Ten seconds of bravery pays off

Coming home on the train the other day, my seatmate was having a disagreement with her dentist’s office about an outstanding bill.  She owed them $46.  The conversation was loud and lengthy, but oddly friendly.  In any case, it was not conducive to the quiet reading I was trying to do.

However, I was soon drawn into the drama.  The office explained that her insurance company had denied coverage, plain and simple.  No, they didn’t know why.

Diligently, she called up her insurance company next.  She was unfailingly friendly and pleasant as she got passed to three people.  Apparently she had her cleanings too close together – by one day.  So the claim had automatically been denied.  After some minor convincing on her part, the insurance company relented and told her that they would pay the claim.  She thanked them nicely, called her dentist’s office back, and got off the train.  In about 10 minutes, she saved herself $46.

We sometimes underestimate the power of a phone call.  Maybe we think we don’t have time.  Maybe we think it won’t work.  Or maybe we’re just not brave enough.  If you’ve seen the movie, “We Bought a Zoo” with Matt Damon, you’ll remember how being brave for just 10 seconds can make a big difference.  You just need 10 seconds of courage to get the conversation started.

The examples that come to mind are dealing with credit card companies.  We’ve all heard stories about people who call their credit card companies and ask for a lower rate.  The truth is, this can actually work.  In 2008 when the CBC gave ten mall shoppers a script to read to their credit card company, six were promised a lower rate.  Here’s the script:

“I think I’ve been a good customer. I’d like to stay with you, but I really want you to lower the rate on my card. Can you help me?”

If the initial response was no, they asked to speak to a supervisor and make the same case again.  Most were approved for a decrease of about 8%.

The reality is, if you pay your bills, and have a reasonable credit rating, credit companies want to hold on to your business.

A rate decrease only really matters if you are carrying a credit card balance.  But what if you are faithful and pay yours off in full every month – no need to call the credit card company, right?

I have twice been in the situation where I simply forgot to pay my credit card bill.  The first time was about 8 years ago, and most recently was last year.  Let’s just blame it on the hustle and bustle of life.  Both times, I called Visa and explained that I would like the interest fees waived.  Both times, they said yes.

There’s no guarantee of success.  Yes, it could end up a waste of time.  Or it could save you some real money.  So use your 10 seconds of bravery and make that call.  By the way, Matt Damon doesn’t use his 10 seconds to call his credit card company.  Get some Kleenex and go watch the movie.

Rich regards,


10 choices you will regret in 10 years

1. Not slamming that extra $1000 onto your debt – Putting money onto debt doesn’t exactly fall under the category of fun.  But having less or no debt is going to be way more valuable to you in 10 years than whatever thing you would’ve bought for $1000.

2. Procrastinating on your kids` RESP accounts – Every year that you don’t save for your kids’ education is a mounting liability.  Avoid having to suddenly find thousands of dollars in 10 years by saving now.


3. Buying things instead of experiences – Experiences last.  And you get to be in the world with other humans, doing cool stuff.  They broaden us, and shake things up in a good way.

4. Buying or leasing new cars – New cars are awesome for about 3 months.  Then nobody cares anymore, including you.  Ten years of ponying up for new cars wastes a lot of financial potential.

5. Not putting your teenager on an allowance to learn about money – Think supporting your 16 year old is tough?  How about supporting your 26 year old?  It’s probably not part of your plan.

6. Not having an emergency fund – Admittedly, it is a pain to set up a separate account along with a monthly auto-transfer into it. But the number of times an emergency account will save your hide over a 10 year period is worth it.

7. Not learning about low-cost investing – There’s nothing wrong with paying fees to your advisor if you are getting good service.  But also be aware of low-cost investment options.  Paying 1 or 2 percent less per year will significantly affect your returns over 10 years.

8. Not sharing your goals with your friends – Friends want what’s best for you, but they can unwittingly take you away from your financial goals.  Give them some credit and tell them what you’re after. In 10 years you’ll be even better friends because of it!

9. Keeping your savings the same even when your income goes up – When your income goes up, even a little, remember to increase your savings too.  You won’t feel it, and in 10 years your TFSA or RRSP will be that much fatter and juicier.

10. Not thanking your financial role models – Money is a big part of life, so if someone helped you or taught you along the way, take a moment to say thanks because you don’t want to miss your chance.  That reminds me, I owe my parents a hug next time I see them.

Rich regards,



Managing cash flow is as important as budgeting

Suppose your salary is $60,000 per year, and your savings plus expenses is $60,000 a year too.  Smooth sailing right?  You’re on budget!  Sure.  But being on budget is just half the battle.  The other half is managing cash flow.

Cash flow management (also known as ‘matching income to expenses’) is key to good money management.  Here are some techniques that can help.


1. Paycheque Planning:  Get out a calendar.  On today’s date, write down your bank account balance (A).  Next write all income you will receive up to and including your next 2 paycheques (B).  Now write down all bills, savings and debt payments due over that time frame (C).  Now you know how much you have for discretionary spending over the short term:  A + B – C.

2.  Annual Expenses:  Throughout the year you may receive lump sums such as gifts or work bonuses.  Do you have some annual expenses you could match these lump sums up with?  Not things like car repairs and home insurance (these should be budgeted for out of regular income), but expenses such as vacations, Christmas gifts and activity fees?  Once you receive the bonus, sock it away.  Presto – there’s your budget for your next round of non-critical annual expenses.

3. Slow Spending Accounts:  Even the best budgeter will be tempted by a big balance just sitting in their chequing account.  Instead, set up one or more accounts for those once-in-a-while expenses.  Next establish an automatic monthly withdrawal from your chequing into these separate savings accounts – ideally make it for the day after you get paid.  When the time comes to pay the expense, it’s a happy day because the money is there waiting for you!  But watch out for bank fees if you create multiple accounts.  Consider using a no-fee bank such as ING Direct where you can set up and label multiple accounts for no cost.

4.  Pay your bills when you get paid:  Just because your Visa isn’t due until the 23rd of every month doesn’t mean you can’t pay it ahead of time.  If you pay your upcoming bills immediately after you get paid, you get a better sense of how much money you really have.  In fact, many creditors and utility companies will change the due date of your bill upon your request.

5. Gift Cards:  Sometimes variable expenses like groceries, coffees, clothes and entertainment can get away on us.  Turn these variable expenses into fixed ones by using cash or debit to buy yourself a gift card shortly after you get paid.  Sometimes when an expense is black and white (“this is how much I have to spend until next paycheque”), it’s easier to control.

These are just some of the ways to keep on top of cash flow.  If you’re doing something that works for you, please share your wisdom!

Rich regards,


The 20% Solution – Buy a house now, save for retirement later

High house prices mean high mortgage payments.  And that makes it hard to save for retirement.  Malcolm Hamilton, partner at Mercer, a human resources consultancy suggests “the 20% Solution” as a way to meet both goals.

Here’s the idea – Pay off your mortgage first, then shift gears and save for retirement.  In other words,

1.  Save 20% of your income for a big down payment

2.  Then put 20% of your income onto your mortgage and have it paid by age 50

3.  Now put 20% of your income for retirement

It can work.  And it’s logical: Putting your money toward a goal that is most meaningful at the time.

The 20% Solution is worth exploring.  But here’s what to watch for:

1.  It might actually be more than 20%:  The 20% Solution works as long as you pay off your mortgage by age 50 (this leaves about 15 or more years left to save for retirement).  Depending on how old you are and the price of the home, 20% might not be enough.

2.  Equity:  As you see the equity in your home grow, you may feel tempted to take out a home equity line of credit for that vehicle, home renovation or vacation.

3.  Upsizing:  Once you see a big dent in your mortgage, will you be tempted to celebrate by buying a bigger and better home?

4.  Diversification: Only paying your mortgage means that your wealth is all tied up in one asset.  If the housing market takes a dive, so does your net worth.

5.  Habits: People faithfully pay their mortgages because if they don’t, the bank will foreclose.  The same can’t be said for saving for retirement.  If the saving habit is not established early, it could be very difficult to start at age 50.

A more balanced strategy is to pay your mortgage off by retirement, and to save 10-15% for retirement along the way.  This gets you used to saving and investing and avoids some of the above pitfalls.  Plus, you may get an annual tax refund which is always a nice bonus.

Right after the Calgary flooding, Mayor Nenshi was quoted as saying, “I can’t believe I actually have to say this, but I’m going to say it. The river is closed. You cannot boat on the river.”

The same goes for a matched savings plan from your employer.  20% Solution or not, if you are getting free money from your employer you have to sign up for it.  It’s free money and should be your first priority.

If you want to see how the 20% Solution might look for you, play around with a mortgage calculator.  I like BMO’s but any bank or mortgage broker site will have one.

You can read more about the 20% Solution in the MoneySense article Buy Now, Save Later.  I completely agree with their conclusion:  What matters most is having a strategy that you like, and then the hard part – sticking to it.

Rich regards,


One child’s journey with Loblaw stock

Some parents want their young children to excel at sports or music.  Some want them to develop a sophisticated pallet or social conscience.  I wish those things for our kids too.  But I also want to instil great money management skills right from the get-go.  So young, that they don’t know any different.  So that their habits are deeply ingrained and (hopefully) carried into their adult lives.

Our kids have age appropriate understanding of the concepts of Spending, Saving, Giving and Investing.  But it’s the last one – investing – that can be the hardest to explain.

Last year, I wanted to start talking to our 8 year old about stocks and how they work.  But to make it more real for her, we talked about which company she thought would be a good one to own.  The conversation has now lasted more than a year, with twists and turns in surprising ways.

After some deliberation, she chose Superstore.  (Her first choice, Toys R Us is privately owned).  When I asked her why she thought Superstore was a good idea she said “because people always need groceries”.  The wisest words are always the simplest.

Superstore is owned by Loblaw, so we “bought” Loblaw stock at $33.93 last year.  We didn’t actually buy it; instead we track the stock every couple of weeks on Google Finance.  We should have trusted her judgment and bought for real – the stock closed yesterday at $50.13 – a 47% increase – plus dividends!

The point wasn’t whether the stock went up or down.  It’s the lessons learned, and here are some of them:

1.  Tracking – initially we were using graph paper, and have now moved on to using Excel.  Grade 3 curriculum teaches some graphing so these concepts dovetailed nicely.

2.  Dividends – Loblaw pays out a quarterly dividend.  Here was a good chance to explain the basics of dividends vs. capital gains.

3.  Ups and Downs – The stock has dipped and surged along the way which is a great way to learn about volatility

4. Corporate Ethics – Joe Fresh, the clothing line sold at Superstore, was one of the brands being created at the tragic factory in Bangledesh.  Being an “owner” of the stock meant my daughter was more tuned in to the issues than she would have been otherwise.

5.  Mergers – Yesterday, Loblaw announced that they were buying Shoppers Drug Mart.

Getting young kids familiar with investing terms and jargon now means they won’t be intimidated by them in the future.  But at a young age, don’t expect them to have a solid or deep understanding.  In fact I’m not sure if she’s serious or joking when she calls the stock “Blah-Blahs”.

As we discussed the merger yesterday, our five year old asked what Shoppers Drug Mart is.  I explained they sell things like make-up, magazines, shampoo and candy.  A parent should know better than to mention that last word, because that’s when I lost them.  “Oh!” they both squealed, “Can we go buy candy there sometime, puhleeeeze?”

Sure, maybe with her next dividend.

Rich regards,



A little bit of confidence pays off…I hope

The official Canadian definition of financial literacy is “having the knowledge, skills and confidence to make responsible financial decisions.”

I recently found out just how true that is.

In 2011, we sold a rental property.  I should say we finally sold a rental property.  It took a long time, and we took a decent loss on it.  But all that is for another story.

When I filed our 2011 taxes using TurboTax, a bug in the software meant that the sale was not reflected on our tax return.  I thought to myself at the time “I’ll worry about this later” (famous last words).

Well, later finally arrived this past week.  Fifteen months later to be exact.

Why did it take so long?  I know enough about basic tax issues, but I didn’t have the knowledge of exactly how this loss affected us.  I didn’t have the skills to correct a previous year’s return.  But what was lacking most was the confidence – could I figure this out?  Where would I start? How much time would this take? Did I need to hire a professional?

I have to admit, a big part of me wanted to give up on the whole thing.

Thank goodness I didn’t.

I’m a list gal.  “Refile 2011 taxes” had actually been on said list for quite a while.  But it was an intimidating goal.  So I used the same strategy I use with clients to build their confidence – clarify and break the goal down into manageable pieces.  First two steps:

1. Set a deadline (week of July 1st 2013) and

2. Go to CRA’s website. Read about how to re-file a tax return, and read about selling a rental property at a loss.

After that, the pieces quickly fell into place.  While still not easy, it was going to be much less work than I thought.  And I learned something interesting in case you are ever in the same boat:  A loss on a rental property is known as a Terminal Loss.  Terminal losses are deducted from income.

In other words, we now have another deduction to claim against our 2011 incomes.  All of a sudden this looming, pain-in-the-neck task has turned into a potential mini windfall.  (Ahem…I do realize selling at a loss cost us more than this ‘windfall’ will bring.  Just looking for silver linings here!)

I say ‘potential windfall’ because there’s a lot to go through yet: submitting the forms to CRA and waiting for them to pass judgment on the situation.  We can only wait and see.

Regardless of what happens, it is a relief to have that off our plate.  Turns out you don’t have to know everything – you just have to have the skills, knowledge and confidence to figure it out.

Rich regards,


Why pay for a retirement plan when you can get one for free?

If you want a personalized retirement plan, using a Certified Financial Planner (CFP) is a good start.  Read “What you get out of a retirement plan” to find out what questions these plans can answer.

CFPs fall into two broad camps:  those that get paid by commission, and those that are fee-based.


A CFP paid by commission can provide you with a retirement plan for no charge.  Of course, commission-based CFPs only make money if you buy what they sell.

Now let’s set the record straight – many commission-based CFPs put their clients’ interests first.  In fact, the CFP code of ethics demands it.  And no one can or should work for free.

Just watch out for inherent conflicts of interest.  To give some examples:

1. If your advisor recommends transferring your work pension to them, have them justify why this is in your best interest.

2. Do they suggest you invest instead of pay down debt?  Have them explain the math to you.

3.  Are they recommending you buy more insurance as you age?  Typically we need less insurance as we get older, so have them explain their logic.

Don’t be afraid to ask pointed questions about their compensation and advice.  A good advisor will be transparent, and able to support what they are saying.


A less common but important player is the fee-based CFP.  These planners do not sell any product, so their advice is unbiased – a rarity in the investment world.  But because they do not sell product, they must charge a fee. Costs vary widely, but a typical retirement plan fee might start around $1500.

Fee-based advisors aren’t without their conflicts of interest as well.  For example, it would take a lot less time to provide a generic retirement plan than to create a highly personalized one.  Ask them ahead of time how they individualize their clients’ retirement plans.


Where to find a Certified Financial Planner

One of the best ways to seek out a CFP is to ask trusted friends and family for recommendations.

You can also search for a local CFP professional online.  Use the Advanced Search option if you want to look for a specific compensation type such as fee-based.

It boils down to two things:  trust and transparency.  You deserve both.


What you get out of a retirement plan

Now that you’ve read “Retirement in 5 minutes“, you might be ready to find out more about a professionally prepared retirement plan.  Of course many people get by without them.  But just like an MRI scans your body, a retirement plan scans your finances.  As with an MRI, a retirement plan can spell out good and bad news.

What we all really want to know is, “am I going to be okay?”  A retirement plan might touch on key areas like:

1.  Your retirement vision

2. How much you need to be saving now

3. Best to save in RRSP? TFSA? Both?

4. What are the most appropriate investments pre/post retirement for you?

5. What government and employer pensions will available to you?

6. Leave your workplace pension where is, or transfer it?

7.  What income can you expect in your retirement?

8. Is there a chance you’ll outlive your money?

9.  How to draw on the money in the most tax efficient way

Where do you get a retirement plan?  Many bankers and advisors have access to software that can provide you with some answers.  For an in depth, personalized plan however you will want to find an advisor with a Certified Financial Planner (CFP) designation.  Find a CFP close to you, here.

Broadly speaking, CFPs fall into two camps:  those that get paid by commission, and those that are fee-based.  Find out the pros and cons by reading “Why pay for a retirement plan when I get one for free.”

– Morgan

Retirement in 5 minutes

Okay, so real retirement plans take a lot longer than 5 minutes.

But my philosophy is always to get people started, and then create momentum from there.  To many, retirement planning is irrelevant, ambiguous and boring.  Besides, we’ll worry about it “later”.

But it is important, and it’s better to start now – however old you are.  So here are some quick, painless ways to get you thinking.

1.  Save 10%

Multiply your annual household net income by 10%.  Divide by 12.  Now set up a monthly, automatic savings plan for that much.  Feel free to stop reading here and just go do this.  Victory!

If you’re already at 10%, save 15%.  Why? We are living longer and rates of return on fixed income are lower.

Note: If you or partner is fortunate enough to be a part of a company savings plan, that goes toward your 10-15%.  Lucky you!

2.  Find Your Number

Want to know the lump sum you will need at retirement?  Try the  ING Your Number Calculator.  In literally one minute, you can get a rough idea of how much you need to save.

Or, try the Multiply by 25 approach:  Estimate how much you want to retire on per year.  If you’re not sure, use between 60-70% of your household income.  Now multiply by 25.  That’s your number. If you want to get fancy, subtract how much per year you will get in government benefits and other pensions before multiplying by 25.

3.  Use a retirement calculator

If you work for an employer with a retirement plan, chances are you have some amazing decision making tools at your disposal.  Contact your HR department if you are not sure how to access them.

In not only my opinion, the best online Canadian retirement calculator is provided by the federal government.  It’s comprehensive and takes into account government benefits and other retirement plans.  Expect it to take about 30 minutes.  Don’t get scared off by its asking for your CPP statement of contributions.  If you don’t have it, the calculator will estimate for you.

4.  Find a Certified Financial Planner

CFPs can provide you with in depth, customized retirement plans.  My article “Why pay for a retirement plan when I can get one for free” elaborates on how to find a CFP right for you.

You and your future self are the same person.  So do something nice for yourself and start planning.



Is Raiding Your RRSP for a Home or Education a Good Idea?

Some tax benefits in Canada are pretty nifty.  I really like deducting my child-care expenses, and getting a tax credit for my transit pass and our kids’ soccer fees and piano lessons.  Pretty innocuous examples – nothing much to argue about here.

But the Home Buyers’ Withdrawal Plan (HBP) and the Lifelong Learning Plan (LLP) have both advocates and detractors.  We’ll get to that soon.  But first some general information:



Home Buyers’ Withdrawal Plan

– You and/or your spouse can withdraw up to $25,000 from your RRSP, tax-free, to buy or build a home.

– You start repaying your RRSP the second year after the year you withdraw, up to a maximum of 15 years.

– You must be a first-time home buyer.

Lifelong Learning Plan

– Allows you and / or your spouse to take funds from your RRSP to pay for full-time education, tax-free.

– You can withdraw up to $10,000 in a calendar year, and $20,000 total.

– You start repaying approximately two years after you are no longer a full-time student.  At the latest, you must begin repaying the fifth year after the first withdrawal.  You have 10 years to repay your RRSP.

Pros of the HBP and LLP

Normally when you withdraw from your RRSP, you will pay tax.  The obvious benefits of these plans are that you pay no tax, and also no interest on this “loan” to yourself.  And maybe they allow you to fulfill your dream of buying a home or going to school when you really have no other options.

Another point specific to the HBP is that getting your down payment to at least 20% allows you to avoid CMHC fees.


Some will argue that RRSPs are for retirement and dipping into them subverts their purpose. I tend to agree. It means missing out on many years of powerful compound growth.  Rob Carrick, a columnist with the Globe & Mail dislikes the HBP because a house “won’t pay your retirement”.  (Unless you downsize when you retire, and that’s one of those ideas that’s easy to say and much harder to do!)

When the time comes to finally repay your RRSP, will you be motivated?  Hopefully so – non-repayment means you will be taxed on the amount you owed but did not pay for that year.  Stats Canada shows that 35% of HBP repayments are not made each year.

The HBP repayment may come at an inconvenient time for some couples if they decide to start having children. Starting an RESP for Junior (which the government matches 20% or more) might be difficult if couples are paying their mortgage and other bills on top of repaying their HBP.

With regards to the LLP, being a full-time student probably means you are in a lower tax bracket.  Many students choose to simply withdraw from their RRSP outside of the LLP because the tax implications aren’t that problematic for them.

If you are planning to go to school or buy a home, saving ahead of time into a TFSA is your best bet.  But if you do decide that the HBP or LLP is right for you, make sure you have a plan to repay them as quickly as possible.  Repayment means avoiding tax and replenishes your RRSP.

And maybe you won’t have to downsize after all!

Thanks to these articles for their perspective:

Why the Home Buyers’ Plan should be wound down – Rob Carrick

Why you should avoid the Home Buyers’ Plan – Alison Griffiths

Why no one uses the Lifelong Learning Plan – Preet Banerjee