Money Questions

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    Amber from Montreal Asked:

    How can I budget and save without a secure income?

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    Budgeting without a secure income is the expertise of Lisa Elle who is both a Financial Planner & Cashflow Specialist. Here’s her answer:

    Budgeting and saving is sometimes challenging for most of us. Not to mention if you do not have secure or consistent income. So how do you budget and save without a secure income? What if you are on commission or unsure of the exact amount you will earn each month?

    I recommend before you take a commission based job without a secure income or base salary to have at least 1-2 months income in the bank as your safety net. If you are already working a commission job, this may be tricky, but best to have that buffer available to you. This may require some financial sacrifice for a few months. You may have to cut back on lattes and dining out for a little while until you have established enough savings that you feel comfortable with. I do think it is important to get a few months ahead, meaning don’t spend what you earned this month, but spend what you had earned a few months ago.

    Once you have your “buffer” savings set up, I would then recommend starting an emergency savings account in separate account. It’s okay if you have to build up your emergency savings fund slowly.

    It is best to set an amount you feel comfortable with and every month have that amount transferred automatically to your emergency fund.

    Without a secure income it can be frustrating to juggle your finances. Creating a safety net account and emergency fund will give you a sense of confidence and security.

    Most importantly, do not be too hard on yourself if you have a bad month. I have worked commission jobs many times. You have to take the good months with the bad months. It’s usually the good months that get us into trouble and give us a false sense of security. When money is flowing, that is when we need to be setting some aside for the bad times.

    Answered on July 18, 2016 Ask Another Question
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    Financial gift
    Financial gift
    Naomi from Calgary Asked:

    If I get a significant financial gift from a family member, do I have to pay income tax on it?

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    Receiving a financial gift and it’s tax implication is a question for our accountant, Cara Orzech:

    Who doesn’t like to receive a financial gift? Whether it’s a birthday, graduation or wedding, $10 or $10,0000, while the benefactor (the person giving the gift) is alive or as a result of their death, it is common to provide financial gifts to loved ones. But what are the tax implications of a financial gift?

    A gift, as defined by the Merriam-Webster dictionary, is something voluntarily transferred by one person to another without compensation. For tax purposes, a gift is a transfer of property where less than full value (or less than fair market value) consideration is received in exchange. Unlike the U.S., Canada does not have a gift tax. This means that there is no limit to the amount that can be gifted to a family member, and no taxes are payable by the recipient at the time of receipt of the gift.

    However, there are other tax and legal implications to consider before making financial gifts to loved ones.

    When making a gift, the benefactor is deemed to dispose of the gifted property for notional proceeds equal to either the original cost of the property (for gifts to a spouse), or the fair market value of the property (for gifts to anyone other than a spouse). Gifts of property other than cash, that are subject to a deemed disposition at fair market value, can attract tax where the property has increased in value since the time of original purchase. However, where the financial gift is cash, the deemed disposition would not attract tax to the benefactor.

    If the recipient of the gift is a minor (<18 years of age), or a spouse, there may be further tax implications to the benefactor after the time that the gift is made. In these instances any future income generated from the investment of the gifted property (cash or otherwise), will be taxable to the original benefactor. This concept, known as attribution, ensures that financial gifts are not made to spouses or minor children for the purpose of shifting income to another taxpayer. The attribution rules may also apply if a financial gift is made to a person (other than a spouse or minor) for the purpose of avoiding tax.

    If a significant financial gift is made to a family member during the benefactor’s lifetime, it may be prudent to prepare a deed of gift, or to document the benefactor’s intent. Post-mortem legal disputes can arise where a financial gift is made during the benefactor’s lifetime, but family members disagree as to the benefactor’s intent at the time of the transfer. Preparing supporting legal documentation can help to avoid future family disputes.

    Answered on July 11, 2016 Ask Another Question
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    disability insurance
    disability insurance
    Hanna from Edmonton Asked:

    What is the difference between disability insurance and critical illness insurance? Which one is right for me?

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    Let’s ask our Living Benefits Insurance Specialist, Adam Gordon about disability insurance and critical illness insurance:

    In my time as a Living Benefits Specialist and Business Coach, I have found the discussions and resulting confusion around disability and critical illness insurance to be tremendous. We can solve much of the confusion by first understanding what the two products are and then understanding how they can potentially fit within your financial plan.

    Let’s start with a better overview of the products:

    Disability Insurance: Disability insurance is a product that is meant to replace your income if you are unable to do the regular duties of your job, due to an illness or injury. Most of the products in the market give disabled clients the ability to receive an income until they are 65 years old, often on a tax-free basis.

    There are many unique options that disability carriers offer (i.e. inflation protection), especially for those who purchase the product outside of an employer sponsored plan. Disability insurance usually provides about 2/3 of your income, however this is a general rule and you should always have a qualified advisor review your policy in order to properly guide you in this area.

    Critical Illness Insurance: Critical illness insurance is a product that has been in Canada for around 20 years. It was created by a Doctor in South Africa in conjunction with the insurance companies, to help clients financially recover from a critical condition, such as Cancer, Heart Attack or Stroke.

    Critical illness insurance provides a lump sum of money (usually tax-free) to a client if they are diagnosed with one of 25 or so conditions. The money can help with costs associated with hospital visits; drugs not covered by the province or your health plan, home care and even allow a spouse or family member to have the financial ability to take time off work to help support their sick loved one. Also, many policies in Canada have options that allow you to receive 100% of your money back if you do not claim within a certain time period.

    Which one is right for me? This is a frequent question I get. Most people tend to be scared of a critical illness because of how it has impacted them personally. Also, the fact that you get your money back if you never get sick has great appeal. However, the products are meant to complement and not replace one another.

    The best way to think about them is to use your car as an example. Disability Insurance is like you seat-belt. It is a must-have given that it protects your most valuable asset…your ability to earn an income. A $3k/month benefit may not sound like much, but amounts to $36k per year. If you are 25 and permanently disabled, you could be looking at a payout in excess of $1.4 million dollars.

    Critical Illness insurance is like the air bag in your car. You would never buy a car without one, but would never choose it over your seatbelt. It allows you to deal with a pay-cut when you are receiving disability income, while protecting your assets and giving you choice at a time you need it most. The reality is that most policies in Canada have a face amount of around $100k…enough money to make a difference during a health crisis, but not enough to replace the income you stand to earn in your career.

    Answered on June 13, 2016 Ask Another Question
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    contract position
    contract position
    Carol from Guelph Asked:

    What are the benefits of a contract position vs. being a full time employee?

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    To help understand the difference between a contract position, and a full time employee, let’s get the expertise of our recruiter, Lauren Markman Ritchie:

    There’s a big divide in the world of employment. On the one side, there are people who would only consider full-time positions and believe that a contract position is highly undesirable. On the other side, there are people who love the benefits of a contract position and will only seek such roles.

    So which side are you on?

    More and more jobs in Canada are being offered on a contract basis. Generally, a contract position is set for a fixed period of time, say 3, 6 or 12 months and sometimes even longer.

    There are many benefits to taking on contract positions. It allows you to switch jobs more often and gain exposure to a variety of industries, companies, cultures and roles.  You can keep your skill set sharp and still learn new ones. Contractors also tend to make more money than salaried employees. This is due to the extra costs incurred by employers such as payroll taxes and benefits.

    There’s also the financial benefit of deducting work-related expenses for tax purposes.

    So what are the downsides? Why do some only focus on full-time positions?

    Many people don’t like the idea of having to search for a new role each time their contract position ends. This process can take time and may leave you out of work for longer than expected.   Also, contractors do not usually receive company benefits such as company share plan, pension, medical and dental coverage, etc.  There is also the added task of filing and remitting your own taxes to the government.

    There are strong arguments in favour of both sides and there’s no ‘one size fits all’ approach. What’s important is that you find work that is challenging, meets your financial requirements and advances your career. In the end, it is about what works for YOU!

    Good luck!!

    Answered on May 23, 2016 Ask Another Question
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    Tax Bracket Image
    Tax Bracket Image
    Dan from Montreal Asked:

    How do tax brackets work in Canada?

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    Any question about tax brackets is best answered by our accountant, Cara Orzech:

    What percentage of my income will I have to pay in taxes? A good question, with a more complicated answer than you may think.

    The Canadian tax system is a progressive tax rate system. As your taxable income grows, so too does the tax rate applied to that income.

    A tax bracket is the rate of tax applied to each dollar of taxable income, up to a specific limit. Once your taxable income surpasses the upper limit of a tax bracket, the next dollar of income is taxed at the subsequent tax bracket’s rate.

    Tax brackets serve to tax lower income earning individuals at a lower overall tax rate than higher income earning individuals. However, as a result of its progressive nature, all individual taxpayers have access to the lower tax brackets. This is why determining your effective tax rate (the actual percentage of tax that you pay on your income) is not easy.

    The following table shows the Federal tax brackets and limits for 2016. You should know that tax brackets are adjusted each year for inflation.

    Tax Brackets

    The provinces and territories determine their own tax brackets and limits which are available on the Canada Revenue Agency’s website (http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html). The federal tax bracket and your provincial tax bracket are combined into one, which people refer to more generally as a tax bracket.

    To complicated matters further, not all sources of income are taxed in the same way. The income that you earn and “taxable income” are two different concepts – but we’ll save that discussion for another day.

    Hope this helps,

    Answered on April 4, 2016 Ask Another Question
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    Jessica from Toronto Asked:

    What tips do you have for negotiating a salary with a new potential employer?

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    Negotiating a salary is a question best answered by our recruiter, Lauren Markman Ritchie:

    You did it! You landed your dream job. Now the last hurdle before you walk through the door is signing the job offer, which in an ideal world is perfectly aligned with your expectations, but in most cases falls short and requires negotiation. For many people, this is the uncomfortable part. You’ve worked hard to make a good impression on your potential boss and now you need to negotiate with them.

    In an ideal world, you’ll be working with a recruiter who can take the lead in negotiating a salary on your behalf, but that’s not always the case.

    So how do you approach negotiating a salary? How do you decide where to push back and what to accept? How do you come across as confident but not overbearing?

    Here are some tips:

    • Do your homework! Know your value in the market taking into account geographic location, position and years of experience.
    • Identify your salary range and ask for the upper end of that range to provide flexibility for negotiation.
    • Give an exact number, however it is a good idea to express a willingness to negotiate based on the overall compensation package. For instance, if they were to offer a lower base but a higher bonus structure, you would still consider the offer.
    • Be sure to factor in all elements of your package including salary, bonus, stock options, benefits, vacation and travel time/cost.
    • Don’t sell yourself short. If they don’t meet your expectations, be willing to walk away.

    Staying confident throughout the process of negotiating a salary is critical to your success. Remember your potential employer has already invested time in you and wants you on their team. If they don’t play their cards right and negotiate fairly they will lose their target – you! It is in both parties’ interest to strike the right balance and seek a win-win.

    Keep these tips in mind and Go Get It!

    Good Luck,

    Answered on April 1, 2016 Ask Another Question