Financial Tips and Tricks
It's Tax Time! Are You Ready?
Piggy's Snap Shot
- Gather your paperwork
- Organize your paperwork and figure out what’s missing
- Collect any missing pieces
- Determine how you want to file your income taxes paper/mail, tele-file or e-file, and ensure you have whatever passwords or software required
- File and submit them as soon as you can: if you are owed a return you will receive it sooner. If you owe the government, you have until April 30th to pay
Tax time can cause anxiety. However, if you deal with it promptly, you will minimize the grief and potential cost if you are late and owe the government. Conversely, if you are due a tax return, you will get it sooner and can use it for your benefit. The sooner the better. Essentially it's an administrative task that just needs to get done and the process can be made much easier with a little organization.
If you gather your information over the year and put it all in one place you will be half-way there! While you're at it, set up an envelope or file folder to hold your tax information for the next year. It makes the preparation much easier. The first step is to prepare your information by gathering it together and ensuring that you have all your tax documents and information handy.
TIP: If you plan to file your tax return electronically, this is a good time to check that you have all the access codes you require to e-file. In addition, check that Canada Revenue Agency (CRA) has your correct address and direct deposit information.
Once you've got your information together you can begin to complete your taxes. Two handy references to assist in preparing the forms are the Forms and Benefit Guide (available at Canada Post offices) or on-line at www.cra-grc.ca. Some people prefer to work manually through the forms; also, there are several software applications available for tax preparation. Essentially, you enter the information from your tax slips and the software completes the calculations, assessment and review. Using tax preparation software is an easy way to ensure that you take advantage of as many deductions as possible by prompting you to respond to questions such as whether you are a student, use public transit, or borrow to invest. Then it will combine your answers with the other information you've entered to complete your taxes. The other benefit to using software is that it will lead you through the process to upload the file to the CRA website to complete the submission.
There are advantages to filing electronically and being set up for direct deposit. It is much faster to e-file and as long as you have access to a computer and internet you won’t have to deal with envelopes, stamps and the mail. Nor will you have to provide documentation with your submission (you must still keep them in case you are audited). E-filing allows CRA to review and assess your submission very quickly and you receive your Notice of Assessment faster than filing manually. If you are due a tax refund from the CRA, you will receive it much more quickly if you are set up with the CRA for direct deposit. It also ensures that you have access to the money immediately because your bank will not 'hold' funds deposited by the Government of Canada.
Whether you owe money to CRA or are expecting a refund, it is important to complete your taxes by the deadline (usually April 30th). If you owe money and don’t file and pay on time you may face financial penalties and charges. If the CRA owes you money then the faster you submit your return, the faster you will receive your refund and be able to use the money.
Taking the time and effort to complete your income tax filing each year may seem like a chore. However, it is your responsibility to do it and the CRA has extensive ability and power to ensure that you pay any funds you owe them so it is important that you keep current. If you have not completed all of your tax returns then make a plan to get it done. Start by checking to see if you have all the information you require. Make a list of the documents you need by tax year and start tracking them down. If you have more than one year to complete then set yourself a reasonable objective such as one return each week – it is the only way you'll get through it. You’ll feel very relieved once you’re up to date with filing your income tax.
What to do with the refund?? Once you have an idea of how much to expect, you can feel comfortable with making a plan. Maximize the impact of a refund by knowing what you’ll do. Consider splitting it to repaying debt (highest interest first), savings (RSPs), and something doing fun! If you have a goal that you’re saving towards such as a car, home or vacation, then you may choose to put more towards that rather than other options. Either way, make sure you carry out your plan so the money doesn’t dwindle from your account.
The Holidays are Coming
Piggy's Snap Shot
- Make your holiday list. Plan your purchases and estimate the cost
- Add estimates for a new party outfit, transportation & hostess gifts
- Add an estimate for any hosting you plan to do
- Add estimates for any travel you will be doing
- Total it and divide by the number of paychecks you will receive between now and the end of the year. This is the amount you need to put aside each paycheck to accumulate your holiday funding!
Looking forward to the holiday season can bring up all kinds of emotions. Anticipation, happiness and anxiety are just a few. Regardless, it is a busy time of year and time and money can run away from us. Often the New Year brings resolutions to do it better next year so that the January credit card bill isn’t quite so scary! A little planning can make a huge difference to how you enjoy the season.
Making the List
Sometimes more than one is required. Whatever the case, taking the enormous project of holiday preparations and breaking it into manageably sized pieces is a big start. Not only will it give you an sense of what you need to do by when it will also give you an idea of what amounts of money you will need at certain times. Your list may include:
- Listing the people who you give to and what you will give
- Writing cards
- Buying special food & drink treats
- Buying the gifts on your list
- Attending your work party
- Traveling to your parents to celebrate with family
Estimate the cost of each event and you will begin to draft your budget. Once you see the total you may change your ideas of how you want to do certain things. It's better to make changes now rather than feel remorse for what was spent. There are lots of ways to save on gifts or travel and a little creativity can go a long way to a memorable holiday season.
Saving for the Holiday Season
Once you have your budget drafted, the next step is to convert the budget into reality. How much do you need? How long do you have until the holiday to save the money? Take your total budget and divide by the number of paychecks you still expect to receive (until the end of the year). That is the amount that you will have to put aside each paycheck to be financially prepared for the holidays. It will likely mean spending less on other items in the interim…what will you do without? Will you take a part time job or work extra hours? The biggest bonus to planning your holiday finances this way is that you will have the money that you need to enjoy the holidays and won’t have the post-season bills.
No one wants to be 'cheap' during the holidays however a little planning allows you to make informed choices before you land yourself into debt trouble. Maybe you decide on different gifts or borrowing a party dress - whatever options you have, this is the time to decide what you will do. There are lots of frugal options... not necessarily 'cheap' ones!
What to Do When You Have Huge Post-Season Bills
It's never a nice wind up the holiday season and open the mail to realize that you owe more money on your credit card than you thought. The first step is to take a look at the various bills and total them up. Now you know what you’re dealing with. Decide the time frame that you will take to repay the debt and divide the debt by the number of paychecks in the timeframe...it may mean doing without some of your entertainment budget or eating on the cheap for a few months. Perhaps you are anticipating a tax return that will clear the debt quickly. If so, get yourself organized to submit your taxes as soon as possible.
Getting the Most Out of Your Bank Account
Piggy's Snap Shot
- Ensure that you have the right account and plan type for your needs
- Operate your account per the account agreement
- Amalgamate your banking to one institution
- Build a relationship with a banker
- If you have a good track record -- ask for reduced holds and other flexible options
Bank Accounts
Complaining about bank fees is a popular past time but the reality is that banks are useful. The infrastructure that comes with a bank account makes financial transactions easy to do and if you don’t want to go into a bank on a regular basis you don’t have to! The trick is knowing a little about banking processes and policies so that you can purchase the most appropriate products and services for you.
Banking Benefits
- Credit history
- Direct deposit and direct debit
- Self-serve banking: Internet & Telephone
Don't be afraid to keep your banking simple by taking only one account and a banking package that will serve your regular monthly banking needs. Make sure that you understand the conditions under which you are required to operate the account. For example; most banks will open new accounts with 'held funds' on all deposits other than direct deposit. What this means is that funds deposited to your account by way of a cheque will often be held for a certain number of days before you can access the money. This is so that the bank has time to ensure that the cheque is good and that the funds are properly transferred to your account from the payer's account. The bank limits its risk by ensuring the cheque is honoured in full before giving you access to the money. Once you have operated the account to the bank's satisfaction, they may relax the conditions such as 'held funds' but in the mean time don’t write cheques on 'held' funds as they are not yet considered yours to use. NO NSF (non-sufficient funds) cheques, cheque kiting or fraud. If you break any of the bank's rules they will report it to the credit bureau to go on your credit history and may close down your account. Be sure to ask clarifying questions if you do not understand the opening conditions.
If you build a strong relationship with your banker then the process is simpler when you want their help doing something like purchasing a car or a home. If they are already familiar with your finances and credit history then they can quickly complete applications and may be prepared to go the extra mile to support your application even if it is a little stretch. This is why it can be advantageous to develop a business relationship with a particular banker. Select your banker carefully. Are they experienced? Is she likely to be at the branch for a long time -- there's nothing more frustrating than repeating yourself every time you need to process a transaction or application. This is why it is worthwhile dealing with a person for more complicated transactions like RSP's or loans rather than online or over the telephone.
Planning for the Unexpected
Piggy's Snap Shot
- Calculate your minimum monthly expenses
- Multiply by 4 -- This is the target value of your contingency fund
- Assess your other options and resources and know what decisions you would make such as further reduce expenses, bringing in more money -- selling things/part time work, social program eligibility
- Set up a savings plan to accumulate your contingency fund
*At a minimum have a line of credit or low rate interest card available
Emergencies are unexpected and they come in all shapes and sizes. Job loss, a friend in need, a flight home for a family emergency or emergency car repairs are all examples of expensive and unplanned budget breakers. The one certainty is that they will happen. Optimally you have some money set aside to deal with the problem but if they’re unexpected, how do you plan for them?
Essentially, there are two basic types of emergencies:
- Short in duration requiring a lump sum of $ (car repair, flight home)
- Longer in duration and may require income replacement (job loss or illness)
The best defense against a type (1) emergency is to have an amount of $ in an account that's 'no risk' and easily accessible for when you need it. The emergencies in this category often cost between $500 and $5,000. If you don’t have the savings then at a minimum it's a good idea to have a line of credit or credit card with enough credit available to cover the expense. If you use credit, don’t forget to include an allocation in your budget for debt repayment.
A type (2) emergency can cause the greatest financial difficulty because income flow is affected. Some employers provide short and long term disability benefits in case of illness while others don't. Even if they do, many of these plans have a waiting period or pay reduced income and are based on eligibility criteria. The Unemployment Insurance program is subject to meeting eligibility criteria, a waiting period, payment maximums and will only pay for a certain period of time.
Even though the income isn't coming in, the bills must still be paid and knowing the minimum you must have to pay your bills each month is valuable information. It will help you calculate your exposure and what you must have in contingency savings. What is the bare minimum you could live on? What are your resources? What ideas do you have to reduce or cover your current expenses? Do you have friends or family you could move in with and sublet your place? Could you park your car? What costs could you cut? Take a moment and note down the absolute bare minimum that you require to live on. Here’s an example:
Calculating a contingency planning fund
| Monthly Minimum | $1,570 |
| Income (EI) | $1,400 |
| Monthly Shortfall | $200 |
| Contingency Planning Fund | $2,000 |
This is based on being eligible for the maximum payment under the Unemployment Insurance Program and being able to react quickly cutting the cash outflow to a bare minimum. In reality the fund should be about $10,000 in a contingency planning fund in order to be able to manage the situation without pressure and in case you’re not eligible for EI. Without a contingency fund, you will struggle within a couple months even spending only the bare minimum. Falling behind in payments during this period will be very difficult to make up in the future.
The advice from the old days is to keep three months salary on hand in order to still pay the bills if the income stops coming in. Depending on the economy though, three months $ may not be enough to carry you through while you find another job and it's a good idea to carry about six months in a contingency fund.
Other resources include any savings and your RSP's are always there -- it's not optimal as they will be hard to replace, they will be taxed and it may not be a good time to withdraw them (investment timing) but they are an option. The other point to note is that if you withdraw your RSP’s you cannot re-contribute at a later date. Once you’ve used your RSP contribution room by making an RSP investment it is considered used. The contribution room does not increase with the withdrawal. If your RSPs are your contingency fund then ensure that they are invested in low risk and liquid investments in case you should need them.
Now that you know how much you want in your contingency fund it's time to figure out how to save it. What can you budget each month? $100, $200, $500? Whatever the amount, set up a monthly automatic transfer to a no risk, liquid savings vehicle. To reach your target goal more quickly, deposit ‘found’ money such as bonuses or income tax refunds. You’ll be surprised how quickly it can add up.
