On April 1, 2023, Questrade became the first in Canada to offer the new First Home Savings Account (FHSA). For us, this was a major accomplishment in our continued mission to help Canadians on their journey to financial independence. Our goal has always been to challenge the status quo, transforming financial, investing and mortgage services for the good of Canadians. Knowing the Government of Canada was introducing the new FHSA on April 1, the team at Questrade began planning months ago. Our goal was to offer Canadians this account on day one, so they can start saving, investing and growing their money for their first home. Mission accomplished.
Save for a home faster
Saving for a home is a big challenge for many Canadians. With housing prices as they are — especially in major cities — maximizing your down payment is critical. By opening an FHSA account at Questrade, Canadians can invest up to $8,000 annually, deduct their investment contributions from their taxable income and give it the opportunity to grow in the market. They can contribute up to $40,000 in this account, with no limits to how much it can grow, making it a powerful savings tool. Ultimately, they can withdraw it tax-free to use it for a home purchase: with no requirement to repay. The only requirements to open an FHSA are: being a verified resident of Canada, being at least 18 years of age, and being a first-time home buyer.
Imagine a scenario where you open an FHSA account with a goal to buy a house in 10 years. If you maximize your annual contribution limit of $8,000 per year for the first 5 years, you’ll reach the lifetime contribution limit of $40,000 in 5 years. If you invest your account with a Questwealth Aggressive Growth Portfolio, which had an average return of 7.18% per year, your account could grow to $69,993 after 10 years*. That’s $69,993 you can withdraw tax-free to put towards your home, with $29,993 coming just from investment gains. Continue Reading…
I have been writing on this blog for almost nine years. Over that time, I have learned and gained a lot of personal finance and investing-related knowledge. Whenever I gain new knowledge, I try to share it on this blog with the hope that readers can gain the same understanding as well.
As much as I love sharing new knowledge with other people, there seem to be some deep-rooted misunderstandings, myths, or misconceptions on certain topics. I really don’t understand why some people have these misconceptions and I will try my best to debunk some of the common misconceptions I have encountered, just so I don’t have to keep ripping my hair out.
#1 Don’t want a raise to avoid the next tax bracket
Our tax system is extremely complicated, so I understand there are some misunderstandings here and there. The biggest misunderstanding is that all your income is taxed at your tax marginal rate.
Due to this misunderstanding, people often make such statements like…
“I don’t want a raise just to get taxed more.”
“I am not working overtime to get bumped to the next bracket and lose my income to taxes.”
And so on…
But that’s a very very wrong understanding. Your income is taxed on a tiered bracket system. Below are the 2022 federal tax brackets.
Taxable Income – 2022 Brackets
Tax Rate
$0 to $43,070
5.06%
$43,070.01 to $86,141
7.70%
$86,141.01 to $98,901
10.50%
$98,901.01 to $120,094
12.29%
$120,094.01 to $162,832
14.70%
$162,832.01 to $227,091
16.80%
Over $227,091
20.50%
So if you happen to make $90,000 a year, the entire amount does not get taxed at 12.29% tax rate. The first $43,070 is taxed at 5.06%, then the next $43,070.99 is taxed at 7.7%, then the rest is taxed at 10.50%.
Essentially your $90,000 annual income is taxed like below:
Income
Tax Rate
Tax amount
$43,070.00
5.06%
$2,179.34
$43,070.99
7.70%
$3,316.47
$3,859.01
10.50%
$405.20
You’d be paying a total of $5,901.00 of federal tax on your $90,000 income, or an effective average tax rate of $6.56%. The same tiered tax bracket system is applicable to provincial taxes as well, albeit with different specific percentages for each province.
So no, the $90,000 you received isn’t all taxed at 10.50%. The amount is divided up and taxed at different tax rates.
What if you had an income of $90,000 and your employer decided to give you a $35,000 raise? Should you say no because you’ll move up two tax brackets federally from 10.5% to 14.7% and get taxed way more than your $35k raise?
It’s mind-boggling that some people actually believe this is the case and therefore would say no to any raises!!! Let’s do some quick and easy math to sort this out.
So, an increase of $35k a year raised your total taxes by $12,744 a year. More importantly, you will be netting $22,266 more than you’d have at the lower income of $90,000 a year.
So ask yourself, would you rather pay almost $13k more in taxes while pocketing over $22k more each year? Or would you rather not get the extra money at all? I think 99.9% of the population – if not more – would want the former.
All things equal, you will always come out ahead with a raise regardless of what tax bracket you end up with.
Fortunately, people that have this misconception are a very small percentage of the population.
#2 “Invest” in RRSP
Every February I hear statements in the line of… “I’m investing in my RRSP.” But when I ask for more clarification, I learn that people are simply transferring money into their RRSPs and letting that money sit in cash. They’re moving money into RRSP simply for the RRSP income tax deduction.
I get the idea of getting the RRSP tax deduction to reduce your overall taxes. But don’t you want your money to compound and grow? Why do you have your money sit inside a tax-deferred account and earn a measly 1% interest rate when you can invest in things like ETFs and stocks?
From setting specific financial goals for success to having someone hold you accountable, here are 18 answers to the question, “What are your best tips for how to stay motivated and disciplined in the pursuit of financial independence?”
Stay Disciplined and Goal-Oriented
Tie Your Goals to a Tangible Item
Stay Educated
Equate Money to Your Time
Celebrate Small Wins Along the Way
Develop an Action Plan
Create a Budget
Invest in Yourself
Develop a Strong “Why”
Have Fun With It
Set Specific Financial Goals for Success
Balance Spending Now and Saving for the Future
Start Tracking Your Progress
Focus On the Big Picture
Be Present
Build a Support System
Set Yourself Micro-Goals Along the Way
Find a Financial Accountability Buddy
Stay Disciplined and Goal-Oriented
Staying motivated and disciplined while pursuing financial independence requires commitment. One approach to remaining committed is to practice goal-setting, breaking down big goals into smaller goals that are based on achievable objectives. For example, if you want to save $1,000 in 3 months, break your bigger goal of saving money into a series of monthly phases, setting benchmarks each month as you inch closer to achieving your end goal. This helps with momentum and development while moving towards your desired result. — Michael Alexis, CEO, swag.org
Tie Your Goals to a Tangible Item
One often overlooked way to accomplish this is to tie your goals to a tangible item, such as a savings jar or bank account. Visualize yourself with it when planning out what you need to do today and watch as your small contributions add up.
Having this visual representation can be just the thing you need on days when you feel unmotivated and looking for an excuse not to save money. Taking ownership of your financial goals is the first step towards realizing those dreams – that’s what staying disciplined will help you achieve! — Tasia Duske, CEO, Museum Hack
Stay Educated
Continually educating yourself about personal finance is crucial in staying motivated and disciplined as you pursue financial independence. Of course, this starts with knowing how to budget and set boundaries for yourself.
As you strive toward financial independence, it’s important that you know where your money is going and identify areas where you can cut back on spending. There are a variety of ways that you can budget your money, so explore those options and find a way that works for you.
If you are one who likes to invest, stay up to date on current market trends so you don’t take any enormous risks that could cost you a lot of money. As you continue to stay informed and educated about personal finance, you will make informed decisions and avoid costly mistakes, which will ultimately help you achieve your goals. — Bill Lyons, CEO, Griffin Funding
Equate Money to your Time
Whether you make minimum wage or $100 an hour, we all trade time for money. Spending less money is one way to achieve greater financial independence. But when you’re struggling to cut expenses, one way to stay motivated is to understand how much time your money costs you.
For example, if you’re toying with the idea of a $50 purchase, think of how much of your time it would take to make back that $50. How far would that put you behind? Would you be willing to spend that time getting that item?
Thinking about money in terms of minutes/hours of your life can help you exercise some restraint on impulse buys or unnecessary purchases. If you feel like it would be a waste of time, it’s probably a waste of money, too. — Alli Hill, Founder and Director, Fleurish Freelance
Celebrate Small Wins along the way
Achieving financial independence can be a long and difficult journey, and it’s easy to become discouraged if you only look at the result. You can keep your motivation and momentum going by celebrating minor victories along the way.
Set attainable short-term goals, such as paying off a credit card or increasing your monthly savings by a certain amount. When you achieve these objectives, take the time to recognize your accomplishments and reward yourself.
As a reward for sticking with it, give yourself a small treat or indulge in a favorite activity. This will help you in maintaining your motivation and discipline, as well as making the journey to financial independence more enjoyable. –– Johannes Larsson, Founder and CEO, JohannesLarsson.com
Develop an Action Plan
It is important to develop a plan with realistic goals. Start by setting short-term goals that are achievable, such as saving a certain percentage of each paycheck or paying off the debt within a certain timeframe.
Then, set longer-term goals for retirement savings or other goals related to financial independence. Having a plan will help keep you motivated and on track to achieving your financial goals. — Martin Seeley, CEO, Mattress Next DayContinue Reading…
Attending three AGE-WELL EPICconferences on-line since 2020, my level of understanding of Canadian research and development in ageing and technology, or AgeTech (as it is universally called now), has truly deepened. It could be said that AgeTech became epic in 2022 as AGE-WELL, Canada’s technology and aging network established in 2015, spelled out the acronym EPIC – Early Professionals, Inspired Careers in AgeTech.
Updating from my blog post last May – An EPIC AgeTech Adventure Continues, the EPIC-AT is a national health research training platform, designed to prepare graduate students, postdoctoral fellows and early career researchers to be future leaders in digital health solutions for older adults with complex health needs.
Hosted at the University of Toronto EPIC-AT is powered by AGE-WELL, led by researchers from 11 universities and research hospitals from across Canada.
While it could be argued that AgeTech is still in its adolescent stage, as many people I speak with have no idea what it really is, never mind how large in scope it has become so far; it is worthy to repeat how much AgeTech will become more prolific over the remainder of this decade, assuming research is supported and consumer awareness and adoption is widely acknowledged. So the good news is that at this point, the modest $13M funding in EPIC-AT runs through to 2027.
If you are wondering how all this research manifests itself in the marketplace, recently AGE-WELL published its revised AgeTech Startup Map for 2023 and here you will get up to speed on the 114 Canadian companies in eight categories from, for example, Supportive Homes & Communities to Healthcare & Health Service Delivery and Cognitive Health & Dementia.
From Dementia to Deep Space
On further note, sometimes the discussion on AgeTech can take you to far out places, and on Feb.2, 2023 the EPIC-AT Webinar I attended, did just that – it took me to Deep Space, in one of the longest webinar titles ever, “The Challenge of Deploying Large Scale Digital Health-Based Support to Older Adults Aging at Home: When Deep Space Travel Offers Opportunities.” Actually it was quite uplifting so to speak, to learn how the far out the journey with AgeTech might take us. Continue Reading…
I would be remiss if I didn’t dedicate at least one post in my “Play It Again, Steve” series to everyone’s least favourite, but still significant topic: taxes.
It’s a good thing there’s no tax on writing about tax planning; if there were, I would surely owe a lot.
Here are six timeless techniques for reducing your lifetime tax load:
1. Fill up your tax-sheltered investment accounts.
Taxes primarily exist to raise money for government operations, but they also are often structured to encourage us to spend and save in particular ways. For example, there are:
If you’re saving anyway, you might as well take advantage of any available tax breaks for doing so. Each tax-sheltered, or “registered” account comes with different rules on whether the money goes in pre- or post-tax, and whether it comes back out as taxable or tax-free income. But all of them share a powerful, often overlooked advantage: Investments in all registered accounts grow tax-free.
So, fill up those registered accounts. Also, be sure to invest any of it you’re not going to need for a decade or more. The snowball effect of tax-sheltered investing should help you accumulate significantly more after-tax wealth than if it’s just sitting in cash.
2. Invest tax efficiently in and among your registered and taxable accounts.
There are endless ways to invest more tax-efficiently; here are a few of the greatest hits:
How you invest: Since you only incur taxes when you sell a holding, an obvious rule of thumb is to avoid unnecessary taxable trading. Build a durable portfolio you can stick with through thick and thin, and avoid chasing hot and cold stock picks and market conditions.
With whom you invest: Especially in your taxable accounts, avoid funds whose managers are actively picking stocks or timing the market. You won’t directly see their extra, unnecessary trades. But they’ll show up at tax time in the form of taxable capital gain distributions to unit holders: i.e., you. Worse, you could end up owing taxes on those invisible gains, whether the fund goes up or down in value. There are few more unpleasant surprises for an investor than a big, year-end tax bill on a fund that’s lost value.
Where you invest (asset location): Hold your relatively tax-inefficient assets (such as bonds and REITs) in tax-sheltered accounts, where the inefficiencies don’t matter as much. Hold your relatively tax-efficient assets (such as broad stock funds) in taxable accounts.
3. Remember, not all tax rates are the same. Aim for the less costly ones.
For personal taxable accounts and investment holdcos, some taxes cost less than others. Your most tax-efficient investing income comes in the form of capital gains, since they are taxed at lower rates than other sources such as interest or dividends. This, combined with asset location considerations, is another reason to avoid loading up on dividend stocks as a strategy for generating an income stream in retirement.
Don’t believe me? Consider these 2023 combined tax rates for Ontario:
It’s also worth keeping an eye on whether your annual income is approaching marginal tax rate thresholds. For example, in Ontario, if you make over $235,675 in 2023, you’ll be in the top bracket. If your annual income is approaching that figure, you and your accountant can look for sensible ways to avoid reaching it. Investment holdco owners have additional tax-planning tools available to help manage the income earned from corporation investments.
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