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A new calendar year has been changing our bank account amounts for a long time, from RSP maximums indexed to inflation to increases in Canada Pension Plan contribution rates.

 

2024 has some standout amounts that you should be aware of, in addition to the regular, steady changes.

 

WHEN YOU'RE WORKING

 

Canada Pension Plan (CPP) contribution amount- the CPP contribution rate for working Canadians has been increasing since 2019, and 2024 is a big jump in the payroll deductions.  The employer & employee contribution rate has increased to 5.95% of contributory earnings and the maximum pensionable earnings have increased to $68,500.  In dollars, that’s a maximum of $3,867.50 from an employee and a matching amount from the employer; if you are self-employed, that’s a maximum of $7,735.00.  CPP2 is new- this contribution covers income from $68,501-$73,200.  Employees and employers contribute 4% to a maximum of $188 each and self-employed Canadians contribute up to a maximum of $376.

 

For perspective, in 2020, CPP maximum pensionable earnings was $58,700 and contribution rate was 5.25%.  that calculated through to a maximum payment of $5,796 to CPP (either split between employer & employee or fully paid by a self-employed Canadian).  Four years later, we’re up to CPP maximum pensionable earnings of $68,500, a 5.95% contribution rate and a maximum payment of $7,735.  Those are increases of:

17% in the maximum pensionable earnings

13% in the contribution rate

33% in the dollar amount of the contribution

 

If your bank account is feeling a little dented, those numbers help explain a few of the dings.

 

The increases in CPP contributions are connected to increases in the CPP payments that you will receive in retirement.  The multi-year increases were designed to take CPP retirement payments from 25% of maximum pensionable earnings to 33%......an increase in retirement payments of 32%.

 

IF YOU HAVE CHILDREN

 

The Canada Child Benefit (CCB) has a cost of living adjustment that is calculated in July every year.  For July 2023- June 2024, the increase was 6.3% (the Consumer Price Index as of mid-2023) and 2024 payments will increase in July, based on the CPI calculated at that time.

Why July?  CCB amounts are based on net family income.  By scheduling the increase for July, the government is using the most recent income data that they have for families.  Another great reason to file your tax return!

 

WHEN YOU'RE SAVING

 

2024 RSP maximum- 18% of earned income to a maximum of $31,560 (corresponding income of $175,333).  If you contribute the full amount monthly, that’s $2,630 per month.

 

Reminder: before making any changes to contributions, check any scheduled deposits that you have happening through a group plan at work so that you don’t over-contribute.

File your income  taxes on time, then check your Notice of Assessment (NOA) from CRA to see how much contribution room you have available for 2024.  The amount on your NOA includes any previous contribution room that you haven’t used plus any new room generated by your 2023 income.  Make changes to your deposits as needed.

 

2024 TFSA maximum- $7,000 of new contribution room.  If you have never contributed to a TFSA, and you were born in 1991 or earlier, you have cumulative room of $95,000.

 

Reminder: do not over-contribute!  Many people have more than one TFSA account, and it’s easy to over-contribute.  Your TFSA limit is a global limit- no matter how many TFSA accounts you have, your limit is your limit.

 

Recommendation: review the purpose of your TFSA.  Is this long-term savings?  Do you want growth from this money?  Is it intended to fund a specific purchase, like a new car or a house?  Is it your emergency money?  The investments inside your TFSA should match your goals; the risk level and volatility should be chosen after you’ve chosen your goal for the money in the TFSA.

 

RECEIVING CANADA PENSION PLAN (CPP)

 

 CPP payments are increased once a year using the increase in The Consumer Price Index (CPI).  This keeps your CPP amount equal to inflation (as best as possible, depending on your spending patterns).  What does that mean?  It means you can still buy the same amount of stuff with your pension this year as you could last year, even though prices have increased.  Your CPP amount has kept up with the increase.  This is a valuable feature in any pension, investment return or income stream.

The CPP increase for 2024 is 4.4%

 

RECEIVING OLD AGE SECURITY (OAS)

 

OAS payments are adjusted quarterly for inflation, also using the same CPI as CPP.  The increase from Jan-March 2024 is 0.8%.

 

WHAT IF CPI IS NEGATIVE- DO MY CPP & OAS PAYMENTS DECREASE?

 

No.  If the CPI is negative, payments remain level.  This is true for all government payments that depend on CPI adjustments.

 

 

More information:

 

Canada Child Benefit information

 

CPP contribution rates

 

CPP2

 

CPP payments- 2024 inflation adjustment

 

OAS payments- first quarter 2024 inflation adjustment

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It might not seem like a large bank account balance would be a problem, but it often is.  Many clients hire me specifically to plan to deal with this issue.

 

Whether it's your job that gives regular bonuses, your spending is far below your income or you received a large one-time amount, cash in a bank account casuses pressue to make a decsision.  The right decision.

 

Some general considerations if you are in this situation:

  • do you have an emergency account?  If you lost your income for 6 weeks to 6-8 months, how would you pay your bills?  If you don't have any emergency account, consider moving the cash into a savings account (if it is currently in your main chequing account).  This money's job is to be available; it's not irresponsible to have the money 'sit there doing nothing'.  It's job is to protect your financial stability.

 

  • Are you saving for a specific purchase or a known expense?  If yes, leave that money in cash.  Sometimes, clients tell me that they feel like they could be gaining a higher return, or doing something else with the money.  If you are considering investing in either the stock or bond market, you are taking risk.  Risk that your investment might be worth less when you need to sell it than the day you bought it.  If your timeline is less than 3 years for a purchase/ expense, you don't have the time to invest without taking on large amounts of risk (aka- you would be gambling with money that you know you need in a certain amount in a certain time).  

 

  • Did this money come to you through a loss or a big life change?  Is this inheritance money?  Severance from a job loss?  A settlement after a separation/divorce?  Sale of a business?  I recommend taking time to review your priorities if your money came from any type of 'sudden wealth' event.  In my experience, clients take about 12-18 months to make any decisions on an inheritance.  You need time to review your new situation, set new priorities and test out what your life looks like now.  Using smaller amounts to pay off high-interest debt or purchase something that is meaningful to you is reasonable, but if you are feeling overwhelmed or a bit lost with the money goals, put it into a savings account, gather information and ideas and make decisions later.

If the bank or any other advisor is pressuring you to make a decision or purchase a product, I recommend getting another opinion.  There is rarely a situation that demands a decision on money like this before you are ready.  On the other hand, there are very real consequences to you to making a decision that doesn't align with your situation, goals or values.

 

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Organizing your Expenses

If organizing your finances has moved to the top of your priority list, that’s great news.  If you’re feeling confused & frustrated about your finances and would rather pull your own eyelashes out instead of dealing with them, but, it’s a new year and tips are everywhere you turn, I’m glad you’ve read this far.

 

The majority of work that I do with clients involves the foundational work related to money in/ money out.  You need to know these numbers before you start making changes.  You need to know what’s happening now to make effective choices that will move you to a better place over time.

 

If you need a new look at your money and are ready to do some math, this post will give you a framework for understanding where you are now and what changes will improve your situation.

 

Step One: knowing how much is coming in and when

 

You need to know how much is deposited to your bank account and when that happens.  When we try to untangle our finances, we often talk about our salary.  In this context, that is not a useful number.  None of can make choices on the full amount of our salary.  There are deductions before any money lands in our bank account.  Sometimes the deductions are large. And valuable.

 

I recommend that you look back at a payslip from 2022- look for the net amount deposited, or if you have your last payslip, find the year-to-date (YTD) net amount.  That will tell you how much lands in your bank account.  This is the amount that you need to focus on when you’re asking questions about what’s affordable.

Draw out the timing of the deposits so that you can compare your deposits to when your expenses happen.

 

See the chart below for a list of common deductions and an explanation of the benefits to you.  Need more clarification on what's happening in your specific situation?  Contact Sara for an appointment by booking an initial consultation here 

or send an email

 

check back on Jan 23 for Step Two: finding your fixed expenses 

 

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Your Will and COVID19

Your Will and COVID19

 

COVID19 has moved 'get a will' from the bottom of our to-do list to the top. How to do that legally and while staying at home? Check out this article for guidelines...and a reminder that a handwritten will is good for now, not a replacement for a full document drawn up by an experienced lawyer. One tip the article left out- please let someone know where your will is stored. Contact me if you have questions.

 

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FP week

Financial Planning Week 2017

 

This is Financial Planning Week in Canada, driven by the Financial Planning Standards Council.  The goal is to catch the attention of Canadians and inspire a beginning of a process that will move more people towards their goals effectively.

The most recent posts on this site have looked at questions you can ask yourself before meeting with a financial planner, as well as some options that may be included as you go through the planning process.

Comprehensive planning is a process; success is dependent on both the client and the planner fulfilling their roles.  The planner is responsible for listening to the client, providing expert information, options and projected outcomes.  The client is responsible for providing information about personal situation and goals, listening to advice, and implementing agreed-upon strategies.  Both planner and client are responsible for following up to make sure that the plan is still relevant to the client’s life circumstances.

The Ontario government has proposed regulating the use of the title ‘Financial Planner’.  My hope is this will provide a starting point for clients to evaluate the source of the advice.  Currently, there are many professions that are offering financial plans.  Some are not prepared by a person with financial planning qualifications.  Some are prepared with a focus on investments, with the other main planning areas taking a back seat.  While these may be adequate for a time, they don’t fulfill the purpose of a comprehensive financial plan.

The Financial Planning Standards Council is a good place to start if you need general information about financial planning and how it should work.  To fill in important areas in your own financial plan, contact Sara at 519-569-7526 or [email protected].

 

A Few More Resources:

 

With all this technology, do I need a Human Planner?

 

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Executing Your Changes, Using Your Tools

Executing Changes, Using Your Tools

 

Over the past few weeks, I’ve written about setting and adjusting your goals and how to use your tools to reach them.  This week, let’s look at how to use all of those things to build a plan.

Your goals are the most important part of your plan.  It can be easy to focus on investments- most advisors are paid on the amount of investments they manage.  There has been an increased discussion about the importance of planning, however not all advisors are interested in, or compensated for, planning.  As clients, sometimes we pull the focus away from planning -  We’re sure that if we own the right investments that provide the right rates of return, we’ll hit our goals.  Sometimes we assume our advisor knows our goals.  In a traditional advisor- client relationship, it can be hard to change focus to look purely at the planning side of things before diving into investment management.

A comprehensive, personalized plan reflects your goals back to you, and shows you a path to reach them.  Sometimes there is more than one way to arrive at your goal; when you work with the right advisor, you get the information you need to choose the best way for you and advice on how to implement the plan.  Sometimes you just need to use what you have, sometimes you need to stop a certain action to make another one happen.  Sometimes, you are likely to reach all of your goals without changing your current behaviour, but you didn’t know that until you had help with a plan.  The value of this scenario, reaching your goals with your current behaviour and tools, is the freedom to develop new goals. 

Increase your likelihood of reaching your goals in 2018 by starting now.  Spending time now to review your goals, detail your tools and work with WD Development on your plan allows you to start 2018 using small, consistent changes that will move you towards meeting your goals.  Contact Sara at 519-569-7526 or [email protected]

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Intensity vs Consistency

Organizing Your Tools

Last week, I wrote about setting goals, breaking them down and mapping out a plan to meet them.  This week, we look at assessing and understanding the tools that you have to meet your goals.  Understanding how to use our money and assets is best done with both intensity and consistency (see video below).  In a recent survey by the Financial Planning Standards Council, 40% of Canadians don’t feel in control of their financial futures, and 30% of Canadians are overwhelmed by their financial options.  Our goals and plans for our money are attached to our emotions- often our goals are very personal and meaningful to use.  It can be difficult to know how to make choices when there is so much riding on the outcome.

Small to Big

Money coming in and money going out should be understood as much as possible when building a plan to meet your goals.  Understanding the ins and outs on a monthly basis will help you understand what’s available to meet long-term goals.  If adjustments need to happen to create room to meet long-term goals, the adjustments will happen on a monthly, per-item basis.  It’s important to review your priorities before making changes- cutting back on a really important-to-you expense could end up not meeting your long-term goals.

Big to Small

If you have long-term goals, knowing how much you need to meet them and a projection of what is needed will help you develop a plan.  If your long-term goals are still a bit fuzzy, a projection of how your financial future plays out over a long period will help to give you an initial direction.  An initial plan can generate conversations about what you’re comfortable with, what you want to change.  If a career change is on your wish list, take a look at what the new income, benefits, new location (if applicable) does to your long-term plans.

 

There is a way to clear the uncertainty and evaluate your options.  To start your plan, contact Sara at 519-569-7526 or [email protected]

 

Financial Blind Spots

 

Intensity vs Consistency-Simon Sinek

This was extracted from a talk on organizational culture, but the theory is applicable to our finances as well.  Neither intensity nor consistency alone will get us to our goals

 

 

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How to Support Your Small Changes and Your Big Changes

This is Part I in a 3 Part series: How to Actually Make the Changes You Want

Change is hard, and can take a long time.  We make goals, promises and wishes, then surrender to our routines rather than step onto a new path.  Your goals aren’t going to go away; this can be the time that you meet them.

 

Take stock of how 2017 has gone for you so far.  Did you make New Year’s Resolutions in January?  If you did, how have they worked out?  Evaluating the success and failure of past ideas/goals/ commitments has value for us.  If you made a resolution that you soon abandoned, it is helpful to go back and take a closer look.  Maybe the resolution didn’t matter enough to you to commit the time and energy to make it happen.  If that’s the case, let that resolution go and move your attention somewhere else.  If the resolution does still matter to you, take a look at what else you might need to make it to the goal. Resolved to cook at home more and eat out less but you haven’t so far?  Sometimes our goals need to be broken down into steps that we can turn into habits.  You might reach that goal if you signed up for a regular email recipe, chose two a week to cook on your least-busy nights of the week to start and planned to eat chicken burritos every Wednesday (or whatever meal is most popular and easy to make in your house).  Now you’ve turned 7 decisions made daily into 5- Wednesdays are already decided, one day a week you’ll pick 2 recipes to try, and you need to sort out 4 other dinners. Once that pattern becomes a habit, move further into the remaining days until you’re happy with your level of eating out vs eating at home. 

 

For the resolutions that you’ve kept, evaluate the effect on your life. Did the change meet the goal that you thought it would?  If you committed to exercising more but the early-morning gym run is leaving dark circles under your eyes, perhaps a change in timing is needed. We can’t always predict the outcome of meeting our goals.  We assume that getting what we wanted is good, and it can be.  Sometimes it means we have to make other decisions or adjustments to meet our bigger goals. In a situation that took several years to unfold, spouse A was offered a job approximately an hour from Spouse B’s job.  It was a good offer, in a location that both wanted to live in.  Spouse A took the job, and Spouse B worked on negotiations with his current employer to change his sales territory to include the new home location.  He thought the new territory would leave him closer to home 3 days a week, and the commute to the existing territory would be manageable for 2 days a week.  After setting this up, he realized that the territory was significantly larger than he thought, meaning he was now travelling an hour from home in 2 directions, instead of one; the new territory wasn’t generating the sales he anticipated, and he liked driving less than he thought.  The goal was achieved, but once it was, further evaluation was needed.  Don’t shy away from making decisions that may be adjustments of previous decisions.

 

Questions to ask:

What did I think my life was going to look like this year?

 

What areas are different from my expectations, what areas line up with my expectations?

 

If you had trouble answering the first question, spend some time thinking about what your goals and expectations are.  We all have them, it can be difficult to pull them out of a busy life into conscious thought. 

 

To discuss your goals, progress and changes and develop your own plan, contact Sara at 519-569-7526 or [email protected]

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Knowing your Own Bottom Line

Knowing your Own Bottom Line

 

Changing employers, contract positions and total career changes have become a normal part of our landscape.  Today, we look at the range of information, impacts and decisions that go along with that. Some information and questions are obvious:

  • Is the regular compensation higher or lower?
  • Is there a bonus structure?
  • Is the time commitment higher or lower?  This could involve daily commuting, regular travel or number of responsibilities and resources given to meet them.  Vacation time and flex time may also be considered here.
  • Is there a benefits package?  How does it compare to your current package?
  • Do you expect opportunities in the future for change to compensation or time commitment?

Something that may be less obvious: Reviewing the above only makes sense if you know what your own needs and goals are.  If your current position pays enough to meet your needs and goals, moving to a  higher pay, less flex time position may not make sense for you.  If you haven’t developed your own plan, there may be a temptation to take the higher pay only to realize that it wasn’t worth it to you later.

Changing employers or careers can also generate options related to the benefits that you are leaving.  Questions about what to do with a Defined Benefit pension plan need careful analysis that draw in your personal situation.  There is often a time limit to make a decision about commuting (moving your benefit amount out of the plan and managing the money yourself) or remaining in the plan.  The impact of this decision may not be felt for many years.

Sometimes, you don’t have a choice in the change; layoff or company closure forced the change.  Understanding your personal goals and financial situation gives you the information that you need to decide what your next step looks like.

In the midst of change, it can feel impossible to call a time-out to review your needs and goals.  Without the relevant information and analysis however, you may find yourself writing a ‘ladder against the wrong wall’ chapter in your life.

“If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.”  Stephen R. Covey

 

To start your plan, contact Sara at 519-569-7526 or [email protected]

 

10 Tips for Changing Careers without Losing Your Mind

 

When Does It Pay to Go Back to School in Midlife?  This is a U.S. based article, however, the questions are relevant.

 

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Getting and Giving

Getting and Giving

 

On this Thanksgiving weekend, many of us will have an opportunity to spend time with family and friends.  This holiday can be a time to reflect on what we are thankful for, or what we have received.  Christmas is only ** days away.  Pre-Christmas can be a season of charitable solicitations, a time when many focus on giving to family, friends and charities.

Recent Statscan statistics reveal that 84% of Canadians claimed a charitable tax deduction, and 44% of Canadians volunteer their time.  Like other areas of your life, taking the time to develop your giving plan can have significant positive impact for you and those that you help.

A meaningful giving plan starts with a discussion about what issues you care about and why you want to support them.  What does community mean to you?  What are your views on international versus local ventures?  Answers to these initial questions will drive the rest of the dialogue about where and how to have an impact on issues that matter most to you.  A deep discussion about your values will connect your giving to the rest of your plan; income, spending, investments and estate planning will all start to reflect your values about who and how you want to be in your community.

To have a conversation that starts with your interests and goals, ending with an executable plan, instead of starting and ending with tax strategies, contact Sara at 519-569-7526 or [email protected]

 

Places to Go to Stretch Your Thinking:

 

Questions and Framework to Evaluate Your Giving

 

Volunteering and Charitable Giving in Canada

 

An Answer to Some Headlines Generated by the Above StatsCan report

 

A Journey from Charity and Donors to an Investment Fund

 

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