Category Archives: Interviews

People behind the scenes at SPP.

Burn your mortgage: An interview with author Sean Cooper

By Sheryl Smolkin

Click here to listen
Click here to listen

If you think you can’t possibly afford to buy a home or that paying off your mortgage is a pipe dream, Burn Your Mortgage is the must-read book of the year. Today I’m pleased to be interviewing author Sean Cooper for savewithspp.com.

By day, Sean is a mild-mannered senior pension analyst at a global consulting firm. By night he is a prolific personal finance journalist, who has been featured in major publications, including the Toronto Star, the Globe and Mail and MoneySense. He has also appeared on Global News, CBC, CP24 and CTV News Network.

Thanks for agreeing to chat with us today Sean.

My pleasure, Sheryl.

Q: As a 20 something, why did you decide to buy a house?
A: Well I guess a lot of people strive for home ownership. My parents were my biggest influence. We always owned a home growing up, so I thought that owning a home was kind of the path to financial freedom.

Q: How much did your home cost, and how much was your down payment?
A: I purchased my home in August 2012 for $425,000 dollars. My down payment was $170,000, leaving me with a mortgage of $255,000. I didn’t go out and spend the massive amount the bank approved me for. I could have spent over $500,000 dollars but I found a house with everything that I needed for $425,000 and because of that I was able to pay off my mortgage in three years.

Q: How on earth did you save a down payment of $170,000 dollars? How long did it take you to save it, and how many hours a week did you have to work to do so?
A: Yes, it was definitely a sizable down payment for one person. I pretty much started saving my down payment while I was in university. I was able to graduate debt free from university and while I was there, I was working as a financial journalist. I was also working at the MBA office, and employed part-time at a supermarket. When I got my full-time job I was saving probably 75%-80% of my paycheck. I wasn’t living at home rent free. I was actually paying my mother rent.

Q: Kudos for your determination and stamina. Do you think working three jobs is actually a practical option for most people, particularly if they have young families?
A: No. As I emphasize in the book, that’s how I paid off my mortgage as a financial journalist on top of working at my full time job. While for somebody like me who is single it makes sense, it’s probably not realistic if you have a spouse and children. But there are plenty of things you can do to save money.

Q: Many people again think they would never, never be able to save up enough for a down payment. Can you give a couple of hints or tips that you give readers in your book that will help them escalate their savings?
A:
Definitely. First of all, you absolutely have to be realistic with your home buying expectations. You can’t expect to be able to buy the exact same house that you grew up in with three or four bedrooms and two stories. But you can at least get your foot in the door of the real estate market by perhaps buying a condo, or a town house, and building up equity, and hopefully moving up one day. Think about creative living arrangements. Rent a cheaper place than a downtown condo. Find a roommate.

Q: How can prospective home buyers use registered plans like their RRSP or TFSA to beef up their savings and get tax breaks?
A: If you are a first time home buyer, I definitely encourage you to use the home buyers plan. The government allows you to withdraw $25,000 dollars from your RRSP tax-free (it has to be repaid within 15 years). If you are buying with your spouse, that’s $50 000 dollars you can take out together. That’s a great way to get into the housing market. The caution I can offer is when you withdraw the money, make sure that you fill in the correct forms so you are not taxed on the withdrawal. If you’re not a first time home buyer, then I would definitely encourage you to use a Tax Free Savings Account, because it’s very flexible, and although you don’t get a tax refund, the balance in the plan accumulates tax-free.

Q: After shelter, which means mortgage and rent, food is a pretty expensive cost. How can people manage their food costs while still eating a healthy, varied diet?
A: I offer a few tips in my book. First of all, try to buy items like cereal and rice in bulk and on sale. Another tip I offer is to buy in season. I probably wouldn’t buy cherries during the winter  because they would cost me a small fortune. Try to buy apples instead, and during the summer if you enjoy watermelon, definitely buy it then. Try to be smart with your spending, and that way you can cut back on your grocery bill considerably.

Q: I enjoyed the section in your book about love, money, and relationships. Can you share some hints about how couples can manage dating and wedding costs, to free up more money for their house?
A: People like to spend a fair amount on their weddings these days, and there’s nothing wrong with that, but you just have to consider your financial future, and how that’s going to affect it. Also, when it comes to dating, make sure that you and your potential partner are financially compatible and have similar financial goals. For example, one might be a saver while the other is a spender. Sit down and make sure both of you are on the same page financially, and then find common financial goals, and work towards them.

Q: How can prospective home buyers determine how much they can actually afford?
A: If you are ready to start house hunting, I would definitely encourage you to get pre- approved for a mortgage. Basically, the bank will tell you how much money you can afford on a home. That way you don’t waste time looking at houses out of your price range. However, just because the bank says you can spend $800,000 doesn’t necessarily mean you have to spend that much.

Also don’t forget you will have to pay for utilities, property taxes, and home insurance plus repairs and maintenance. Come up with a mock budget ahead of time, and see how that will affect your current lifestyle. I would say if over 50% of your month income is going towards housing, that’s too much.

Try to kind of balance home ownership with your other financial goals, whether they are saving towards retirement, or even going on a vacation. That way all of your money won’t be going towards your house, and you will actually be able to afford to have fun and save towards other goals as well.

Q: You’re living in the basement and you rented the first floor. Why did you decide to do that, instead of vice versa?
A: Well I’m just one person living on my own, and upstairs there are three bedrooms and two bathrooms. I wouldn’t know what to do with all the space, so it made sense to live in the basement, because to be honest I lived in basement apartments for several years before that, so it wasn’t really much of an adjustment. I mean, personally I’d rather rent out the main floor than get a second or third job. It’s all about kind of maximizing all of the space that you have, and looking for extra ways to earn income.

Q: We rented the basement in our first house. Why did you decide to write the book?
A:
When I paid off my mortgage, a lot of people reached out to me for home buying advice. In the media, there seems to be a lot of, I guess, negativity surrounding real estate and big cities.

I always hear that the average house costs over a million dollars in Toronto and Vancouver. It seems like for millennials home ownership is really out of reach. I wanted to write a book to really inspire them and show them that home ownership is still a realistic dream, and it is still achievable if you are willing to be smart about your finances.

Q: Congratulations Sean. It’s a great book. I’m sure people reading and listening to this podcast will want to run out and buy it. Where can they get a copy?
A: They can order a copy on Amazon. It will also be available in Chapters and other major book stores across Canada.

Well that’s very exciting. Good luck.

Thanks so much.

 

 

 

 

 

You can purchase Burn Your Mortgage by Sean Cooper on Amazon.

This is an edited transcript of a podcast interview conducted in February 2017.

Alexander Fung: Helping parents raise money smart kids

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I’m interviewing Alexander Fung for savewithspp.com. In 2015 Alexander graduated from the Goodman School of Business at Brock University where he studied corporate and personal finance. He has worked as an analyst at Scotiabank and Fidelity Investments Canada. But first and foremost, he is an entrepreneur and app developer whose mission in life is to help parents raise money smart kids.

His app Dollarwise was awarded third place at the Canadian Personal Finance Conference and second place at the International Payment Conference, both held in Toronto.

Thanks for talking to me today Alexander.

Hi, Sheryl, thanks a lot for having me.

Q: You participated in The Founders Institute Program from January to June 2016. Can you tell me about the program and what you learned?
A: The Founder Institute is the world’s largest pre-seed accelerator in the world based in Silicon Valley. The purpose is to validate business ideas and then actually launch a product that helps provide some value to users. I was one of 17 people who graduated in the Toronto cohort out of about 65 companies that entered.

Q: Why do you think that parents often don’t teach their children good money habits?
A: Honestly, it’s a bit of a taboo topic. I know that as I was growing up my mom and dad hardly ever talked to me about money. Theythink kids should just be focused on school and that’s it, but in reality money is crucial in every person’s life – whether you’re saving for a wedding, saving for a vacation or buying presents for parents and family members. Money is such an essential subject to understand.

Q: Why did you decide to develop a tool to help parents and their children improve financial literacy?
A: When I was eight years old. I decided to use my cash allowances to buy myself a video game without my parents’ permission. When they found out, they were absolutely furious. What I learned from that experience was that I made an irrational decision and I should’ve talked to them about it before making the purchase. So, that event really motivated me to study finance and work in the industry.

Q: Let’s say traditionally parents give kids a cash allowance, and require that the money be used in a specific way, i.e. 25% for charity; 50% for expenses like bus fares and lunches; and 25% for fun. In your view, why isn’t this simple approach good enough?
A. The problem with a cash allowance is that it’s really hard to track. For example, a parent says, “Hey John you can’t spend more than $20 on transportation.” But the kid might not comply and parents can’t keep them accountable.

Also, when you use cash allowance sometimes kids lose the money and it’s gone. When it’s misplaced, it’s gone forever really. Whereas if you use a debit card and you lose it, you can call your bank and they can lock it and your money is safe. So it’s that accountability and keeping track of kids’ behaviors that money can’t really provide.

Q: Tell me about Dollarwise and how exactly it works.
A: Dollarwise helps parents to teach their kids good money habits using a debit card and a mobile app. But unlike a traditional bank we want to make it fun and educational. We’re in discussions right now with institutions that have parents and families as clients and/or members, and we want to help them to provide more value to their clients.

Q: But how does Dollarwise itself work? What does it do?
A: It’s an application where parents are able to set up their assigned list of chores for kids to complete, and they can assign dollar values. When the kids open the app they see the list, they can complete tasks, and when their parents verify that the job’s well done, the money can be transferred into the child’s account. The application also allows children to set saving and spending goals for themselves, see where their money goes and see rules established by their parents.

Q: What’s the value proposition for families?
A: Parents are able to save time, build better relationships, and avoid costly mistakes that the kids may make. When I was growing up I got a cash allowance at infrequent intervals and I usually spent it right away.

Q: So let me get this straight then. The parents can enter data about how much they are going to pay for tasks assigned to the child and  how money can be spent. Then the child can go into the same app, and see what their parents want them to do and check off a task once they have done it. Is that correct?
A: Yes. And when the task has been properly completed the real money actually goes into the child’s bank account from the parents’ account.

Q: What’s the value proposition for financial institutions here?
A: We believe Dollarwise will help institutions attract and retain clients at a lower cost.

Q: How does the program help both children and their parents set goals and track how the child spends money?
A:  Let’s say John sees a pair of shoes that he wants at Footlocker, but he doesn’t have enough money. Typically what he would do is keep nagging his parents until they give him money to buy his shoes. Or he can set a goal using the Dollarwise application that records what he is saving for, how much it will cost and how much he is planning to save each week. And his parents are able to open the application to see his goals and monitor how he is doing.

Q: You’ve noted on the website that the children are recognized for having good and consistent behavior with your unique badge and star system. How does that work?
A: Parents can customize some of the badges the app will award based on their children’s individual goals and achievements.

Q: What kind of tools does each child require to use the app?
A: Actually all they need is a debit card. They don’t necessarily need a phone. When they get home they can always log on to the computer or their iPad to see their progress. But parents  usually have phones so they can set the goals, set restrictions and send money to their kids’ accounts.

Q: What kind of debit card are they going to get? Will they get a debit card from a specific financial institution?
A: Absolutely. The original plan was to issue our own debit card, but we learned it is too expensive and doesn’t make economic sense. Institutions will just issue their own debit cards to the kids and to the parents.

Q: Have you tested the program with parents and kids? How do they react?
A: Within six months we’ve tested our app on over 300 parents and kids. After our fourth revision feedback has been a lot more positive. They absolutely love it. Some parents told me that their kids have  asked them if they could do additional chores around the house so they can earn more money to save and buy something they actually want instead of begging their parents for more money  to buy stuff.

Q: If a parent wanted to purchase a program today where could they buy it?
A: Right now we are in the testing phase. If they wanted to sign up they could go to our website at Dollarwise.co and just hit the “subscribe button,” give us their name and email, and someone on our team will follow-up with them.

Q: But if you don’t actually have a relationship with a financial institution yet, how can you issue debit cards?
A: Right now we’re testing the prototype. So they can’t use the application right now, but they get the prototype and they can see how it looks and how it feels.

Q: How much are you going to charge parents?
A: It will be free for parents and kids. Financial institutions will pay us for a white label version of the app to which their own branding can be added.

Well, that sounds really interesting. I wish you luck. Thanks for talking to me today, Andrew.

Thank you so much Sheryl.
***
This is an edited transcript of a podcast interview recorded in December 2016.

Why sitting is the new smoking

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I’m interviewing Avinash Maniram, a partner and senior group benefits consultant in the Vancouver office of PBI Actuarial Consultants. Avinash is a frequent speaker on health and wellness topics at educational seminars and industry conferences.

We are going to talk about the health implications of the sedentary lifestyle many of us lead. In particular we’ll learn why “sitting is the new smoking” from a health risk perspective and what we can do about it.

Q: So before we start, let’s look at some vocabulary. How would you define physical activity?

A: Well when we’re looking at physical activity from the perspective of the World Health Organization, we’re referring to undertaking at least 150 minutes of moderate exercise or 75 minutes of more vigorous exercise per week. Moderate exercise includes walking, swimming, mowing the lawn, washing your car or gardening.  Things like running and aerobics are characterized as vigorous exercise.

Q: So what’s the flip side, for example, physical inactivity?
A: Physical inactivity, is really the failure to achieve that guideline of either 150 minutes of moderate exercise or 75 minutes of more vigorous exercise per week.

Q: What would you consider to be a sedentary lifestyle?
A:  A sedentary lifestyle is one that’s involves an excessive amount of sitting throughout the day.

Q: We’ve been hearing a lot in the media lately about the health risks of sitting too much. Is sitting actually that bad and how much is too much?
A: Recently a lot more studies have shown direct correlations between sedentary lifestyles and the incidence of various types of diseases and heart conditions. Research from the University of Toronto indicates that the impact of sitting on a person’s lifestyle or their health really kicks in for those who have been spending at least eight hours a day in a sedentary lifestyle. In fact, the average Canadian adult spends close to 10  hours a day in a sedentary state.

Q: What actually happens to our body when we sit too much?
A: Our circulation system is really developed to operate when we are in motion so when we’re spending too much time in a sedentary state, our muscles are no longer load-bearing.  They begin to atrophy and they become weaker.

Q: You mentioned heart disease but what other health conditions can too much sitting trigger?
A: What the studies have shown is that a sedentary lifestyle can impact the risk of certain types of cancers, most predominantly colon cancer and breast cancer. In the case of cardiovascular disease in Canada, approximately 25% of all cases are directly linked to a sedentary lifestyle. There are also links to diabetes. In addition, the more sedentary your lifestyle, the more prone you are to anxiety and depression.

Q: What about the impact of sitting on mortality rates? By the way, I want you to know that since we’ve started talking I’ve decided I can do this interview standing just as well as I can do it sitting so I got up from my chair.
A: That’s fantastic. Statistics Canada and the Conference Board of Canada did a study which found that if we could lower the proportion of the time that we spend sitting or in the sedentary state by just 10%, that could result in a 30% lower risk of mortality.

Q: Does sedentary behavior also impact productivity?
A: It certainly does. You can imagine if you’re sitting at your desk in the usual crunched, hunched over thinking position, over time,  circulation is impacted and as a result your brain gets less oxygen. So colloquially I guess we would call this “foggy brain. Resulting  poor mental health and sore backs can also have an impact on productivity.

Q: The other thing that really surprised me is that sitting is viewed as an independent risk factor. So even if I’m getting my hundred and fifty minutes a week, that’s not enough if I sit all the time.
A: Absolutely. So much of the mainstream media has been focused on getting those 150 minutes of moderate activity in a week. But if you’re sitting at a desk for eight hours a day and then you head to the gym for one hour afterwards, that doesn’t undo the eight hours of damage caused by sitting. So for every 30 minutes of sitting we should be getting up and walking around for about five minutes. Those periodic intervals of activity do a lot more to reverse the damage done by a sedentary lifestyle.

Q: Are there any guidelines for the kind of activity we should be interspersing throughout the day and how frequently? Can you give me some examples?
A: This is the neat thing. So often when we go to sessions or we read about these things, the solutions often times are so impractical that it puts them out of reach. This is one of the areas where the fixes are actually quite simple. One of the things that we can do is we can set up some mental triggers so when the phone rings, if you’re in the office, instead of taking that call sitting down you can stand up.

If you are in an office tower you can walk up or down the stairs instead of taking the elevator. Another obvious one is limiting the amount of time that you spend watching TV. For those in office settings, instead of sending an e-mail to your colleague across the floor or instead of phoning to ask them a question,  get up and walk over to have that discussion.

Q: What if any guidelines are there for parents with children who want to ensure that their kids are sufficiently active?
A: Well this is one of the biggest challenges that we have right now. If you look at the guidelines for children, they should be getting at least 60 minutes of moderate to vigorous activity per day. The experts also recommend less than two hours of screen time daily.

One suggestion is to replace the video games with outdoor activities. Sometimes you can use it as a bargaining chip. Often I find that when the kids go outside, I end up having to call them back in, because they’ve forgotten about their screens and they’re back to being playful children again.

Q: What about standing or adjustable desks or treadmill desks? How useful are they and how can employees convince their employers to pilot them or make them available?
A: Well on the surface they are very useful because they combat the immediate problem which sitting at the desk for eight hours a day. When you’re trying to sell the idea of an adjustable desk to your employer, try to convince the company that this is the right thing to do. You really just need to point to the health benefits — less time off work and less presenteeism for those who probably should be off work but insist on coming in everyday. The studies have shown that there is really no decrease to productivity with standing desks.

Q: You’ve been doing a lot of work on the impact of sedentary lifestyles. You’ve made some changes in the lives of yourself and your children. You are also a partner in your firm. Are your colleagues getting the message and have you been the catalyst for some of these changes in your own office?
A: We did a presentation on the impact of sedentary living and you could see the light bulbs go off in people’s minds. It’s something that’s really taken our little office by storm.

We see the message is getting through, just judging by the number of associates who have requested standing desks. They are not mandatory by any means but if an associate wants one we will certainly make it happen.

I’ve also noticed a lot more in-person meetings and fewer phone calls and e-mails to discuss work with our colleagues. When I do performance reviews, we go for walk, we go outside to have the discussion. Whenever there are smaller internal meetings, we may get up, buy a water or something and come back to the office and finish up.

Thanks for chatting with me today Avinash on this fascinating topic. My pleasure Sheryl.

1dec-avinash

 

 

 

Avinash Maniram, PBI Actuarial Consultants Ltd.

******
This is the edited version of the transcript of a podcast recorded in November 2016.

Michael Drak on Victory Lap Retirement

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I’m interviewing Michael Drak for savewithspp.com.  He is an author, blogger and speaker based in Toronto and co-author of Victory Lap Retirement with Financial Independence Hub CFO Jonathan Chevreau. Thank you for joining me today, Michael.

Thank you Sheryl.

Q: First of all tell me, what made you decide to write this book?
A: The stress at work was affecting my health, and I was reminded of this each morning as I took my blood pressure pill. I began to look into the possibility of retiring and got my hands on every retirement book that I could. I found out that most of them were just filled with numbers and rules of thumb about how much money I would need in order to retire. None of them really told me anything about what I might actually do in retirement. I think Victory Lap Retirement fills that gap.

Q: What exactly does the phrase “victory lap retirement” mean to you? How does it differ from full stop retirement?
A: To me victory lap retirement means freedom. It’s freedom to do what I want to do when I want to do it. In contrast, full stop retirement means pulling back — disengaging, sitting on the sidelines and becoming a spectator. It wouldn’t work for me at this point in my life because I still have a lot of game left in me.

Q: Is victory lap retirement essentially a synonym for an encore career or an encore job?
A: No, not really, because victory lap retirement is all about lifestyle design. The goal is to maximize the quality of your remaining years by creating a low stress, fulfilling lifestyle based on your own unique needs and values. An encore career is really work either paid or unpaid. But it can be an important component of the victory lap lifestyle. Part of my own victory lap contains a component of paid work, which I view as my fun money to fund new experiences for me and my family.

Q: Your coauthor Jonathan Chevreau coined the expression “findependence,” which is a mash up of the word “financial” and “independence.” Why is findependence the cornerstone and prerequisite to victory lap retirement?
A: Having financial freedom is what allows you work and live on your own terms. In other words, you can do what you want to do with your time and energy, not what someone else on whom you are financially dependent says you have to do. In short, “findependence” equals personal freedom and freedom is what life is all about in the end.

Q: How can people calculate how much they’ll need to be findependent and then reach that objective?
A: Findependence is best described on a cash flow basis. This is the way I was trained to think as a banker. It’s the point where your basic non-discretionary living expenses are covered by your passive non-work income. This is the amount of annual cash flow you need to keep a roof over your head, put food on the table and pay for the basic necessities such as heating, electricity, property taxes, etcetera.. Any additional non-discretionary expenses will be covered by the active work income that you generate during your victory lap, which we view as your fun money.

Q: As you’ve noted already, the decision to retire is not simply a financial one. In your book you counsel readers to beware of “sudden retirement syndrome.” What do you mean by this expression, and how can prospective retirees avoid it?
A: I really believe that they should put a label on retirement just like they do on cigarette packaging. Something like “Retirement could be dangerous for your health. Retire at your own risk.” Sudden retirement syndrome (not actually a medical condition) is a very dangerous thing. It’s the shock of withdrawal that occurs when a person suddenly ends their career. Not everyone goes through it, but I went through it, my father suffered from it, and I had a good friend die because  of it. Most people, unfortunately can’t relate to what you’re going through. They really can’t understand why you’re unhappy, especially when you don’t have to go to work anymore.

In my mind, it’s important to have a retirement mentor in your corner to help get you through this period to ensure that you do not do some dumb things like I did. I really believe that investment advisors should expand their offerings to include this service instead of just focusing on the investment piece. In my opinion, assuming you can just fall into retirement and everything will be okay is a disaster waiting to happen.

Q: How far in advance should victor lappers plan their exit from their current jobs or careers?
A: I’m teaching my kids that they should start aiming financial independence as soon as they start working. Victory lap planning is best done probably a few years before achieving financial independence. It’s always important to have an escape plan in place in case of emergency because these days with layoffs and mergers, you really never know what may happen. It really helps to know where you want to go in life and how you plan on getting there.

Q: How important is a social network to a successful victory lap?
A: To maximize happiness in retirement a lot of people are talking and writing books about it these days. Everyone says it’s really important to socialize with family and friends and continuing to work gives you an opportunity to surround yourself with fun, interesting people. Some people, for whatever reason tend to isolate themselves in retirement. They turn sour about life and that’s when bad things usually start to happen for them. Your social network will also provide emotional support and guidance as you work your way into your victory lap.

Q: The three stages of retirement have been described as go go, go slow, and no go. In that context, how long do you think your victory lap might last?
A: I love those descriptions of the stages and I totally agree with them. If things go according to my plan my victory lap will last into the go slow stage. This will be when I’m no longer capable of doing everything that I used to and it’s probably at this point that I would consider moving into a retirement home and letting others take care of me.

Q: Have you ever regretted your decision to leave the corporate world and embark on this new journey?
A: The only thing I really regret is that I didn’t learn about the concept of financial independence earlier in life. I really don’t understand why they don’t teach financial independence in school, and why the financial services industry doesn’t talk about it is puzzling. If I had known about financial independence I would have reached findependence that much earlier andhave left my high stress corporate job much sooner than I did. Life now is so much better on this side of the fence. It’s unbelievable.

Q: If readers are considering embarking on a victory lap retirement but are afraid to cut the ties to their former life, what advice do you have for them?
A: I acknowledge, it’s hard to leave a well paying job late in your career. The key is, if you don’t like your job, it might be better health-wise and also result in increased happiness if you make the change. I came to that conclusion for myself after reading Ernie Zelinski’s book How to Retire Happy, Wild, and Free. If on the other hand, you like what you’re doing, why would you ever retire? People have to get over the fear of taking a calculated risk and making a change for the better.

That’s great. Thank you very much for chatting with me today, Michael.
My pleasure, Sheryl.

Michael Drak can be reached at michael.drak@yahoo.ca. Victory Lap Retirement is now available for orders online. It can also be purchased for Kindle or Kobo. The paperback edition is available in bookstores, and from either Amazon or Chapters.

This is an edited transcript of a telephone interview conducted in October 2016.

Tips from a millennial homeowner

By Sheryl Smolkin

Click here to listen
Click here to listen

Buying a first home used to be a rite of passage for young people in their 20s and 30s. However, even for many millennials with well-paying jobs, buying property in large cities like Toronto or Vancouver has become an elusive dream.

But in smaller centres across the country purchasing a residence is a more practical and affordable option. Nevertheless, even though the sticker price is lower, owning a house is still a big commitment with many potential pitfalls.

That’s why we decided to chat with Saskatchewan Pension Plan’s Network Technician Stephen Neiszner (age 29) about his first foray into the real estate market in his home town of Kindersley, Saskatchewan

Q: Stephen, Saskatchewan Pension Plan in Kindersley was your first full-time employment after you graduated from college and you’ve worked there ever since. Where did you live before you bought your apartment?
A: I lived in a rented condo across the street from the Saskatchewan Pension Plan office.

Q:  Why did you decide it was time to take the plunge?
A: I was looking on and off for about a year before I found my place. The thing that sparked it off was that the light in my bedroom was leaking and the landlord had no intention of fixing it.

Q:  Tell me about the property you bought and how much it cost.
A: I bought a 1,000 square foot, 2-bedroom condo in a four-plex, with a small yard for $155,000.

Q: How much did you put down on the $150,000 purchase price?
A: My down payment was 13% of the purchase price, which is about $20,000.

Q: How long did it take you to save up that $20,000?
A: I started saving as soon as I moved into Kindersley in 2008.

Q: How much are your monthly mortgage payments? Are there also monthly condo fees?
A: I make payments every two weeks so my monthly mortgage payments are about $620. There are no condo fees, but I put away $100 from each paycheck just in case of any unexpected expenses. I pay for my own utilities.

Q: Are there any common expenses for services like clearing driveways and care of the yard?
A: Each unit takes care of their own section of the yard. We all pitch in to clean the sidewalks as required.

Q: What percentage of your monthly take-home pay do you actually spend on the mortgage?
A: It’s 27%.

Q: Does that leave you with enough money to also save for retirement and for other things?
A: Yes. I put $50 into my RRSPs every paycheck, $200 into my TFSA, and the amount of $100 for taxes and building upkeep goes into a high interest savings account.

Q: Okay. I imagine you’re also invested in Saskatchewan Pension Plans.
A: I am.

Q: Did you opt for a fixed rate of interest or a floating rate on your mortgage?
A: I went with a variable interest rate.

Q: What are the term and amortization period for your mortgage?
A: My mortgage term is 25 years and amortization period is five years.

Q: Are there any prepayment provisions in the mortgage? Do you plan to make lump sum payments to reduce the principal over time?
A: Yes. I am able to pay back as much as 20% of my original mortgage payment each year. In the future, I think it will be possible to make extra payments, but right now I’m still trying to balance my budget.

Q: How long ago did you actually buy your condo?
A: I bought it in December 2015.

Q: Ah, so it’s your first year. Were there any surprises before or after closing? Any expenses you didn’t budget for?
A: I had a large amount in my TFSA that I was able to pull for my closing expenses. The one thing that really got me was the setup fees for the utilities that I wasn’t expecting, which were almost $500.

Q: Wow. What about telephone? Are you all cell?
A: I am all cell.

Q: Have you ever regretted your decision to purchase an apartment?
A: No, not really. I knew there would be challenges and growing pains. To offset some of the costs, I recently acquired a roommate.

Q: That’s interesting. What advice would you have for potential first-time homeowners in their 20s or 30s? What things should they consider before they make the jump?
A: Save. When you think you have enough money, save some more. Don’t rush into anything. I looked at 20 places before I found this one. Ask a lot of questions, not only to your real estate agent, but to your bank, the home inspector, people you know around town, your parents and friends. Just ask questions.

Don’t be afraid to use the RRSP first-time home buyer’s program. I withdrew $10,000 or half my down payment from my RRSP under this plan.  I have 15 years to pay back the interest free loan.

And also remember, budgeting isn’t just about your mortgage. You have to factor in utilities, vehicles, transportation, food, traveling and insurance. You’ll still want to take holidays, I’m sure. And I have to budget for a new water heater within the first year.

Q: That’s great. Thank you, Stephen. It was a pleasure to talk to you today. Enjoy your new home.
A: Thank you, Sheryl.

******
This is the edited version of the transcript of a podcast recorded in September 2016.

The Retirement Boom: Reboot and Reinvent Rather than Retire*

By Sheryl Smolkin

Click here to listen
Click here to listen

Hi. Today I’m interviewing Catherine Allen, co-author of The Retirement Boom for Save with SPP.com. She is Chairman and CEO of the Santa Fe Group, a financial services and technology executive, corporate board director, and expert in cyber security and risk management. Catherine lives in Santa Fe, New Mexico.

Q. Catherine, The Retirement Boom is a book by baby boomers for baby boomers about the transition into a new phase of life. Why did you and your co-authors decide to write the book?
A. Well, all of us are boomers ourselves at various ages within the category. We all have experienced or continue to experience reinvention. We all have a desire to stay involved and to be relevant. In fact, we do retreats and many of our attendees age 55-60 told us, “I really don’t want to retire. I’m not ready to retire. I want to do much more.” That’s what led us to do the research and the book.

Q. Who should read your book and what can they expect to learn from it?
A. First are the boomers, especially those 55 plus, who are concerned about and have a fear that they’ll never be able to retire or that they will run out of money before they pass away. For them it’s both financial and lifestyle planning. Twenty-seven percent of Gen Xers are also very concerned that they too many not be able to retire. Lastly there are many 70 year olds that have retired and told us, “I’m bored. I want to do something different. I want to reinvent myself. I may have 30 more years to live.” By reading the book, financial advisors and corporate HR people can also learn a great deal about the needs of their clients and workforce.

Q. How do you think retirement today for baby boomers is different than it was for their parents 30 or 40 years ago?
A.I see differences in four areas: financial, health, emotional, and government policies.

Thirty or forty years ago many more people had pensions which today are pretty much gone. Most people thought they might live to 70 or maybe 72 or 75. Today because of health care and being fit it’s very likely the boomers will live until 100. That means there are expenditures like travel or entertainment or other things that they want to do that they need to allow for.

Also, when people retired 30 or 40 years ago they did the 3 G’s as I call them. Gardening, grandchildren, and golf. Today people want to stay active, they want to get involved, they want to give back, they want to be a part of the ongoing environment.

Finally, government policies are not keeping up. Government policies have to positively support the aging population instead of being against things like social security or medicare or pensions or even not understanding the impact of aging. Those are all big differences I see from just 30 or 40 years ago.

Q. People spend their whole life with an identity that’s tied to their work. How can they overcome the fear associated with this loss of this identity to better embrace and enjoy their retirement?
A. That’s my favorite subject and it’s about reinvention. You don’t have to keep that same identity. This is a time when you can follow your passions as a way to reinvent your identity. We encourage people to keep their bio and resume and certifications up to speed because you never know when you might want to go back into the work force, especially if it’s a field that you love.

We encourage everybody to have a business card that has their website or their email and telephone number on it so that they feel like they have an identity and that’s who they are. Then lastly, we talk about people having a portfolio career and that means perhaps a third of what they’re doing is earning income by consulting or writing books and so forth. A third of their time is giving back through non-profits. A third of their time is just having fun enjoying and learning about life.

Q. Many people do continue working beyond the normal retirement date. Do you think that most people that are doing this are doing it for love or for money?
A. Well, that’s … It’s hard to tell. I would say 50/50. First of all, they are continuing to work as a form of insurance to keep funding their lifestyle and their retirement because many people believe they will live to 100. Secondly, many people want to remain again, relevant. They want to make a difference, they’re engaged.

The boomers — many of whom are part of the 60s generation — feel like now they finally have time to give back. It might be teaching, it might be mentoring, it might be being active in non-profits either by giving or volunteering or being on boards. Recent research published in the Journal of Epidemiology and Community Health say that the longer people work beyond 65 the less likely they’re to die at that age compared to others who do not work.

And what’s interesting is the numbers go up. At age 72 you’re 56% less likely to die than a 72 year old who is not working. I think that kind of research is going to encourage people to work longer after the age of 65.

Q. What do you mean by retirement robbers and how can retirees avoid them?
A. First of all, the biggest retirement robber might be yourself. They are people that keep you from doing what you want to do. You may have set up goals for retirement so you have time to follow your passions. Now guilt keeps you from enjoying what you said you wanted to do in retirement.

Also there are relatives. You’re retired, so guess what? You’re the one that can do the errands, you might be the caretaker or the “go to” person. We encourage people to try to think of retirement just like thinking about a career. What it is that you want to do, and how do you want to allocate your time? Try to stick to your plan so you are not sabotaging yourself.

Q: You and your co-authors interviewed over 300 people as part of your research for this book. Can you share 1 or 2 of your favorite anecdotes with us?
Well, I’ll start with my dad. He was a small town community banker. He always said he wanted to die with his boots on. That was his way of saying he wanted to be working when he passed away and he did. He was always a role model for me.

We’ve also heard from several women who were stay-at- home wives raising their kids who have gone back to work. Now their husbands have retired and they say things like, “I married you for life but not for lunch.” In other words, just because you’re retired doesn’t mean that it’s up to me to fill all of your time.

Another example is I was on a corporate board with a gentleman who was 92 years old and probably the smartest one of all of us. He wouldn’t say anything until he was ready to say the exactly right thing. There are lots of examples of people well into their 70s, 80s, and even 90s who are still actively involved and engaged in the world.

Q. What are some of the ways retirees can simplify their lives so that they can pursue their passions?
A. Well, start with your own home. Downsize or clean up. There’s a relationship between having less clutter in your mind and less clutter in your home. Try yoga or meditation or journalling. One of my favorites is detaching from technology for a while, whether it’s for a weekend or for a day or even for an entire vacation.

Lastly is relationships. I think as you get older you really want to think about who are the people that are most important to you and surround yourself with those you trust. Plan most of your time to be around these people. I call it sorting friends just like you sort your closet.

51oER8R98CL

 

 

 

 

 

 

 

The Retirement Boom: An All Inclusive Guide to Money, Life, and Health in Your Next Chapter can be purchased in paperback or for Kindle on Amazon.com.

*This is an edited transcript of a podcast interview recorded in May 2016.

Lorna Hegarty: Educating teens about money

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I’m interviewing Lorna Hegarty for savewithspp.com. Lorna has been the President of LCH Resources Ltd. for almost a decade. She has an international consulting practice in human resources, executive coaching and training as well as being a published author. She co-authored The Wealthy Teen with her daughter Carly when she was 15 (she is now 24), and the third edition was recently released.

Q: Writing a book is a serious undertaking. What motivated you to write and update The Wealthy Teen twice?
A: The reason for writing The Wealthy Teen was that as I was raising my two boys I noticed there was such a difference between how the two of them handled money. One would rush and spend his allowance as quickly as possible and the other one would save it. We had conversations around how to handle money and how to save money. I always let them make their own choices. When my daughter Carly came along, there was another way of looking at money and values and how to, as a parent, influence her to think about saving and spending money. I started taking some notes and ended up turning them into a book.

Q: What does wealthy mean to you? Is it all about the money?
A: Not at all. There are so many different ways to be wealthy. The true meaning of wealth is to be grateful and respect the gifts that you have. You can have wealth if you’ve got happiness, health and great relationships, spiritual connections, or creativity. If you are a teen that is   wealthy, you understand and appreciate these gifts.

Q: Your book is not a traditional personal finance book. In fact, you don’t really start talking about accumulating, managing, and earning money until the second half. Why do you begin by having parents and children work through their attitudes about money?
A: Well, money is a really personal concept and it begins with the history of how you were brought up to view money and how money conversations happened in your home. That’s why the first part of the book is dedicated to why you think the way you do, where it came from in your history and what assumptions you have that could be correct or incorrect. I offer an  opportunity for parents or mentors to write down where their views and thoughts about money came from to help them work through the book with their teenager or any other person.

Q: Kids often resist direction from their parents. How can parents engage their children in a dialogue in order to educate them about good saving and spending habits?
A: Well, for me, the best way to engage my children was to tell them stories of how I grew up with money. An example was when I was 10 years old I wanted to purchase a dog from my neighbor. They had a litter, and the dog cost $70. My parents were smart enough to say that I could have the dog but only if I earn $70. So I joined Regal Gifts. I got a few catalogues and pretty much through selling cards and wrapping paper door to door and to friends and family, I was able to raise enough money to buy the puppy. This approach is something I taught my children — they need to really work hard to get what they want.

Q: How soon is too soon? At what age can parents start teaching their children about money?
A: Well, I like the physical aspect of money. I like that I can hold it, I can put it in my wallet, I can see how much I have left on me. For example, if a child does a chore, something easy like cleaning up, you can reward them with a little bit of cash. When would that be? When they’re three or when they’re four. I’ll give you an example.

As I was growing up, we had a stone driveway and it was a really big task in the spring to take the stones that had been shoveled out with the snow onto the grass and put them back onto the driveway. From a really young age, I would say three or four, my parents showed me what to do to take the rocks off of the grass and put them back onto the driveway, and I would get paid 25 cents for doing that and for other little things that did.

I could see the money that we put into a jar and I could see that it was growing. I think the earlier the better when it comes to teaching children about money.

Q: How important are goals? When should young people start setting goals and objectives?
A: Well, I’m going to say pretty much the same thing as the last question you asked — as early as possible. Also, it’s really important to make goals fun. As an example, let’s just say Father’s Day is coming up, so we’re going to set a goal of spending $10 and we’re going to make something special for father. That would involve a trip to the dollar store to look for materials so the child can have some fun with the adult and make a gift that says “I love you.” When a realistic goal like this is achieved, the child and the adult can celebrate the accomplishment.

Q: You discussed developing “E” potential in your book. What does that mean and why is it important?
A: Well, “E” potential is gaining entrepreneurial capability which is really open to anybody. Some of the examples that come to mind are setting up a lemonade stand or selling books or babysitting at a young age before a teen can get a regular summer job, but being aware that they have the potential to earn money. It doesn’t mean they’ve got to work Monday to Friday, 9:00 to 5:00.

Q: Tell me about the principle of the five baskets. How can it help kids to manage their money?
A: Okay, well, savings is 10%, fun is 10%, charity is 10%, investment is 20%, and essentials are 50%. In the book, I suggest having separators or little baskets to put their money in. Of course, young children may not have all the baskets, because they don’t have to pay for essentials like shelter, food or utilities.

Again, I think it’s so important for kids be able to actually handle money when they are younger so they can see physically where it’s going and how it’s being accounted for. Now, for older teens, obviously, bank accounts are ok.

My daughter still uses five different banking accounts to manage her money so obviously, it isn’t sitting in jars at home. After all these years she finds that it is a really good way of watching how her vacation fund is growing and planning where she will go.

Q: How successful have the strategies you describe in your book been in educating your own three children about money?
A: That’s a good question too. They’ve pretty much followed the rules and the principles from The Wealthy Teen. Carly is very, very disciplined. All three of them have always got their eyes and ears open for something they could do that would be fun, exciting, and interesting but also earn them some extra money.

Over the years, I would say that they’ve all pretty much taken the pieces they really believe in and they’ve had fun doing it, seen results, and incorporated them into their own and their partners’ lives.

Q: What reactions have you had from both mentors and young people who have read your book and worked through the exercises?
Well, I’ve had really good feedback. I’ve had couples tell me that they’ve used The Wealthy Teen as a discussion guide before they got married, to have a conversation about money. I’ve had feedback from readers who have used the system for saving money for school, for a trip to Europe, or for a car. It works if you have the ability to stick with it and save to reach your goals.

Q: If you had one message for adults who want to educate their teens about money, what would it be?
A: My favorite question. I strongly suggest that adults be careful with what and how much they give to their children or their teens so youth will appreciate things much more when they have skin in the game or when they’ve learned something.

In the past, I’ve seen family with children, teenagers, young adults, and they shower their children with designer clothes and the best phones. I would tell them to make sure they are living within their own means and as adults, teach their teens to understand the value of money and let them earn it when they want to purchase something.

02Jun-TheWealthyTeen

 

 

 

 

 

 

 

The third edition for The Wealthy Teen can be purchased from Amazon in paperback editions and for Kindle.

The Procrastinator’s Guide to Retirement

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I’m interviewing accountant Dave Trahair for savewithspp.com. Dave operates his own personal finance training firm, and he is also the author of five personal finance books. He offers seminars based on his books to organizations, including CPA Canada and its provincial accounting affiliates. His most recent book is The Procrastinator’s Guide to Retirement: How YOU can retire in 10 years or less, and that’s what we’re going to talk about today.

Q: What portion of the population do you think is 10 years or more out from retirement and not saving enough?
A: It’s hard to pin it down to a specific percentage, but I would say the vast majority of people who don’t have defined benefit pension plans are in that boat. Unfortunately, this type of plan is going the way of the dodo bird, because with the low interest rate environment and what’s happening in the stock market, the people running those kinds of pension plans can’t save enough to fulfill their promise. It’s hard to come up with a precise number, but I bet you 80% of people without a defined benefit pension plan are nowhere near ready, financially, to fund their retirement.

Q: Why do you think so many people procrastinate when it comes to planning and saving for retirement?
A: Well, I think for some, it’s just that they’re bad with money, and they spend more than they make. They run on credit card debt, and they’re never really even thinking about getting their lives under control, financially. For many of the rest of us, even if we aren’t fiscally irresponsible, it’s just that life is expensive.

Think of people in their 20s who have just graduated from university. Many of them are saddled with student loan debt and they are having problems trying to find a full-time job in their field. Forget retirement savings. That’s so far down the road. They’ve got more pressing concerns at that stage in their life.

People in their 30s and 40s tend to do things like get married, have kids, and buy a house. These kinds of activities are very costly and therefore, many people find that there simply isn’t any money, at the end of the day to save for retirement. It’s not because they’re wasteful spenders.

Q: Continuing with the same theme, if you ask most people, they’ll probably tell you they’re tapped out. They don’t have extra money left over at the end of the month. Where can these people find the money to save?
A: That’s a very good question, and one of the key concepts in the book. I always tell people when I’m asked, “What’s the first thing you can do to help get your finances under control?” The answer is to somehow track your personal spending.

For effective financial planning you have to start with what’s happened in the past. That is your personal spending. Once you have a handle on where all the money went in the past, then you can take proactive steps to get your finances under control and probably find some areas where you could cut back and free up some spare cash for your retirement savings.

One of the big problems out there is revolving credit card debt. According to the Canadian Bankers Association, only about 60% of Canadians pay off their credit cards each and every month and, therefore, don’t incur interest charges. That means about 40% of Canadians can’t even pay off their credit cards, which means, essentially, that they’re spending more than they make.

Q: My first thought when I got your book was that it’s a great road map for saving in the last ten years before retirement, but the information is quite similar to most of the personal finance books I’ve read. What’s different about your book? What makes it a must-read for all Canadians and, in particular, those who are only a decade from retirement?
A: Yes, fair question. The first point that I’d make in response is that there is no magic bullet when it comes to personal finance. It’s really pretty basic. You could sum it up in one sentence.

All you have to do is live your life, spend less than you make, and do something positive with the excess money. The problem is most people aren’t doing that. There are books out there that play upon peoples’ wish to get ahead financially, easily or automatically. That’s just taking advantage of readers. The really good personal finance books out there, attack the root of the matter (as my book does) which is that your spending has to be less than your income.

What makes my books different — this one and the other ones I’ve written — is that I give away Microsoft Excel spreadsheets people can actually apply to their own situations. I use the spreadsheets as examples in the book, and then I say, “Look, go to the next step. Download the free spreadsheet, punch in your own numbers, and see what conclusion you come to about your life.”

Q: If readers are approaching retirement with consumer debt and a mortgage, where should they put their money first? Should they hold off on making RRSP contributions until they are completely debt free?
A: Good questions. I would say that it depends on the type of debt. If we believe the Canadian Bankers Association that at least 40% of Canadians have ugly credit card debt, the only thing these people should be thinking about is trying to get rid of that obligation. Forget paying down the mortgage. Forget making RRSP contributions. Even if there is a tax refund on RRSP contributions, they are effectively financing it at a very high interest rate because the alternative would be to pay down their credit cards.

There’s a chapter in the book on four people in that situation, which basically lays out the different options for getting rid of credit card debt. The problem is that it really requires a mind shift. It requires people to change their basic habits and it is really, really difficult to get them to do this.

Once a family has paid off their credit cards, the decision becomes “contribute to an RRSP or pay down the mortgage.” The first observation I would make in that case is that either option is a good alternative. You’ve got extra money, whether you pay down the mortgage or make an RRSP contribution, you can’t lose in either case.

However, with the ultra-low interest rate environment right now and assuming the person we’re talking about is in a reasonably high tax bracket, making $80,000 or $100,000 or more, it’s difficult to beat the huge economic benefit of a tax refund.

Q: To what extent should Canadians planning for retirement take future health and long-term care costs into consideration, and how can they quantify these amounts, for budgeting purposes?
A: That’s a very difficult question to answer and a very challenging thing for many people. We have provincial health plans in Canada, so we’re a lot further ahead than our neighbors to the south. The government plans aren’t perfect, but they’re a good basis for covering many of your health costs.

However, some other areas related to healthcare are not covered by the provincial plans, and this becomes a big problem for couples, say, when one of them has an ailment that requires him/her to go into a long-term care facility or nursing home. That can be very, very expensive. This is when people get into trouble with their finances due to health costs. In a lot of cases, it will be one of the spouses who needs long-term care and the other one is still living in the house, so it essentially almost doubles the family’s living costs.

Many people are able to cover the high costs of long-term care because they bought their home and own it out right. That is why I always encourage people who can afford a home to buy it and pay off the mortgage. Then you’ve got something worth significant money so you could sell and downsize or even take out a home equity line of credit to finance costs related to long-term care.

It really is an individual thing that requires a lot of thought and is difficult to pin down. It’s difficult to budget for retiree health care costs and yet the expenses can be onerous if you’re not prepared.

Q: I noticed you were recently interviewed for the “Me and My Money” column in The Globe and Mail. Your investments are very conservative – a high-interest savings account and guaranteed investment certificates. This is very contrary to what even independent financial advisors usually recommend. Why don’t you hold any equities?
A: I have no exposure to the stock market. That’s because I’m a very conservative accountant. I don’t like losses. I have spent a lot of time studying the stock market. I wrote a book on it called Enough Bull a couple of years ago.

If you look at long-term historical rates of returns, say, for the Canadian stock market, the S&P/TSX composite total return index which includes reinvested dividends, has done fantastically well —  9% per year. The problem is, for many reasons, most people come nowhere near what the ideal index has made.

That’s because they get emotional when the stock market crashes. They panic and sell at the wrong time. They sell low and buy high, which is the opposite of what you’re supposed to do. The other issue is that when it comes to personal finance, who has fifty years to go to retirement? You can’t assume that you’re going to earn the long-term, fifty year historical average rate.

I love fixed income products like GICs because they’re easy to understand; they’re guaranteed if you buy them from a financial institution, like any of the big six banks that are members of the CDIC (Canada Deposit Insurance Corporation); and, you can’t lose your money. The downside of course is they’re not paying very much interest. You’d be lucky to get about a two percent average rate of return.

The problem is most people using the recommended strategy of an investment advisor have a lot of exposure to the stock market. They think they’re making six or eight percent after fees and, therefore, laugh at GICs making two percent, but in many cases, they aren’t earning what they think they are.

Q: At age fifty-seven, you’re less than ten years from the normal retirement date of age sixty-five. Do you have a planned retirement date in mind?
A: I don’t really have a retirement date in mind. I mean, I love most of what I do. My plan is to slow down, do less hours, hopefully do some of the things I currently do, like writing and giving seminars, and earn some money doing that. I plan to slow down but I really don’t have any dreams about stopping work at sixty or even sixty-five, so again, that’s an individual choice.

Q: In closing, if you had one piece of advice for people who are ten years out from retirement, what would it be?
A: Well, first of all, I would say you have got to track your spending. I know it’s boring. I know it’s time consuming. I know not everybody is a specialist or likes dealing with spreadsheets. But that’s the most powerful information you can get because it’s personal. That’s what you need to start with: your family’s personal spending.

Q: Thank you, Dave. It’s a pleasure to talk to you today.
A: Thanks for having me, Sheryl.

05May-DT FINAL pro photo small (2)

 

 

 

 

 

 

 

David Tahair, author of
The Procrastinator’s Guide to Retirement: How to Retire in 10 Years or Less

Tax tips from Tim Cestnick

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I am interviewing Tim Cestnick, Managing Director of Advanced Wealth Planning at Scotia Wealth Management for savewithspp.com. Tim also writes a personal finance column called, “Tax Matters” that has appeared every Thursday for almost twenty years in Canada’s national newspaper, The Globe & Mail. We’re going to talk about some of the things you need to know to complete and file your income tax return.

Welcome Tim and thanks for joining me today.

Q: What are some of the tax credits or deductions that many people aren’t aware of or that they may miss?
A: There are so many kinds of tax credits now. It’s important to really check to make sure you’re not missing something that you haven’t claimed in the past that is now available. Some of the things we see people missing are for example, interest deductions. Interest is deductible where you borrow the money for the purpose of earning income from a business or from an investment.

Also, I think fitness tax credits and tax credits for children are another area that people sometimes overlook. Don’t forget if you’ve paid for any kind of sports activities for your kids or even artistic classes like music or piano lessons, you can claim a tax credit for these amounts.

The amounts have actually been increased for fitness tax credits. You can claim up to a thousand dollars of eligible activities. It would get you pretty decent tax relief, probably two hundred and fifty dollars in tax relief federally plus maybe in total about four hundred dollars in tax relief from local and federal governments together, so it’s worth claiming those credits.

People also sometimes forget about the education and textbooks tax credits. But based on the March 2016 budget this will be the last year for many of these tax credits. 

Q: Are receipts required in all cases?
A: Yes, you do need receipts. You don’t have to turn them in with your tax return when you file electronically, but you have to keep them on file.

Q: Why should tax returns be filed for children, even if they don’t have any taxable income?
A: There are a couple of reasons why it might make sense to file a return for a child, even a minor child. Some people don’t even realize you can do this. If your child has earned any type of income at all from babysitting, or cutting grass, or delivering papers, report that income on a tax return because they’re not going to pay tax anyway if their total income is under $11,400 for 2015. However, they will create RRSP contribution room for later when they graduate and are working full-time.

Also, once your child reaches age 19 there’s good reason to file even if they have no income because they will be entitled a GST or HST credit which results in cash back to them of almost $300. 

Q: If taxpayers own stock in an unregistered portfolio, what are the advantages of making a charitable donation using stock instead of selling the shares and donating cash?
A: You’ll be better off donating securities that have appreciated in value than donating cash. You get a full donation tax credit for the value of the shares you are donating and on top of that, the government eliminates the capital gains tax on the securities. 

Q: What is the advantage to taxpayers of filing electronically instead of submitting paper forms?
A: There are a couple of reasons why you might want to do this. First of all, if you’re expecting a refund, you will get it faster by filing your return electronically. They can process it sooner and you will get your money much faster.

Also, it’s just simple to not have to send in all the paperwork. Some tax returns would be two inches thick if taxpayers had to send in all their receipts and what not. It’s just easier and quicker. 

Q: Do slips and receipts always have to be sent in with a paper filing?
A: Yes, you do have to send a number of slips and receipts. However, there are things you don’t necessarily have to provide. For example, if you’re an employee and you are claiming a certain employment expenses like use of your car, you don’t have to file a Form T2200 signed by your employer to say you had to pay for those costs. But you have to keep it handy. 

Q: Why is it getting a big tax return not necessarily a good thing?
A: A tax refund is not necessarily a good thing because what it really means is that you’ve been lending money to the government over the course of the year and they’re only now going to give it back to you. The perfect scenario is that you file a return and you owe nothing and you receive nothing back. The reality is most people actually owe or get a refund of some kind. You just want to make sure the refund is not too big. 

Q: If an individual is reporting self-employment income and wants to deduct expenses, what are a couple of things that they should do to ensure that the expenses are allowed if CRA comes knocking?
A: The first thing is to make sure amounts you’re claiming are allowed. That includes any kind of expenses you have incurred for the purpose of earning income from your business but expenses also have to be reasonable in amount. In most cases, as long as you’re paying a third party for some of these expenses that shouldn’t be an issue.

You also have to make sure that you do keep any receipts or invoices that you paid as part of your expenses just in case CRA asks for them. There was a court decision that was handed down a number of years ago which established that if you don’t have a receipt for something it may still be deductible if you can demonstrate you paid that amount and the cost is reasonable. But it’s just easier if you keep all of your receipts. 

Q: What are the penalties if Canadians file their tax returns late?
A: If you don’t owe taxes then there’s no penalty for filing late. Of course you won’t get your refund as soon as you should so it’s nice to file on time. If you owe money and don’t file your return on time, there is a five percent penalty on the tax owing the day after the due date. The key is to make sure you file your tax return on time even if you don’t have the money to pay your taxes immediately. By doing that you’ll avoid any penalties.

Q: If you do file on time and you owe money, when do you have to pay it?
A: The money is owing  as of the due date of your tax return. Typically, for most people that would be April 30th. If it’s not paid by that time, you will end up paying some interest on the outstanding tax balance — not a penalty, just interest. 

Q: If CRA sends a notice requesting quarterly tax installments is it ever safe to ignore it?
A: You should never exactly ignore it. The reason they send you the statement is because they expect that you probably owe installments for the coming year. What you need to do is to evaluate whether or not the amount  they’re asking for is correct.

If you’re receiving a lot of investment income or you are a senior and don’t have employment income, you may end up  owing taxes when you file your return. Your best bet is to take a look at your income for the coming year, assess whether or not you think your taxes will be less or more than they were in the past year and actually do the math on your installments. When CRA sends you a statement you don’t have to abide by it, but don’t ignore it because you may actually owe  quarterly payments.

Q: So if you think your earnings will be lower, you do not necessarily have to remit the whole amount?
A: There have been situations where people have been asked to pay installments because they had a certain amount of income that was a one-time event. In that case, you may not have to make installments next year at all. You have to know really what your income is going to look like in this coming year compared to where it was last year to be able to make a decision about whether you can ignore a request for installments or pay a smaller amount.

—–
This is an edited transcript of a podcast interview with Tim Cestnick recorded in March 2016.

You may be only as old as you feel

By Sheryl Smolkin

An interesting new study* by a University of Toronto team led by psychology professor Alison Chasteen reveals that how you feel about getting old can affect your sensory and cognitive functions.

The study published in the December issue of the American Psychological Association Journal was based on testing of 301 participants between ages 56 and 96. Researchers considered the interview subjects’ views on aging, how much they believe they can hear and remember plus their actual performance in both areas.

Standard hearing and recall tests were administered. For example, study participants saw a list of 15 words on a computer screen and heard a series of different words through headphones. Subsequently they were asked to write down as many words as they could remember. In addition, they completed a third test by listening to five words they were asked to recall after a five minute delay.

They were also asked to answer questions and react to phrases describing how they viewed their own ability to hear and remember. For example, participants were asked to agree or disagree with sentences like, “I am good at remembering names” or “I can easily have a conversation on the telephone.”

In addition they were asked to envisage 15 situations and rank how worried they are about each based on age. One example was to imagine they were involved in a car accident where it was unclear who was at fault and specify how concerned they were that they would be held responsible because they were elderly.

“Those who held negative views about getting older and believed they had challenges with their abilities to hear and remember things, also did poorly on the hearing and memory tests,” Chasteen said.

“That’s not to say all older adults who demonstrate poor capacities for hearing and memory have negative views of aging,” she continued. “It’s not that negative views on aging cause poor performance in some functions, but there is simply a strong correlation between the two when a negative view impacts an individual’s confidence in the ability to function.”

She noted that the perceptions older people have about their abilities to function and how they feel about aging must be considered when determining their cognitive and sensory health. She recommends educating older people about ways in which they can influence their aging experience, including providing them with training exercises to enhance their cognitive and physical performance, and dispelling stereotypes about aging.

“Knowing that changing how older adults feel about themselves could improve their abilities to hear and remember will enable the development of interventions to improve their quality of life,” she concludes.

—–
*This blog is based on materials provided by the University of Toronto.