Archive for July, 2011

By Sue Ricketts

In the last decade or so more and more people are choosing, or being forced, to become their own boss. This gives freedom and the ability to control our own destiny. This is wonderful and can make our hearts sing.

There is a downside though. In doing so, we give up the golden parachute, the rock solid pension plan and maybe even the “about” retirement income of a Registered Retirement Saving Plan type income in retirement.

Since 2009 there has been a new tool in the tool box which will help us to guarantee what amount of income we will have once we chose to give up our full time employment. The latest thing

is called a Tax Free Savings Account.

This works by allowing you to put money away for a later date. There is no tax break when you put the money in, but there sure is when you take it out. The two problems with RRSPs has always been taxation and inflexibility of when and how much you must take out. With Registered Retirement plans every dollar is taxed and you have no say in when and how much you take out. That means that instead of having one hundred cents of every dollar to spend, you have only seventy-eight cents, sixty-eight cents or even fifty-four cents to spend of every dollar you have saved. In Canada we have a graduated tax system which means that the amount of tax you pay is governed by your total income in any given year. So …. the government has been kind enough to let you help them pay their bills during your retirement too. You will have to take out one-third more than you need to live on each year.

With TFSAs you put away money and whenever you want it, you take it out and spend it. Your contribution dollars will never be taxed and the money which it earns while invested isn’t taxed either. You get to spend one hundred cents of every dollar which you take out of the plan. If there is a down year and your investments tank, you don’t have to take any money out.

There are a few restrictions, of course. You can only put $5,000 per year into TFSAs. You can invest in bank accounts, GICs, mutual funds and segregated funds. But even more important, if you take some of the money out, you don’t lose the contribution room. So if you start a plan with $5,000 in 2011, you are allowed to put in another $10,000 because you had room for 2009 and 2010 which you didn’t use. If you need to repair your roof in 2012 and decide to use $3,000 of TFSA money, you can still carry forward that room and put $8,000 in for 2012.

The one thing which isn’t quite clear yet and I am pursuing is how the growth will affect the future contribution room and whether or not any withdrawal will be considered to be part growth on your investment. Although there will be no tax due on any of it, how does it affect your future contribution room

For those of you thinking about this option, you don’t have to contribute the full amount of $5,000 each year but it wouldn’t hurt to have $25,000 socked away and growing after five years, would it? Any amount is good.

Going back to the financial vehicles you can invest in, one of the better ideas I have heard is the thought of making your own Individual Pension Plan with TFSAs. Today most insurance companies have a 5% minimum bonus growth in their segregated fund plans. Segregated funds are the same as mutual funds but you pay less than one percent more on the MER charges to have an insurance policy attached to them. This insurance guarantees that if you die, your heirs will receive either 75% or 100% of the amount you have contributed (less any withdrawals made by you). There is also a maturity guarantee of 10 or 15 years which means that you can’t have what could happen in the open mutual fund market where you lose a significant portion of your investment. Your funds are protected. The caveat on segregated fund guarantees is that the 5% bonus will not be guaranteed in any year that you make a withdrawal. However, you will get whatever the market earns that year.

So, about that individual pension plan? If you tell me how much of your retirement funds you want to take out of TFSAs in retirement and how many years you have to contribute and let it grow, I can calculate how much you need to put aside each year. Take care of yourself and don’t put that burden on someone else. That’s a great gift and almost as good as leaving a fortune to your children.

By Sue Ricketts

Did you know that they have held a contest and come up with a new list of the seven wonders of the world? Most of us remember back in school being taught about what they were. Forget it, there’s another list. Only one of those old wonders are there. Can you guess which one made it?

Before you read this article, write down the ones you think should be on that list and see how many you get right.

1. Chichen Itza: Travelling south to the Yucatan peninsula in Mexico takes us to a place in the middle of a jungle where we can see the amazing architectural abilities of the Mayan civilization. The city was inhabited from around 600 AD. Sometime around 1,000 AD a Toltec king came here and made it his capital along with his Mayan allies. Less well known than the pyramids are the Jaguar throne and the columns in the Temple of a Thousand Warriors. You can walk through an area of cosmic ball courts and stepped pyramids which were used as calendars to track the seasons and the years. Their calendars went forward to the year 2012 and the month of December. Because they stopped there hundreds of years ago some people are insisting that the world will end on that last day. We’ll see about that when the sun rises in it’s usual spot on January 1, 2013 – or not. This was a major economic centre for centuries before the Europeans arrived.

2.   Great Wall: Next, far to the north-east we find the 5,500 mile long wall which the Chinese built to keep everyone out of their territory. The wall was built over a period of 2,000 years and it is said that more than one million people died while building it. The wall has watchtowers at regularly spaced intervals and truely qualifies as a wonder. The picture shows a guard tower in Jinshanling which shows the amazing building skills used to protect the country.

3. Treasury of Petra: In Jordan there is a whole city which has gigantic buildings and astounding architecture. The giant red mountains and vast mausoleums of a departed race have nothing in common with modern civilization . The interesting part is that it was built by a civilization called the Nabataeans over two thousand years ago. Excavations have demonstrated that it was the ability of the Nabataeans to control the water supply that led to the rise of the desert city, creating an artificial oasis. These amazing buildings were carved out of solid rock in the middle of a great arid plain.If this building looks familiar it may be that you saw the Indiana Jones movie which was filmed there.

4.  Machu Pichu: In the high mountains of Peru, after walking for four days along the Inca Trail through very high altitudes you find the Lost City. Or you could just get on the bus with all the other tourists and drive there. It’s not the same thouh and doesn’t give an appreciation of what a wonder it is to find civilization existed in this out of the way place. The ancient Incan city of Machu Picchu was known to American archaeologists for the first time July 24, 1911. Although the purpose of the settlement is unknown, theories have expounded upon a convent because of all of the female skeletons found on site, a vacation spot for the emperor or a last bastion of Incan power in the mountains. No matter what it was used for, National Geographic states Machu Picchu is a hard place to get to and is a terrific hike and camping trip. And Beautiful too. Most archeologists believe that Machu Picchu was built as an estate for the Inca emperor Pachacuti (1438–1472). Often referred to as the “Lost City of the Incas”, it is perhaps the most familiar icon of the Inca World.

5.  Taj Mahal: In Agra India there is a most beautiful and ornate palace which we learn was built for love of a woman by Shah Jahan. The marble dome that surmounts the tomb is the most spectacular feature. Its height of around 35 metres (115 ft) is about the same as the length of the base, and is accentuated as it sits on a cylindrical “drum” which is roughly 7 metres (23 ft) high. Because of its shape, the dome is often called an onion dome or amrud (guava dome). The top is decorated with a lotus design, which also serves to accentuate its height. It has been said that Agra has the most beautiful sunsets in the world. Do you know where the second most beautiful sunsets are? In Saugeen shores alone Lake Huron in Ontario, Canada. If you want to see another similar style of architecture do check out the new Hindu temple which has been erected just off Highway 27 in the northern section of the Greater Toronto Area in Ontario.

6. The Colusseum: In Rome we find a familiar arena which was used for over 500 years. A venue for gladiator battles, circuses and all manner of public spectacles. It was built between 70 and 80 AD making it 2,030 years old. Fifty thousand people could attend the shows which were presented here. In the 21st century it stays partially ruined because of damage caused by devastating earthquakes and stone-robbers.  The Colosseum is an iconic symbol of Imperial Rome and shows some of the outstanding techniques which they used to build their civilization.

7.  Christ the Redeemer: High above the city of Rio de Janero is a much more modern wonder. No one is sure why this made the list of world wonders except the Brazilians as it not like all the others an ancient tribute from civilizations long gone. Rio is the second largest city of Brazil and the third largest metropolitan area in South America. The home of many universities and institutes, it is the second largest center of research and development in Brazil. In 1502 when the Portuguese fleet enter Guanabara Bay the site was already inhabited by local natives from four different tribes. It is said that Amerigo Vespucci (the man whom the continent is named after) was the navigator on their voyage to the new world. Over the years Portuguese, French, pirates and buccaneers fought over the sheltered bay. Now the landmark statue stands guard high above the sparkling lights of the city.

Are your finances going nowhere?

Subconscious money ‘truths’ may be holding you back

By Julie Cazzin | From MoneySense Magazine, June 2011

Ramona Reed is standing on the street corner just outside a local thrift store, waiting to give her money away. She’s watched several people leave the shop with bags full of clothes and trinkets, but she hasn’t yet found what she’s looking for. Then she spots them — a young single mom with three small kids. Reed, a pretty petite blonde with sparkling blue eyes and ruby lips, approaches them and strikes up a conversation. She learns that they live in the poorest part of town and can barely make their mortgage payments. They have no car, no stove, no fridge — they simply can’t afford it.
Reed tells them her story — that she originally came from a poor family with 10 children, but now she’s married to a wealthy man and she wants to help others. She buys them a used car for $2,000 and a fridge and stove for $800 more. She has a lot of money, she tells them, and doesn’t need it all. She wants to help. “Money burns a hole in my pocket and I feel compelled to spend it or give it away to others,” says Reed, 53. “It makes me feel like I’m not a screw-up — I’m good for something after all.”
Ray Harper, Reed’s husband of six years, feels differently. (We’ve changed their names to protect their privacy.) He’s threatening to divorce Reed if she doesn’t change her ways. Harper comes from a wealthy family and is a successful businessman in the tech industry. He gives his wife a $6,000-a-month allowance, intending the money to be spent on entertaining his friends and family, or buying art and decorative pieces for their high-end townhouse. When he found out that Reed was spending the money on perfect strangers, he got angry. He told her he couldn’t live with someone who wasn’t trustworthy. He wrote her a cheque for $50,000, put all her clothes and personal belongings in storage and told her to go away — and stay away — until she’d gotten herself “fixed.” “I’m determined to save my marriage,” says Reed. “I’ll do anything to change my ways so that I can be wise with money.”
Reed is one of several people I met last fall at a workshop for people with severe money disorders in Nashville, Tenn., called Onsite. You can think of it as a kind of money rehab clinic. During five days of group therapy the participants examine a slew of unhealthy, self-destructive behaviours. The workshop was eye-opening. I learned that although full-fledged debilitating money disorders such as hoarding, workaholism and compulsive shopping aren’t the norm (it’s estimated that only 5% of adults have one), such disorders often have their roots in common emotions and thought patterns.
In any of us, destructive unconscious thoughts and feelings can hinder our ability to make sound financial decisions. “The truth is, you’re only as sick as your secrets and people with money disorders keep a lot of secrets,” says Ted Klontz, a psychologist and life coach who, along with his son Brad (also a psychologist), runs the Onsite program. The Klontzs are also the authors of Mind Over Money, and Wired for Wealth, two ground-breaking books in the field of financial psychology. “When people come for help around money, it goes so much deeper than what is in their bank accounts,” says the elder Klontz. “It’s a window into unresolved family histories and generational patterns. It’s often unresolved traumatic childhood events that end up triggering money disorders.”
The Nashville workshop’s aim is to uncover those secrets and reveal how they encourage bad money habits. Such ingrained beliefs, or “money scripts” as the Klontzs call them, are powerful ideas that we form around money — what it is and what it can do for us. Typically, we form these beliefs in childhood and they drive all of our financial behaviours. A money script could be that ‘Money will make things better,’ which is associated with hoarding and workaholism, or ‘There will never be enough money,’ which is associated with underspending and miserliness.
We can show signs of more than one money disorder, in varying degrees, in varying situations, and at varying times in our lives. But the underlying scripts rarely change — at least not without conscious effort and hard work. If you want some insight into what may secretly motivate the ways you handle money, or you think someone you know may have a money disorder, read on for an in-depth look at the seven most common disorders. I’ll show you how to spot them, and just as importantly, what you can do to overcome the hidden disorders that may be holding you back from achieving the financial success you dream of.