Weekend Reading: 2022 Financial Goals Edition

By Robb Engen | November 27, 2021 |
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Weekend Reading: 2022 Financial Goals Edition

Yes, I know it’s not even December yet but I’m going “that guy” – the first to share his 2022 financial goals. First, a quick trip down memory lane.

I’ll never forget attending a ceremony to be recognized for 10 years of service at the University along with dozens of other employees receiving awards for 5 to 50(!) years of service. As I sat there I remember thinking, if I’m still here in five years to receive my 15-year recognition then something has gone horribly wrong in my life plan.

Two months later we embarked on our epic 32-day trip to Scotland and Ireland. After this life changing trip I decided to put in my notice for the end of the year and pursue my entrepreneurial dreams.

It has been two years since I quit my job as a post-secondary fundraiser and turned my long-time online side hustle into a full-time business. Aside from *waves hands at everything* the transition has gone even better than I imagined. 

I work side-by-side with my wife, who handles all of the new client communication, scheduling, invoicing, and so much more so I can focus on what I do best – writing, planning, and working one-on-one with our existing clients. It’s a dream come true. Best of all, we’re there for our kids when they leave for and come home from school.

The result is a wildly successful business that does not compromise a healthy work-life balance. We’ll put that to the test next year (fingers crossed) when we can hopefully resume travelling. I may or may not have shed a tear when our youngest daughter got her first dose of vaccine yesterday.

2021 Recap:

We had five financial goals or money moves to make this year. The first was to catch up on unused contribution room in my wife’s TFSA. Our goal was to contribute $50,000 but we’ll end up short of that by about $6,000. Life is about trade-offs and we opted to spend that $6,000 on some backyard landscaping instead.

I’m current with my TFSA contributions and so we were easily able to take care of our second goal of maxing out my annual TFSA limit of $6,000.

Our third goal was to continue investing aggressively inside our corporate investing account. We already have a healthy cash float for our business, and our expenses are quite low after we pay ourselves, so we’re able to invest excess profits inside the corporation. Our goal was to invest $48,000 in 2021, but business revenue was better than anticipated and we were able to invest $70,000.

Our fourth goal was to max out our kids’ RESP contributions ($5,000) and we have done that again this year. A related goal was to rebalance this account, which is 100% invested in equities, by adding bonds. I have not done this yet. That may have been wise in hindsight but the fact is we need to dial down the risk in this account as my kids are now one year closer to needing the money for post-secondary.

The fifth goal was more of a change in philosophy. Before the pandemic I thought it would make sense to start paying down the mortgage more aggressively by 2021, but when the interest rate on our variable mortgage fell to 1.45% I decided to forego any extra mortgage contributions and focus on the other four priorities above.

2022 Financial Goals:

If you’ve been following my journey you know that we reached our $1M net worth milestone last year and now aim to reach Coast FIRE status.

What this means to me is having the flexibility to work and earn less without feeling the pressure of maintaining a high savings rate. The truth is our rich life includes more travel and active leisure, and less time spent in front of a computer working on a spreadsheet or on Zoom calls.

We don’t know yet what 2022 will bring in terms of the ability to safely travel outside of Canada as a fully vaccinated family. I am forever an optimist and have tentatively booked trips to Maui, Italy, and the U.K. (all refundable).

Financially, our 2022 goals will look a lot like this year’s goals. 

  1. Finish catching up on my wife’s unused TFSA room ($37,500)
  2. Max out my annual TFSA room ($6,000)
  3. Invest excess profits in the corporate investing account (~$48,000)
  4. Max out RESP contributions ($5,000) and rebalance for real this time
  5. Roll the extra $6,500 ($44,000 to TFSA in 2021 – $37,500 to TFSA in 2022) into our travel budget

We can achieve this by continuing to pay ourselves at our regular rate, while intentionally earning less business revenue (taking on fewer clients and fewer writing assignments). Since it can be hard to say no to new business, we’ve already blocked out our calendar for most of April and most of July (when we presume to be travelling).

You can see where this is going. If we’re successful next year then 2023 will shape up to be our first Coast FIRE year where we are only contributing $6,000 each to our TFSAs, plus $5,000 to the kids’ RESP. 

I’ve done the math to know that we can just let the rest of our investments ride without ever adding to them again. We’d have the option to spend that extra $31,500, or reduce the amount we pay ourselves, or some combination of the two.

More likely, our business will still continue to do well and so we can keep adding excess profits to our corporate investing account.

That’s the plan, anyway.

This Week’s Recap:

I recapped our trip to Boston in the last edition of Weekend Reading.

Is free trading really free? I explore the issue of trading fees in my latest MoneySense column.

On Young & Thrifty I look at whether stocks are more risky than real estate.

Promo of the Week:

If you’re a business owner then you need to take advantage of the American Express Business Platinum Card and all of the perks that come with it.

New cardmembers can earn 80,000 Membership Rewards points when they spend $6,000 in the first three months. If you keep the card past the 14 month mark and make one purchase then you’ll earn an additional 25,000 Membership Rewards points.

I transfer Membership Rewards 1 to 1 to Aeroplan where I value Aeroplan miles at 2 cents per mile*. That means your initial 80,000 welcome bonus points can be worth up to $1,600.

*Note that I recently redeemed Aeroplan miles for four business class tickets from Calgary to Rome. The tickets would have cost a whopping $33,000 in cash, which means I got an incredible 10.5 cents per mile value out of those Aeroplan miles.

You’ll also get hotel perks and airport lounge access.

The $499 annual fee may be tax deductible as a business expense.

Weekend Reading:

Costco ended its credit card relationship with Capital One and is forging ahead with CIBC. Our friends at Credit Card Genius breakdown the new details on what the CIBC Costco MasterCard is going to offer

Another plug for Dan Bortolotti’s excellent new book – Andrew Hallam shares how to reboot your portfolio with Canada’s ETF guru. Read my review of Reboot Your Portfolio here.

Has the pandemic ended the dream of retiring abroad? Jon Chevreau says it can still be done.

The odds of you picking a single stock and it becoming one of the big winners of the future are not in your favour. Read why this is the stock picker’s bear market.

With assets everywhere seemingly overvalued Nick Maggiulli (Of Dollars and Data) shares why this will not last.

PWL Capital’s Justin Bender explains the key concepts of asset location:

My own view is that most DIY investors should ignore asset location and intentionally hold the same asset mix across all accounts for simplicity.

Millionaire Teacher Andrew Hallam tells investors: Don’t worry, be happy.

“Take comfort knowing this:  most wealthy retirees didn’t earn their fortune with a single home run.  Sure, stories of fast fortunes grab our attention.  But they aren’t the norm.  Instead, most people grow wealthy because they spend far less than they earn, they invest responsibly…and they’re patient.”

An enjoyable read from Wealthsimple Magazine on the five simple rules to be the absolute worst stock picker.

Steadyhand’s Tom Bradley says investors should be wary of the next big thing in ETFs.

Finally, why millions of Canadians are planning to choose self-employment, and how to make that transition.

Have a great weekend, everyone!

Weekend Reading: Back From Boston Edition

By Robb Engen | November 20, 2021 |
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Back From Boston Edition

My wife and I travelled to Boston last week and spent four nights in this amazing and historic city. We had a great time, but it felt strange to travel outside of Canada for the first time in almost two years.

We had a lot of anxiety about the requirements for leaving and entering Canada, but everything was relatively painless. We took a rapid antigen test at Shoppers Drug Mart ($40 each) and had our printed out (negative) results three days prior to departure. We also went online and scheduled a PCR test at a CVS in Boston. These tests must be taken no more than 72 hours prior to your return flight to Canada. 

Much has been made of the cost of taking a PCR test in the U.S. but the tests are free at Walgreens and CVS Pharmacy locations if booked online. We just used our hotel’s address when we made the appointment, then took an Uber to the drive-thru location. No questions asked about who we were and where we were from. We got the results back in about 36 hours and then showed the negative result when we checked-in to our flight.

That slight hassle aside, the trip was a blast! We went with another couple, friends of ours from Calgary, and stayed downtown at the Courtyard by Marriott – a perfect location for getting around on foot or by train. TD Garden is also right across the street and we watched the Boston Celtics beat the defending champion Milwaukee Bucks in overtime.

Boston Paul Revere

The only downside to the trip was our original reason for going – to watch my beloved Cleveland Browns take on the New England Patriots. Unfortunately my Browns decided not to show up and got thoroughly pummelled 45-7. Not fun!

With the news of Health Canada approving the Pfizer vaccine for 5-11 year-olds we can finally clear one of the last hurdles to carefully resuming our travel plans next year and beyond. Our tentative plan is to visit Maui in February, Italy in April, and the U.K. in July.

Reboot Your Portfolio Giveaway:

Thank you to everyone who left a comment and entered to win a copy of Dan Bortolotti’s new book, Reboot Your Portfolio.

We had more than 100 entries and the lucky winner is Devin, who commented on November 8, 2021 at 6:07 am. Congrats, Devin!

I wish I had more copies to give away because this book is a must-read for every investor who is interested in reducing their fees, diversifying their portfolio, simplifying their investment strategy, and ultimately enjoying a more reliable investment outcome over the long term.

This Week’s Recap:

I made my MoneySense writing debut this month with two articles on ETF investing. The first looks at growth investing, while the second article is about how to use your ‘explore’ investments to tame volatility.

Over on Young & Thrifty I wrote about investing FOMO and how to curb your fear of missing out

I also explained how to decode your investment fees whether you invest in ‘A’ series mutual funds, use a robo advisor, or select your own ETFs.

Back here on Boomer & Echo I shared how to crush your RRSP contributions next year with one simple trick.

Promo of the Week:

This week’s promo is brought to you by Marriott’s Bonvoy rewards program.

Our flight to Boston left in the early morning from Calgary. We live two hours away in Lethbridge, and so we decided to stay at the Calgary Airport Marriott in-terminal hotel the night before. 

We used a free night certificate from our Marriott Bonvoy American Express Card benefits to stay for free and then just rolled out of bed and checked-in to our flight. Easy.

We also booked the Courtyard by Marriott Boston on points we’ve saved up over the past two years. We build up hotel points by using the American Express Cobalt Card and then transferring Membership Rewards to Marriott (5 MR points = 6 Bonvoy points).

Right now you can earn 70,000 Marriott Bonvoy points when you charge $1,500 to your card in the first 3 months. You’ll also get a free night certificate to use in a Category 5 hotel.

Weekend Reading:

Our friends at Credit Card Genius compared 20 rewards programs to determine which Canadian rewards program is worth the most in categories ranging from flights, to hotels, to groceries & gas, and more.

Global’s Erica Alini looks at how the new ‘buy now, pay later’ options affect your brain.

This author was scammed out of $15,000. Why didn’t she spot the red flags?

The Irrelevant Investor Michael Batnick has been playing around in the metaverse and also got scammed out of $5,000 from his digital wallet.

A good article from Michael James on Money on why you should invest how he says and not how he does. Michael is, like I am, a big proponent of low cost passive investing using a simple one ETF solution. But he’s comfortable holding multiple ETFs, including U.S.-listed ETFs held inside his RRSP, and tilting his portfolio to small cap value stocks.

I prefer a simpler approach to investing.

In an excerpt from his new book, Reboot Your Portfolio, Dan Bortolotti explains why the best investing move is usually…not to do anything.

Millionaire Teacher Andrew Hallam shares why these Millennial investors want stocks to crash.

Preet Banerjee does a terrific job explaining how it’s possible to offer commission-free stock trading and why it’s bad for investors:

Since Andrew Hallam began investing, every week of every year a famous economist, a famous hedge fund manager or an esteemed journalist from a respected financial publication has headlined, “Stocks are heading for a crash.”

Why tactical asset allocation (switching between different asset classes in response to changing economic conditions) fails to keep up with static index investing.

My Own Advisor Mark Seed explains how to invest for retirement when time is no longer your friend.

Gen Y Money shares the uncomfortable truth about the FIRE movement.

Finally, the CPP earnings cap is increasing at the fastest rate in 30 years. Here’s why that’s happening and what it means.

Have a great weekend, everyone!

How To Crush Your RRSP Contributions Next Year

By Robb Engen | November 17, 2021 |
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How To Crush Your RRSP Contributions Next Year

Many high income earners struggle to max out their RRSP deduction limit each year and as a result have loads of unused RRSP contribution room from prior years. While we can debate about whether it’s appropriate for middle and low income earners to contribute to an RRSP or a TFSA, the reality for high earning T4 employees is that an RRSP contribution is the best way to reduce their tax burden each year.

The RRSP deduction limit is 18% of your earned income from the prior year, up to a maximum of $29,210 in 2022, plus any unused RRSP room from previous years. An employee earning $125,000 per year could contribute $22,500 annually to their RRSP. While that’s straightforward enough, coming up with $1,875 per month to max out your RRSP can be a challenge. An even greater challenge is catching up on unused RRSP room from prior years. 

Related: So you’ve made your RRSP contribution. Now what?

Let’s say you live in Ontario, earn a salary of $125,000 per year, and you want to start catching up on your unused RRSP contribution room. Your gross salary is $10,416.67 per month and you have $2,858.92 deducted from your paycheque each month for taxes, leaving you with $7,557.75 in net after-tax monthly income.

Your goal is to contribute $2,000 per month to your RRSP, or $24,000 for the year. This maxes out your annual RRSP deduction limit ($22,500), plus catches up on $1,500 of your unused RRSP contribution room from prior years. Stick to that schedule and you’ll slowly whittle away at that unused contribution room until you’ve fully maxed out your RRSP. Easy, right?

Unfortunately, you don’t have $2,000 per month in extra cash flow to contribute to your RRSP. After housing, transportation, and daily living expenses you only have about $1,200 per month available to save for retirement.

No problem.

That’s right, no problem. Here’s what you can do:

T1213 – Request To Reduce Tax Deductions at Source

Simply fill out a T1213 form (Request to Reduce Tax Deductions at Source) and indicate how much you plan to contribute to your RRSP next year. Submit it to the CRA along with proof –  such as a print out showing confirmation of your automatic monthly deposits. The CRA will assess the form and send you back a letter to submit to your human resources / payroll department explaining how they should calculate the amount of tax they withhold for the year.

Note that you’ll need to fill out and submit the form every year. It’s best to do so in early November for the next calendar year so you have time for the form to be assessed and then you can begin the new year with the correct (and reduced) taxes withheld. That said, the CRA will approve letters sent throughout the year – it just makes more sense to line this up with the start of the next calendar year.

T1213 Form

Reducing taxes withheld from your paycheque frees up more cash flow to make your RRSP contributions. It’s like getting your tax refund ahead of time instead of waiting until after you file. Let’s see how that would work using our example from Ontario.

You’ve signalled to CRA that you plan to contribute $24,000 to your RRSP next year. In CRA’s eyes, that brings your taxable income down from $125,000 to $101,000. This will make a significant difference to your monthly cash flow.

Recall that you previously had $2,858.92 in taxes deducted from your monthly paycheque. After your T1213 form was assessed and approved, the taxes withheld from your paycheque each month goes down to $1,990.67 – freeing up an extra $868.25 in monthly cash flow that was previously being withheld for taxes. That’s an extra $10,419 that you can use to crush your RRSP contributions next year.

Now, to be clear, you need to follow through and make the $24,000 RRSP contributions that you promised to CRA. Otherwise you’ll face a bigger tax bill for the next tax year, and risk not getting the T1213 form approved again.

Once your T1213 form has been assessed and approved you’ll receive a letter that looks something like this to give to your employer:

CRA letter to reduce taxes withheld

The biggest advantage to reducing your taxes withheld at the source is to increase your cash flow so you can make those big RRSP contributions. Otherwise, your options are to take out an RRSP loan to help reach or exceed your deduction limit, or wait for your tax refund and then contribute that lump sum along with your smaller monthly contributions.

Back to our Ontario example, let’s say you did not fill out the T1213 form and instead just contributed your available cash flow of $1,200 per month or $14,400 per year. That would reduce your taxable income to $110,600 and give you a tax refund of $6,251. 

You could do anything with that tax refund, and a lot of surveys suggest Canadians are more inclined to spend their refunds because they’re seen as windfalls. 

Meanwhile, had you simply filled out the T1213 form and then contributed $2,000 per month to your RRSP, you’d have reduced your tax bill by $10,419 and have nearly $10,000 more saved inside your RRSP.

Who’s crushing it, now?

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