As you recover from yet another holiday celebration, I imagine you’re focusing on wellness as part of your New Year’s resolution. To make progress, you’ll need to step on the scale. At this time of the year, I encourage you to step on the financial scale, as well. Depending on what it shows, you may want to 1) increase muscle mass, 2) reduce body fat, 3) do a little of both or 4) simply stay exactly where you are.
The number you’re seeking on the financial scale is not in pounds. Instead, it’s your net worth (what you own minus what you owe). What you own, of course, are your assets (i.e. savings, investments, car, house, etc.). I’ll equate that to muscle mass, the good stuff you want to increase. What you owe are your liabilities (i.e. loans, mortgage, credit-card debt and a line-of-credit balance). I’ll equate this to body fat we want to trim. Set a goal indicating what you want your net worth to be in the next 12 months, and start your workout. You can find net-worth calculators online (try TD Canada Trust’s, www.tdcanadatrust.com/tools/planning/input_en.jsp).
INCREASE YOUR MUSCLE MASS Save from your income by setting up an automatic plan on the same frequency as your pay cycle. Speak to an advisor to determine where to direct this money—a deposit account, mutual funds or stocks. Some of these produce income, such as interest and dividends, to increase your assets even faster. As lifestyle needs change, you can apply these savings and investments to such purchases as real estate. (For a savings tool, visit www.tools.tdcanadatrust.com/tdam-npc-ie/Major_Purchase1.asp.)
REDUCE BODY FAT When you have debt, it’s important to confirm that you’re paying the lowest interest rate possible. So negotiate with lenders to refinance at a lower rate, if possible. It’s better to give more attention to debts with the highest interest and those that can be fully paid off the soonest. The ideal situation is to consolidate your debts into one payment. (For a debt-management tool, visit www.tdcanadatrust.com/debtManagement.form?lang=en.)
WHEN THE BALL DROPS Just moments after New Years, I often joke with friends that I haven’t seen them since last year—which is technically true. Although there is little difference in time between one year and the next (December 31 vs. January 1), it can make a huge difference for the taxman. So it’s important to know about tax strategies you can take advantage of for the current tax year, things that need to be done before the year ends. The few I’m pointing out do not make a complete list, and I recommend consulting your tax advisor long before heading out to that New Year’s Eve bash.
• Analyze your income-tax situation to determine whether to make a RRSP contribution and, if so, how much.
• Time withdrawals from your TFSA, because withdrawals made in 2015 can be re-contributed the next calendar year of 2016.
• Review your portfolio with your advisor.
• Consider applying for the
Old Age Security and Canada Pension Plan if you become eligible this year.
• If you turn 71 this year, make your final RRSP contribution and convert your RRSP to a RIF or annuity.
• Allocate pension income to your partner.
• Contribute toward a RESP to capture the grant for the current year and any previous year outstanding.
• Collect receipts for the children’s fitness tax credit and children’s art tax credit.
• Deduct eligible moving expenses when you relocate close to campus and back home.
• Claim foreign tuition, edu-
cation and textbook amounts.
• Claim the GST/HST tax
The above tips are taken from TD Wealth’s Year End Tax Planning Tips for Seniors, Employees, Families and Students. Ask your advisor for the complete list.
Although my column focuses on dollars and cents, I ask that you not lose sight of why we work hard to save and protect our assets: to provide for and spend quality time with our loved ones. So plan ahead, but be sure to relax and enjoy the holidays. Cheers!