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Work bonus must be sheltered

Posted by mapetitechou on Apr 9, 2015 in saving

Just got the email from the CEO about the company bonus that is coming in 2 weeks! Needless to say, it’s very exciting. And we have the choice of putting it into RRSP. What am I going to do with my bonus? You guessed it, I’m going to put a major portion into my RRSP account. I would’ve liked to put the whole thing in my RRSP, but I would end up over-contributing. So 68% is the appropriate amount after I did some calculation. It’s too bad that the Tax Man still gets to take a big chunk out of the remaining. But I’m not too broken up about it, I will have some mad money to spend on fashion! 😀

The decision to shelter the bonus was a no-brainer. That’s what I’ve always done with my bonuses. I was so shocked to hear from some of my coworkers that they were still debating whether or not to put theirs in their RRSPs. One even said he was not going to put any of it in his RRSP and would rather take the tax hit! That is a huge tax hit. These are all high-income earners, so their marginal tax rate is very high.

For me, sheltering bonuses is a must. It does not matter if you think you need the cash so badly. It is not worth taking the tax hit, especially if you still have RRSP room. Put it in your RRSP, then take your tax refund and spend it however you like. Heck, if you really need the cash now, take out a small line of credit. The interest rate is so low right now, it’s not going to hurt you as long as you pay it off quickly. Save that glorious bonus and let it grow in a tax shelter.

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I’m the “Villain”

Posted by mapetitechou on Mar 26, 2015 in financial planning, philosophy, relationsips, saving

Apparently in my in-laws’ eye, I’m the “villain” because I am an iron-fisted wife with our money — I don’t let my husband spend any. I knew that they thought of me as “frugal” or “good with money”. But recently I think I got a better idea of what they really think. I find that quite amusing. I’m a private person so I don’t usually broadcast our financial situation, unlike some other family members. So I suppose it’s easy for them to speculate what’s going on in our family’s finance. For some reason all my husband’s family think that we have oodles and oodles of spare money laying around, especially my mother-in-law, according to my lovely youngest sister-in-law (my husband has three sisters). She and I get along very well and she’s very open about her life and her opinions and she appreciates that I’m a good listener, so we often chat. Personal finance is one of those topics.

When I explained to her, I basically said every dollar is accounted for. Ha, I wish we had a ton of spare money laying around for us to spend! If we did, I’d definitely let my husband get his dream car. He’s always complaining about having to drive my old Corolla because his Tiburon (a sport coup from his pre-children days) died last year and it was just not feasible to get a new sports car anymore. And my MIL thinks I’m holding him back somehow. There are quite a few aspects to our finance that she does not understand.

Because of my “pay yourself first” rule, basically for every paycheque some of the money is redirected to our RRSPs, TFSAs, RESPs and other investment accounts. These have to be taken care of first. I am very firm on not shirking our responsibilities because you are ultimately responsible for yourself, present and future. So if you don’t take care of your future self, nobody else is going to do that for you. I think because she and my father-in-law did not live this way, she cannot even comprehend it. They are living on government pension. They never saved for their retirement. They don’t have any investments. They live a very simple life in a small town in Newfoundland. So their living expenses are very low, except for my father-in-law’s penchant for a new car every several years (that’s a whole other issue for another post). So the question of why you are putting your money in all these places is pretty complicated to grasp.

Also, my in-laws (and all my guy’s siblings for that matter), seem to forget that my husband has been in school for as long as we’ve been together. And that university education costs A LOT of money. My husband is a very smart and hard-working person. He did computer science in college. Then when we were dating, he did electrical engineering. And after we got married, he decided to do a business management degree while working full-time. And after he got that degree, he went on to do his MBA also while working full-time. He also had size-able student loans during early years of our marriage that we managed to pay off quickly. Essentially we invested a lot of money in his schooling. Every month a portion of our income was going to his tuition. I told my sister-in-law it’s like paying two mortgages every month. We just don’t broadcast that, it’s not in my nature to complain about it. If it was any of other siblings, we would be hearing about constantly. Again, this speaks to my philosophy about taking responsibility for yourself.

And furthermore, because we feel so strongly about education, we are saving for our children’s education. And somehow that’s hard for my MIL to understand too. She thinks when we talk about saving for their university education, it’s something that might or might not happen in the distant future. It’s not! My son’s 5, my daughter’s going to be 3 soon. In only 12 years my son will be going to university. 12 years will be gone in a blink of an eye. If you don’t start preparing for it now, you’ll run out of time. Time is your biggest ally in investing. So to my MIL, it’s money that’s being not used right now and being wasted. Well, again, I understand it’s a concept hard for her to grasp because they didn’t save for their children’s post-secondary education. My guy and his youngest sister are the only ones that have university education and they paid for it themselves. Massive student loans. My parents saved for my education. I had a jump start on life after school. That is something so valuable for your children to have.

We have our fun money obviously. Traveling is our biggest hobby. We go to China regularly. We take beach vacations every year. We’ve been to Europe a few times. My kids are seasoned travelers. My son has traveled more and further distance-wise in his 5 years of life than my in-laws have ever traveled in their entire life. It’s a gift that I want to keep giving to my kids for as long as they will let me (we will see how that goes when they are teenagers). The vacation funds have to be allotted and these aren’t inexpensive vacations. My MIL doesn’t seem to understand that either.

So essentially, every dollar is accounted for. And if somebody thinks it takes an iron-fisted wife to manage that, so be it. I sleep very well at night.

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Do you buy everything new for your kids?

Posted by mapetitechou on Mar 16, 2015 in saving

When my first child was born, we bought everything new for him. Being new parents we conformed to what everyone else was doing and what we thought we were supposed to do. Buy the nice crib, change table, play pen, car seats, strollers, clothes, shoes, toys…everything! It was costing us so much money even though we thought we were being frugal. Then we saw through the ridiculousness of it all. By the time my second child was born, we stopped buying everything new. We took a lot of hand-me-downs. Bought a lot of used toys. And seriously neither of my kids suffered. My daughter has way more clothes than she ever needs. I always saved them and passed them onto other family members and close friends. I find people actually appreciate hand-me-downs a lot! And my kids have way too many toys, both at my house and at my parents’ house. My parents still buy new stuff for the kids. I let them ’cause grandparents are supposed to spoil their grandkids. It’s incredible how not buying new has helped our finances these years. Kids stuff can be a real drain if you succumb to the temptation or social pressure of buying fancy expensive clothes and toys for them.

These days I quite enjoying shopping at GoodWill and Salvation Army for children’s books and toys. Just the other day I picked up 11 children’s books for $9 and they were all in excellent condition. My son loves Franklin books. Even though we go to the library and get books every week, sometimes I still buy books just so he can have his own books to cherish. I also save old toys that my kids are tired of playing and give them to other people. Like clothes, people really appreciate it. It’s awesome that you can share and save money at the time.

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How we save for our kids’ education fund

Posted by mapetitechou on Mar 10, 2015 in financial planning, saving

I kind of have a reputation in our extended family that I’m fairly money-savvy. So sometimes they will ask me advice on things that sound too technical for them. Just the other day I was how RESPs work and how we save for our kids’ education fund. To our non-Canadian readers, that is a government incentive program that helps people save for their children’s education fund. Basically you can contribute up to $2500 a year for one child and the government will match you 20% of your contribution up to $500. So if you put $1000 in your child’s RESP, you will get $200. If you put in the maximum $2500, you will get $500. This lasts until your child turns 17. Moreover, the money grows tax-free. That’s $51,000 without even considering the interest it should be earning. That is a pretty sweet deal.

It still shocks me how many people do not take advantage of this. And even when people do have RESP accounts, they do not contribute the max amount. You want to get the $500 from the government EVERY SINGLE YEAR. I opened RESPs for my kids as soon as they were born. I’ve always made it a priority that I have $5000 ready to be put into their accounts as soon as January rolls around every year. My sister-in-law was saying she finally opened a RESP account recently. She has two daughters, one is starting Junior Kindergarten this year, the other one is 9 months old. I applauded her on opening the RESP account. But I also felt a tinge of regret that she had lost almost 4 years of growth if she had done it when her first daughter was born. She said she’s putting the $200 university child care that she gets from the government every month (every child gets $100 a month in Canada) into the RESP account. That’s only $1200 a year, so she won’t get the full $500 from the government. That also makes me sad because that is just free money being thrown away!

So this brings me to the question people ask me – how we save for the RESPs. I simply tell them I make sure they are maxed out. No buts and ifs about it. That goes with my belief pay yourself first, “myself” being my kids. It is simply an obligation that I must fulfill. I believe people should treat it this way. If you are not able to save quickly and put down the lump sum like I do, then you can do the $208 automatic transfer every month. That’ll add up to almost $2500 in December. And you will have done the job for the year. You live on whatever money that is left after that $208 is taken out of your bank account. That is how strongly I believe in education fund. You skip those dinners out. You skip going to the movies a few time. You skip getting your nails done. Basically you cut out the fluff that is taking money away from the RESP money. Of course if the money is way too tight, then it’s a much bigger problem than RESPs. Your whole financial situation probably needs to be re-evaluated. For most people in my immediate world, I know they can afford it. They are just not making it a priority.

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I hate debt

Posted by mapetitechou on Mar 6, 2015 in debt, saving

How do you feel about debt? I have an extreme aversion to debt. I hate any kind of debt, some more so than others. Having the belief that you are responsible for yourself and nobody owes you anything drilled into my head by my parents when I was young, I’ve always had this attitude towards debt. “If you owe money to somebody and you don’t pay back right away, they are going to come after you and break your arm.” I know it’s extreme. (Unless you owe money to the mob then it’s a very real possibility.) But the sentiment is the same. It is not okay to have debt and not pay it off right away, whether you owe a person or a bank. As a kid, I always hated borrowing money from friends. If I did have to borrow $5 for whatever reason (say I forgot to bring money for lunch), I had to pay it back the very next day. Now I don’t think I ever had a personal loan from anyone in my adulthood life.

So with the same thinking, I hate any form of consumer debt the most, like credit card debt. I could probably count on one hand the times I was late on my credit card bill and had to pay the subsequent interest charge. And I would scold myself to not let that happen again. I see any interest charge as money down the drain. That is money that I could’ve spent somewhere else that’s more useful. I never took out a line of credit because I just could not stomach the fact that I had to pay interest on it. The one time I made the mistake of buying my first card with a monthly payment, I saved almost all of my paycheque every month for about 6 months so I could pay off that car so fast as if my hair was on fire. After that, I always paid cash for a car. Never ever financed again.

Mortgage was a necessary evil. I don’t like it, but in this day and age, not many people can buy a house with cash. So my husband and I had to take on a mortgage like everyone else. But I was not okay with just making the minimum payment every month for the next 20 years. We again worked very hard to maximize the payments by doubling up every month and making that 10% lump sump every year. Luckily our mortgage wasn’t a huge one to begin with. We bought our modest house before housing prices started going crazy. So within 5 years, we paid it off completely. That was the best feeling ever when we made the final payment. I felt so free and powerful because no matter what happened we always had a roof over our heads. When you don’t owe anything to anybody, life just has much more possibilities.

Now my “debt” is to my children and to ourselves. I want to set them up for success as early as possible. That’s why we are building their education funds. I’ll chat about education funds in another future post.

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Balancing between my fashion “addiction” and saving money

Posted by mapetitechou on Mar 4, 2015 in saving

The fact that I have a fashion blog that is devoted to beautiful clothes and shoes and bags and where to buy them is pretty obvious that I am a fashion addict. So I get this question a lot from people: how do you keep your expenses on your fashion stuff from getting out of control? How do you budget your expenses?

I don’t really have a monthly budget per say. But I strongly, strongly, believe in Pay Yourself First. I have money automatically taken off my paycheque to go into my RRSP (that’s the Canadian equivalent of 401(k) I believe) account. I have a portion of it go to a separate account that’s for accumulating money for my various ETF funds. When there’s a certain amount that warrants an ETF purchase I can just transfer that money to my my discount brokerage account and buy some ETF shares. That’s the exciting part for me. So I never budge on this. And of course you have your monthly expenses and what not. In the end, whatever is left in my everyday chequeing account that month, I can spend it on anything my heart fancies. So you can see that I don’t use a budget. I don’t give myself an allowance at the beginning of a month. I don’t try to control my fashion spending. I just make sure I take care of all the other areas first. The money goes to those important places first. Also, our monthly expenses are fairly predictable. I always tracking everything in a spreadsheet so I have a pretty good idea where most of the expenses are. Overtime they’ve become very predictable. Sometimes we get a month where we take a few extra day trips somewhere or we have more dinner parties than usual. Then maybe at the end there isn’t that much left over for my fashion buys. That’s totally fine with me. Also sometimes I can go a long time without doing any shopping. Just ’cause the money is there doesn’t mean you have to spend it. And sometimes I let it accumulate long enough I go on a binge shopping trip…usually online at some of my favorite stores (Hello Shopbop! :).

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What is your saving rate?

Posted by mapetitechou on Mar 3, 2015 in saving

I’m curious…what is your saving rate? What is a high saving rate for you? 5%? 10%? The conventional wisdom that you hear from financial planners/advisers is you should save 10% of your income. I always thought this was way too low of a saving rate if you ever want to get ahead in life in terms of financial flexibility and ultimately financial independence.

Being Chinese, it was always distilled in me by my parents that you need to save some money for the future. You must live within your means and have some money put aside because ultimately you are responsible for yourself if anything happens and you need extra cash. So I’ve always saved. Not a lot when I was younger, but I have improved over the years and I continue to try to do better. If you asked any Chinese parents (first-generation immigrants especially), if you aren’t saving 50% of your paycheque, you are not saving enough. My parents never actually told me how much I should be saving. I don’t think they have a hard number that they live by either. They just led by example by living way below their means. They are not misers by any means. But you can really tell where their priorities lie by watching how they spend their money. They don’t spend a lot on themselves, but they sent me to university debt-free. They contribute to my kids’ college funds. Education is extremely important to them. And of course they put money away for their retirement. They don’t expect to count on anyone else when they are really old.

I think when young people first start out, they should try to save as big of a chunk out of their paycheque as they can. Aim for 30%, 40%, 50%, even 60% if you are in a high-paying field. If you have any kind of student debt, you should put that money into the debt and squash it. Because you want to get a jump on life as quickly as possible, start saving for a down payment for a house, saving for starting a family. The only way to do that is squash any debt and start putting away gobs of money right away. A measly 10% of your income is not going to get you there. Not in the time frame that most people desire, say 3-5 years. In the beginning you really have to aggressive. My goal is 50%, and it is pretty aggressive for us because we have 2 young children. Some months, we actually hit. And other months it’s harder when I’m writing gobs of cheques for my son’s camps, piano lessons, Kung Fu school, etc etc. But if I average them out, I’m doing pretty well, much better than the 10% that we are so used to hearing.

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