November/December - 2014
Millionaires don't make these mistakes - LIFE LETTER for November looks at some of the financial mistakes we can lean to avoid.
HAPPY NEW YEAR!
2014 is behind us and the big story of the year was the dramatic decline of the price of oil. More about that later.
THE STOCK MARKETS – The major stock markets ended 2014 as follows: Toronto’s S&P TSX was up 7.0% and the Dow Jones gained 10.04%. In Europe, Germany’s DAX grew 4.46%; France’s CAC fell 0.54%; and England’s FTSE 100 lost 2.71%. In Asia, Hong Kong’s Hang Seng Index advanced 1.28%; and Japan’s NIKKEI was flat.
Where the price of oil moves will have a considerable impact on how the major markets behave in 2015. From a high of about $110 a barrel In July 2014, the price of oil in mid-January, 2015 sits at about $47 a barrel. On the positive side, history shows us that the faster the drop in oil, the faster the recovery. But there is no consensus among analysts as to where the bottom is, when the recovery will start, or how high the “new” price of oil will go.
How will the major markets perform in the new year? Here is a summary of what the economists are telling us:
CANADA – Our economy will hurt with low oil prices, but stronger economic growth south of the border will ease some of the pain .GDP growth is expected to be 2.2% this year, marked by falling business investment in the oil and gas sector , but stronger export to the U.S.
The U.S. – The U.S. economy looks to grow more than three percent this year, making it one of the best performing economies in the world. The U.S. tends to do well when other countries are suffering from geopolitical risks, at least in relative terms, because it is less sensitive to those external events and the U.S. dollar is considered a safe haven.
CHINA – 7.4% was the GDP growth in China in 2014, and economists are fore-casting growth in excess of 8% in 2015.
THE EURO AREA – Europe will continue to grapple with deflationary concerns in 2015, but lower oil prices and a weaker euro should drive economic growth higher than previously forecast. Growth will pick up, but it’s not going to be quick and will be just over one per cent. Lack of inflation is Europe’s immediate concern, and as this is being written, the European Central Bank has initiated quantitative easing.
JAPAN – This country is still struggling with deflation and slow economic growth. GDP is projected to grow by 1.00 per cent or less in 2015.
THE GLOBAL ECONOMY – Growth is forecast to rise to 3.2% this year.
Millionaires don't make these mistakes
"The primary difference between the wealthy and the rest of us is that they're in control of their money - they don't let money control them," says Jaime Tardy, a business coach and author of The Eventual Millionaire, who has interviewed more than 150 millionaires on how they accumulated their wealth.
The wealthy weren't born with the financial skills they use to achieve their status; they learned them and willingly do the things that others won't do. We can learn what not to do from the wealthy:
Ignore the facts - It can be tempting to just drift along and not pay enough attention to bank, credit card and investment statements. How can you stay on top of your finances if you don't really know what they are? Learn how to balance your bank account; know what your spending amounts are on your credit cards; and, review investment statements. Not being aware can lead to bad money decisions, excessive debt and perhaps ending up flat broke in retirement.
Overspend - The wealthy became that way because they're better at keeping their money than spending it. We are bombarded daily by easy financing schemes for the purchase or lease of just about anything. It is so easy to get sucked into that "low monthly payment" for something we really can't afford. If your outgo exceeds your income, your upkeep will be your downfall.
Neglect to adjust finances - A big life event occurs but financial decisions are put off. Say you got married but didn’t update your will or add your new spouse to bank accounts. Or got divorced and didn’t update change beneficiary designations or remove them from the will. Or kept on the same spending pace when there has been a reduction or stoppage of income. The consequences can be very costly.
Pay unnecessary fees - By not paying close enough attention to your financial situation, you could end up paying fees for a bank overdraft or penalties for late payments. Carrying a balance on a credit card is very good for the bank but not for your financial future.
Obsess over price - Buying a cheaper used car can actually cost more in the long run because of extra repairs and poor fuel consumption. Not spending enough for something can be worse that paying too much because it won't do the job you wanted it to do and you'll just have to replace it. The wealthy know that quality costs a little bit more, but is a better value because it lasts longer. Don't confuse value, though, with overpriced luxury.
Trying to keep up - So many things today change so rapidly that it's virtually impossible to always have the latest and greatest. You won't find the wealthy standing in line for days to get the next iPhone. If it's still functional, why replace it?
Avoid income opportunities - It may seem logical to find ways to save money or reduce expenses to get ahead. This usually makes a relatively small difference for a short period of time. The wealthy will forgo lifestyle expenditures until they have an income source to pay for them, like seeking out a pay raise or investing in something that will generate an ongoing income to pay for the lifestyle expense.
Copyright © 2014 Life Letter. All rights reserved
Learn from the wealthy - because it's the responsible thing to do!
9 things you need to know about RRSPs
Registered Retirement Savings Plans (RRSPs) have evolved into the most popular savings vehicles in Canada since being introduced in 1957. It is important to be aware of the key features of RRSPs in order to maximize the benefits:
Income Tax Savings - First and foremost, it may go without saying that any contribution to RRSPs can result in an immediate tax savings. These deposits are deducted from the contributor's income at the highest tax rate they must pay first.
Tax-Postponed Growth - Any growth that an RRSP earns does not attract income tax until it is actually withdrawn from the plan. This maximizes the benefit of compound interest.
Income Splitting - When income is taken from an RRSP after age 65, an election can be made on the tax returns of a married or common-law couple to split qualified income between them. This generally means a lower overall income tax bill, in many cases significantly lower.
Deferred Deduction - A contributor can choose to make a deposit to an RRSP but delay deducting all or part of it until a later tax year. This makes sense if income in a future year would put them into a higher tax bracket. In the case of someone who receives a financial windfall and has unused contribution room, a large deposit can be made initially and deductions from income only used to reduce their highest taxed income in several future years.
New Home Purchase - If certain conditions are met, funds funds can be withdrawn from an RRSP tax-free and used toward the purchase of a new home. The funds need to be paid back into an RRSP within fifteen years or they may become taxable.
Education Funding - The Lifelong Learning Plan (LLP) allows you to withdraw amounts from RRSPs to finance full-time training or education for you or your spouse or common-law partner. You cannot participate in the LLP to finance your children's training or education, or the training or education of your spouse's or common-law partner's children.
Instant Tax Break - If you are making regular contributions (say, monthly) to an RRSP, you can apply to the Canada Revenue Agency (CRA) to get permission for your employer to deduct the RRSP contributions from your income before calculating the amounts that need to be withheld and remitted.
RRSP Loans - Many contributors borrow to invest in their RRSP close to the annual deadline. They then use their tax refund to reduce or pay-off the loan.
Name a Beneficiary - You can name a beneficiary and, in some cases, a secondary beneficiary for an RRSP on death. This means funds can be paid directly to that person or persons and avoid the delays and cost of being processed in your estate. It is wise to work with someone experienced in the area of RRSPs and retirement planning to help set up and monitor your program. Avoid making RRSP decisions at the last minute because of a deadline. A well planned strategy can mean retirement comfort.
Copyright © 2014 Life Letter. All rights reserved
Know your RRSP options - because it's the responsible thing to do.!
Mutual confidence is the power that binds together all harmonious human relationships.