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House Affordability


Need personalized advice on what's affordable or how to adjust to increased expenses?  

Adjustment Plan- intro call/ planning session + summary letter/ check-in session at 3 mnths - $1200 incl HST


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Dealing with debt in family businesses

I love this post by Elaine Froese.  My hope is that you come away from reading it believing that there are solutions when you have debt, you can change your current situation and the effort to change is worth it

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Education is an important step in many careers, and it can be expensive.  Five ways to fund education costs


1. Using a Registered Education Savings Plan (RESP) in Canada or a 529 plan in the United States


Both of these plan types are designed to give parents/grandparents/ family & friends a place to save for a child’s post-secondary education costs.  The contributions made to the plan are not tax-deductible, however, the investment returns within the plan are tax-sheltered until the money is withdrawn.  These accounts work for child up to the age of 17.  There is a lifetime maximum contribution, and there may be some annual limits that you need to be aware of.  The money within an RESP or 529 must be withdrawn for the purpose of education, otherwise there will be tax consequences on the investment growth and any government grants received.


2. Using a Tax-Free Savings Account (Canada)


Many people use a TFSA to save for education.  The contributions are not tax-deductible, however, the investment returns within the plan are tax-sheltered until the money is withdrawn. A TFSA can be used to save for a child’s education or your own return-to-school as an adult.  There are annual contribution limits; you can confirm your lifetime contribution room and amount available at myCRA.  There are no restrictions on the use of the money within a TFSA.


3. Using a non-registered account 


Depending on your education goals & costs, you may save in a non-registered account- either a savings account (no investment or market risk, the money is safe and the value will not fluctuate) or an investment account (investments work if you have a 3-15 year timeline for the money to grow).  There are no specific tax advantages in a non-registered account- any income that the account generates will be reported on your income tax return annually.  The benefit of using a non-registered account to save for education- you have a dedicated place for savings, you can track your progress and you will know how much you have when you start a program.


4. Borrowing 


Student loans, bank loans and using a line of credit (secured or unsecured) are possible when you are looking to increase your education.  In my experience, it’s important to understand the timing of payments: a student loan will not require payments until you graduate; a bank loan will require payments immediately; a line of credit requires interest-only payments as soon as you start borrowing.  It’s important to understand how much debt you may end up with at the end of your program.  It’s important to understand the job prospects and starting salaries in your chosen field.  It’s important to include your other life goals when you are mapping out your potential debt load at the end of your program- are you planning to get married? have children?  do you anticipate moving at the end of your program?  


In Canada, you can borrow from your Retirement Savings Plan (RSP) using the Lifelong Learning Program- this gives you access to funds, some time to pay back and there's no interest applied (unlike a regular loan or line of credit).  I advise using this option very cautiously- numerically, it looks good.  Practically speaking, it doesn't work well for most people who use it and they don't end up 'ahead' of other borrowing methods.  In my experience- if you can give your RSP account one job- 'be there for my retirement' and work out your education costs another way, it is less confusing, less discouraging and easier to pay back the costs.


5. Earning income while in school or accessing funding


Is it possible to work while you’re in school?  Can you buffer the costs of your program and your living costs with a part-time job?  If you’re returning to school, can you attend your program part-time and still work?  Are there any scholarships/bursaries/ funding available?  Check with the institution that you are applying to- there are numerous programs that are under-used; largely because they are hard to find.  Ask questions early in the process and broaden your search.  My favourite example- if you grew up in the foster system or as a Crown ward, check out this list for the options in Ontario.  Every province has options for kids who grew up in care and now want to pursue post-secondary education. 

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Know your income.  It seems like a silly step, but many of us don't know our after-tax, after-deduction income.  I mean what lands in your bank account after your income taxes have been deducted, any costs that you pay for a health benefit plan (FYI- that disability insurance that you have through work? lots of us pay for our own disability insurance with after-tax dollars, which is a great thing.  And it reduces how much of your salary you take home), and any RSP savings that you do.  Know how often you are paid, and convert that into how much lands in your bank account every month.  If you are paid bi-weekly, you need to multiply your number by 26, then divide by 12.




Add up your fixed costs.  You can break this down either by pay period or by the month.  Make sure you correctly account for any weekly or bi-weekly payments (mortgage and car payments often occur like this- we like the feeling of accelerating our mortgage payments and car dealerships like the smaller advertised payments with a bi-weekly or weekly schedule)  Anything that is scheduled to go out, or goes out on a regular basis in a roughly predictable amount is a fixed cost.  These are costs you have already agreed to.  I mean ALL of your fixed costs- mortgage/rent, car payment and cell phone may be the obvious ones.  I want you to include your gym membership, Netflix and that life insurance policy that you pay for once a year.  I also want you to include amounts for car maintenance and home maintenance.  You bought the car- car repairs shouldn't be a surprise.  You bought the house- maintenance and repairs are not a surprise.  Make sure that your bank account isn't surprised.  And if your bank account is surprised in the short-term, while you're getting the hang of your fixed costs- make different choices in your variable spending.




Whatever is left over after adding up your income (either per month or per pay period) and subtracting your fixed costs is available to pay for your variable costs.  Variable costs are all of the things that may still occur regularly and may still be essential AND the costs vary enough to make it difficult for most of us to work with a traditional budgeting framework.  Gas, groceries and clothes are essential, and they happen regularly....but we often over-estimate how much we're going to spend, or we're trying to use a traditional budgeting framework.  We plan out how much we're going to spend on groceries.....we pick up a few extra things on that trip we made while we were hungry......after the month is over, we update our budget.....realize we missed.....and get frustrated and feel like we failed.  Don't do that.


Once you know your income and your fixed costs, move the remaining amount over to a different bank account that you only use for your variable costs.  Now you know how much you have before your next paycheque, and you can decide ahead of spending whether to shop for clothes, go out for dinner or buy that thing you saw the other week that would look great in your living room.  Not in hindsight, foresight.  You know you've covered all of your scheduled costs in your main bank account.  You now have a bank account that clearly shows you how much is available to cover the costs that you can exercise some control over- either in the timing, the amount or both.

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Women, Careers and Money

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Financial help when you're separating


When you're separating from your spouse/partner, it's hard to know what to do.  Sometimes, it's harder to know what to do with the advice that you're receiving- some advice is from professionals, some comes from those close to you, some comes from out of left field.  With all of that advice, and with the long-term repercussions of the decisions made in this uncertain time, how do you choose who you're taking advice from?


In this video, I talk about how I work with clients in this situation.  As a Certified Divorce Financial Analyst, I have a process that I go through with clients to help them make the best possible decisions and create clarity in both the current scenario and future scenarios. 


And, I've left in the usually-deleted first moments of the video- where I'm trying to get comfortable on camera- enjoy!






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Planning for Aging

We're all getting older.  Lots of changes go along with that.  Listen to Episode 7 of Sara makes Sense: Decade of Healthy Aging (link to episode on the home page) for my discussion with Margot McWhirter on how to navigate changes in our physical and mental capacity and connect better to our physical environment.


From a financial planning perspective, I work with clients on planning for and managing these changes in a number of ways.


The first discussion is often centred around the house- do you want to stay in your current home?  If you have a spouse or partner- do they want to stay in the current home?  Would a different home be desireable?  In my experience, couples often have different thoughts on the current home, sometimes strong thoughts.  If your plan is to use the value of your home to fund your retirement income needs, it's important to plan for the sale and re-settling.  Although many people carry the idea that a home is an easy way to 'build equity' or build net worth, many often forget that to use that equity/net worth, you need to sell the home to access the money.


If you want to stay in your home, and have other savings/ investments that can be used for income, there are other considerations, as Margot makes clear in Episode 7.  Her comments on the interplay between our physical environment and our capabilities are meaningful- small changes may take a dangerous, frustrating environment back over to manageable and relaxing.  A number of years ago, I worked with a client who was losing her eyesight.  She lived alone most of the year, and wanted to stay in her current home.  After one consultation, she made small changes that made a world of difference in her safety, ability to manage on her own, and her confidence level.


If you would like to see the financial trajectory of how the plans you have in your head for how and where you are going to age play out over time, book an introductory call with Sara.  


If you need to review the intersection of physical capacity, mental capacity and your environment, you can reach Margot here

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Canada Pension Plan payments are a regular topic of conversation in my office.  Not a surprising topic for a financial planner.  What is surprising is the variety of recommendations, outcomes and other conversations that happen after the initial CPP topic is raised.


Canada Pension Plan (CPP) is a government-managed pension that is payble to those who have contributed.  Contributions happen through employment in Canada- you contribute as an employee (check your pay stub, you'll see a deduction) and your employer contributes on your behalf as well (this is one of the payroll taxes for employers).  If you're self-employed, you contribute both sides.  The amount of CPP that you receive in retirement is based on your personal work history, subject to annual maximums.


Frequent comment from clients: "I don't think I'll get that; isn't it clawed back?"

Answer: No, CPP isn't ever clawed back.  It is taxable to you as pension income, but there is no clawback.  Old Age Security (OAS), another government retirement income program, IS income-tested, and will be clawed back once an individual exceeds income threshholds.


As a recipient, you have choices in when you start collecting CPP.  You can collect as early as age 60, or as late as age 70.  Age 65 is considered normal retirement age, and your calculations start from this assumption.  For each month that you collect before age 65, you will receive a reduced CPP amount.  For each month that you wait to collect after age 65, you will receive a higher CPP amount.


The CPP Take-Up Decision ,released by the Society of Actuaries on July 2020, and widely reported on by media in Dec 2020, comments on a micro-simulation done by the Society to look at possibilities in payment amounts if you delay until age 70.  I love research, and I love that this report has sparked conversations.  I don't think that delaying CPP until age 70 is the best choice for all clients, or possibly even most clients.


There are many other factors that affect your CPP decision.  If you delay, your CPP monthly amount is higher, up to 150% higher than if you started payments at age 65.  During the 5 years between 65 and 70, to maintain your available income, you will be using your own assets- RSP/RIF; TFSA; non-registered accounts.  This will pull your personal net worth lower until age 70, when CPP starts.  Depending on your situation, your personal net worth may start to increase again.


In a plan that I completed for clients in 2020, this is exactly what happened- Milo (not the client's real name) was sure that he wanted to delay payments until age 70.  He was aware of the increase, and 150% more seemed too good to pass up.  The initial projection using delayed CPP showed a potential net worth at age 95 that was $400,000 higher than if Milo and his wife Jeanettte (also not the client's real name) started payments at age 60.  That mattered....the age that these two were starting retirement was at the edge of 60.  Not 65, 60.  When that happens, your personal CPP calculation includes 5 years of zero earnings- you're not working after all.  The report didn't look at how to handle early retirement and years of zero income inclusion.  After age 65, there is no income inclusion when it comes to your personal CPP calculation.


Here's what it looked like for Milo & Jeanette's investment account if they delayed CPP until age 70:

Milo & Jeanette's own investments declined until age 70, when CPP payments meant smaller/no withdrawals from their own investments.  This looks fine- ater all, their projected estate value is healthy, there was no reduction in desired income in any years, and more money was coming from the government in the form of higher CPP payments.


Then we looked at a projection of what could happen if they started CPP at age 60.  This means a permanent reduction in the payment amount of 36% (of the age 65 amount).

Overall, this scenario is projecting a lower estate value at Milo and Jeanette's age 95.  For some clients, this isn't desirable.  Milo and Jeanette didn't want a large estate- leaving money to family wasn't something high on their priority list.  Comparing the two graphs allowed for a conversation about the 'risk zone' that happened from age 65 to 75- their own assets were lower, and one of them passed away, the survivor wouldn't receive any more CPP.  CPP does have a survivor benefit that is paid to a spouse- but only if that spouse isn't already at the maximum CPP payment amount personally.  And the deceased OAS payments would stop as well.  The effect of a negative stock market and losing one of them in that 'risk zone' would have had a potentially large impact on the income available to the surviving spouse.  This is a decisioin that can only be made by the people it affects.  It can't be made at all if the planning isn't done to visualize each scenario.


For many reasons, they left that appointment agreeing that waiting wasn't the automatic best choice for them.  One of the beautiful things about CPP is that you can choose to start payments in the month that makes most sense for you between the ages of 60 and 70.  You don't have to declare an intention and be held to it.  There's flexibility every 30 days in those years.

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Want to buy a house? Now? How?

Want to buy a house? Now? How?


Buying or up-sizing your home is a big decision.  In the current real estate market, it can feel impossible.  How do you get the information that you need to make a decision on the right home for you?


Most of us are familiar with lenders ratios and pre-approvals.  Lenders are looking for your payments to be between 30-40% of your income.  30% includes mortgage payment, property tax and heating; 40% includes mortgage payment, property tax, heating and any other debt payments (including spousal or child support payments).  There's some flex in those percentages, depending on the lender.


What you need to be aware of as the buyer is that lenders are looking at your gross, or pre-tax, income.  Depending on your income, your average tax rate could be 34-43%.  If you're approved using a 40% ratio, and you're in a 43% tax bracket, 83% of your money is already spent.  This puts you in a tight corner when it comes to the rest of your life.


It's important to calculate home affordability for yourself using your after-tax income, your other fixed costs (things that you've already committed to that have a regular price tag attached to them, like your cell phone, other memberships etc).  Then look at how much is left over- this will let you know how much is available for other necessities- like groceries, clothes and gas, as well as the other things you want to do- travel, continuing education, having children, planning a wedding.  it's also important to look at your saving capacity- you will need to save for unexpected expenses (or times of lower/no income), home maintenance costs, and long-term savings.


It's also important to look objectively at the current real estate market- Canadians have a love of owning.  We generally view it as a responsible way to build wealth.  Recently, we have only been talking, and behaving, like real estate prices always go up, not down.  as outlined here , Canadian real estate has an average growth rate of 1.8% per year since 1982.  That's below the average rate of inflation (2-3% per year).  It also doesn't include the costs of interest (on your mortgage), maintenance, and the increase in the price of utilities.  While some of these costs will also happen with renting, it is worth reviewing what exactly your home can do for you, and what you should expect it to do for you.  And, don't give in to the pressure of "buying right now, because if you don't you're getting farther away and farther away from owning."  Make sure it's something that you manage for the forseeable future.


For a quick look at ownership levels in different countries, click here

For a quick look at net worth in different countries, click here

Listen to the full episode of Sara makes Sense- To Own or not to Own, is that REALLY the question?



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Sara McCullough
June 20, 2022
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