can feel a bit sad.
What we need to do is check our portfolio less often, especially for medium and large portfolios. Let me explain why…
by Owen | May 9, 2022 | Buying A Home, Get Out Of Debt, Pay Off Mortgage
One of the largest purchases we’ll ever make is when we buy a home. It’s an exciting time but also very stressful. Along with this large purchase comes an equally large mortgage. This new debt will typically take between 25 and 30 years to pay off, but many people choose to pay off their mortgage earlier.
Paying off the mortgage early is an important financial goal. It’s a goal that typically (and hopefully) is achievable before retirement.
Paying off the mortgage early is a great medium-term goal, something achievable within 10-20 years (or even earlier if you’re really aggressive). This makes it a very interesting financial goal to include in your financial plan. Unlike investing, paying off debt is very predictable, so it can be very motivating to see steady progress against your mortgage each year.
Getting rid of your mortgage is a great feeling! It’s incredibly satisfying to see those mortgage payments disappear forever. It’s also nice to know that you have the security of owning your home outright.
Paying off the mortgage early also removes a large burden from your monthly cash flow. This creates a lot of flexibility to make lifestyle changes, switch careers, take more time off work, or even retire early.
There are different ways to pay off a mortgage early. Which method you choose will depend on your personal and financial goals. The important thing is to make a plan.
Making a mortgage payoff plan can be exciting. It’s amazing to see how those future payments can quickly reduce your mortgage. Making a plan is easy and we’ll show you a couple of examples using our free debt payoff tool. It’s always important to balance paying off the mortgage early against other financial goals, like saving for retirement. So make sure your goal to pay off the mortgage early is part of your overall financial plan.
by Owen | May 2, 2022 | Financial Planning, Government Programs, Retirement Planning, Tax Planning
Income splitting is often talked about in reference to high-income earners, but what about the average Canadian family? How does the average Canadian family split income and minimize tax? A spousal RRSP is one way for the average Canadian family to easily split income in retirement.
For high-income earners there are income splitting strategies like spousal loans or “income sprinkling”. Spousal loans are for families with lots of non-registered savings and a large difference in marginal tax rates between spouses. “Income sprinkling” can be used by families who own a corporation (although with the new TOSI rules has changed dramatically).
But what about your average Canadian household? Are there are income splitting options for them?
One very easy and accessible type of income splitting is a spousal RRSP. Unlike other income splitting strategies this one is very easy to set up, it doesn’t require a lawyer, and it’s easy to understand.
The big benefit of a spousal RRSP is that the average family can use it to “equalize” their registered assets before retirement. This allows for a more equal distribution of income in retirement and a lower overall tax bill for a household.
In addition to lower income tax it also opens up more opportunities to maximize government benefits in retirement.
But you might be wondering, isn’t it possible to split income after age 65 anyway, why would I need a spousal-RRSP?
While it’s true that after age 65 income splitting is much easier to do, it’s still a best practice to try to equalize registered assets before age 65. This allows for the maximum flexibility when creating a retirement drawdown strategy, especially when retiring early.
Equalizing registered assets can be extremely beneficial, especially before the age of 65 when there are fewer income splitting opportunities, for this reason we sometimes want to look at using a spousal RRSP to help split income in the future.
by Owen | Apr 25, 2022 | Budgeting, Financial Planning, Government Programs, Income, Retirement Planning
Retirement planning is complex and includes many important considerations like retirement spending, income tax planning, income splitting, maximizing government benefits, deciding when to take CPP and OAS etc. etc.
All of these individual parts work together to create a great retirement plan. They are so important that even a small mistake can mean lower retirement spending or a higher chance of running out of money in the future. It could mean $10,000’s in extra tax or $10,000’s in reduced government benefits.
With a typical retirement plan spanning 30-40+ years it’s easy to understand how small change in assumptions can have a big effect on a retirement plan.
There are also many small decisions to consider when planning retirement, like when to convert RRSPs to RRIFs, when to start CPP, when to start OAS, how much to draw from investment assets, which investment assets to draw from first etc. etc.
In this post, we look at some of the important parts of retirement planning. What they are, what you should consider, and some additional resources to help.
by Owen | Apr 4, 2022 | Financial Planning, Retirement Planning, Tax Planning
The RRSP is a great financial planning tool. Investments grow tax-free within the account. Contributions to an RRSP reduce taxable income. And in some unique circumstances, it may even be advantageous to make contributions in one year and then deduct them in future years.
RRSP contributions and withdrawals will decrease and increase taxable income respectively. This effect can be seen on the tax return.
So, how do tax returns work when there is an RRSP contribution? What effect does an RRSP contribution have on the tax return?
And what about in the future? What happens when RRSP withdrawals are made? What effect does an RRSP withdrawal have on the tax return?
These are important questions. The benefit of strategic RRSP contributions and withdrawals can be $10,000’s or more.
Understanding how RRSP contributions and withdrawals affects your tax return is very important for Canadian retirement planning. We’ll go through the basics of how RRSPs work, as well as a few examples to show how an RRSP contribution or withdrawal shows up on the tax return.
by Owen | Mar 28, 2022 | Behavioral Finance, Budgeting, Financial Goals, Financial Planning
Talking about personal finances has always been somewhat taboo. It’s difficult to discuss personal finances with friends and family. Everyone has different values and goals. We all have different financial circumstances. And sometimes… talking about personal finances can lead to hurt feelings and personal strife.
This has led to many people avoiding personal finance discussions or discussing personal finances anonymously in online forums and communities.
But discussing personal finances in an online community can be difficult. Personal finances are personal. A financial plan can differ dramatically from one person to the next. To have a good discussion requires a lot of information, something difficult to do in an online community.
At PlanEasy we want to make financial planning easy. We want to make it easier to share and discuss personal finances online.
That’s why we’re introducing the PlanEasy Public Dashboard, a completely anonymous way for PlanEasy users to share their financial plan… let’s take a look at the Public Dashboard…
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