So you decide, eventually, to be responsible and worry about money (or lack thereof). It’s a dry topic, but one day you’ll get an AHA! moment and realize you’re head has been buried in the sand for way too long.
You should know that all your income is taxed, and if you can find a way to lower your taxable income (legally) then you will end up paying less taxes and still making the same amount of money. Here are a few things to think about as you try to get your money under control, and remember early is better but it’s never too late.
Tax Reduction Options
In Canada (Ontario), there are plenty of tools to work with – here are a few ideas that can help lower your taxable income:
- TFSA – This is money from your income (already taxed) but the interest is nontaxable
- RRSP – This gets removed from our taxable income and you can be in a lower tax bracket paying less taxes (but when you use it upon retiring it will be claimed as income then)
- RESP – This gets removed from our taxable income and you can be in a lower tax bracket paying less taxes government may make payments depending on your contribution – becomes taxable when used for Education purposes)
Life Insurance
Insurance for you, your spouse and even your kids is important. So the sooner the better, and you probably got told this many times but until you have kids you didn’t really care. You could be paying the price for starting late but the longer you wait the worse it gets. Invest in a life insurance plan that includes disability coverage and one that’s also an investment, so the money you put in actually goes into investments and in a few years you can choose to take withdraw it back with the profit (which is taxable) or keep it as an ongoing insurance policy.
Some also get salary coverage (if you loose your job and income due to a disability, but the instalments get way steeper and you still have the option of withdrawing the investment amount whenever you want. Look at the whole package you’re signing up to.
Even for kids, the sooner the cheaper. Get each of them a life insurance plan if you can. This is not a way to cash in on misfortune, but think of it as an investment for their future selves. When they grow up and have kids, to have already contributed and covered until their old age, easing their burden is priceless. It is can cost a 100 dollars a month for 20 years. Once they reach a certain age (say 18), they can make their own contributions.
Investment Property Sale
Also worth thinking about, if you have more than one property, this little tidbit. If you have a rental property that is not your main residence and decide to sell it, the government can take up to 50% of its value in fees and taxes. Before you sell, you make it your prime residence and then sell it to avoid this. Does not matter if you put it in your spouse’s name or not you are both treated as one. Alternatively, you can put it in another persons’ name, but that is also considered a sale when you transfer and you’ll pay the government’s horrific fee. So watch out, or plan to live in it for a few months before you sell it.
Last Will and Personal Directive
Last advice worth sharing is that a Will is the most important thing you can do, whether you have kids, on your own, just married. It keeps changing as your life, your money and your debts change. But make one. This is the most important thing you can make, there are plenty of free kits and cheap ones that you can use that suite the jurisdiction you’re on, as well as software and apps that can manage it, Time Secured App is one terrific tool to help with that.
Otherwise, it will take a long time to make your money accessible to the people that need it, and they will be forced to pay your crazy debts. It will also help with kid guardianship and include assets that you have which people who will have to deal with it on your death may not know about.
Equally important is a Personal Directive will, which is used when you have a big accident and you end up in a coma or life support. It says whether you want to stay on life support or unplug, where you want to donate your organs or not, etc. It gives people permission to make those decisions when you are unconscious saving them a lot of confusion, headaches, heartaches, and potentially costs. These two you need to do ASAP –and are a definite must.