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ELLEN ROSEMAN GAIL BEBEE JONATHAN CHEVREAU PAT BOLLAND SCOT BLYTHE JIM YIH
Financial Literacy For Small Business SPR 16
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Table of Contents Focused on Financial Literacy for Small Business. By. E. Roseman, P-4
Your richly imagined future...It's about more than just money. By R. Gignac, P-22
What makes a Small Business Successful? By P. Bolland, P-7
Digging Your Way Out of Debt. By J. Bandick, P-24
Small Business Tips: Improve your Cash Flow. By T. Wright, P-9
How much money do you REALLY need to retire? By J. Chevreau, P-28
Women in Capital Markets Announces 2015 Leadership and Rising Start Award Recipients. P-13
Planning for RRSPs Beyond Today. By B. Wong, P-30
Tangerine Bank Review. by T. Drake, P-14 End of the RRSP Rush. By S. Blythe, P-17 How to buff up your Personal-Finance I.Q. By G. Bebee, P-18 Practical reasons why people DO NOT make their own wills. By E. Olkovich, P-20
Advertisers Index
Making Small Business Better. By D. Shaughnessy, P-32 Should I Refinance My Mortgage? By E. Quindamo, P-35
6 Reasons to Consider a Franchise Business. By J. White, P-40 Here's what can effect your Credit Score. By G. Ward, P-42
MONEY.CA
How to Coach Yourself to Better Financial Results. By J. Ruta, P-44
MONEY® MEDIA
Confidentiality Agreements. By K. Kivenko, P-46
James Dean, Editor & President
How to Increase Your Returns 10-Fold, in your bank account. By J.Yih, P-48
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How can Small Business deal with today's Currency Fluctuations? By M. Spooner, P-36 How Bitcoin Technology Can Change the World of Finance. By. G Trites, P-38
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Contact: Kennon S. Vaughan, Artistic Director Ian R. Whiting, CD, CFP, CLU, CH.F.C., FLMI(FS), ACS, AIAA, AALU, LSSWB Senior Editor/Writer Inquiries: +1 416 360 0000 james@money.ca Mailing Address: Head Office 7181 Woodbine Ave., Suite 226 Markham, ON L3R 1A3
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pg. 6 pg. 29 pg. 39 pg. 41 pg. 45 pg. 51
Written for MONEY® Magazine by
Ellen Roseman
How are you doing when it comes to managing your money?
There is a lot to learn when becoming an entrepreneur, as you realize when watching popular TV shows such as Dragons’ Den and Shark Tank.
One in three small-business owners said they had underestimated the amount of time they would spend on financial management.
If you own a small business, you may be struggling to understand financial concepts such as double entry accounting, writing a business plan, using tax credits and deductions available to you and maximizing cash flow.
You often see business owners who devote all their energy to developing their ideas and spend little to no time on the financial nuts and bolts. Many do not even take a salary.
Do you want to test your financial smarts? Try taking a short quiz (10 questions) at Intuit’s Quickbooks site, www.knowyourworth.ca
Intuit Canada did a survey that found 58 per cent of people running small businesses (with 100 employees or less) started with only $5,000 in initial capital.
If you answered more than half the questions correctly, congratulate yourself. One in four small business owners surveyed had a failing grade – and fewer than one in 10 had a perfect score.
The most commonly cited regret for small business owners was that they didn’t pay enough attention to learning how to track and manage finances in their first year.
What is financial literacy, anyway? The federal government defines it as having the knowledge, skills and confidence to make responsible financial decisions.
4 - MONEY® Magazine • Issue 25
Jane Rooney, Canada’s first financial literacy leader, has compiled a financial literacy database at www.fcac.gc.ca. When I did a search for information aimed at entrepreneurs, I found 41 listings. The educational materials – which include videos, apps and workbooks – come from banks, government agencies and nonprofit organizations, such as the Canadian Payments Association and Futurpreneur Canada. It’s worth a look. So, if information is available, why isn’t it being used? As a journalist, I have followed financial literacy for years. I even did a series of columns in the Toronto Star about it. I also worked with the Financial Consumer Agency of Canada and Ryerson University’s Chang School to do a series of e-learning videos for young people called Financial Basics (available at www.fcac.gc.ca). Because of my experience, I have a few theories on why many people tend to glaze over when hearing about financial literacy. XX They find numbers intimidating. But you don’t have to be a math genius to succeed. You just have to be willing to listen and learn. XX They plan to figure things out through trial and error. But making the wrong moves can lead to bankruptcy. It is an expensive way to learn. XX They get bored with talk about budgets, taxes and debt-equity ratios. Yes, these are not exciting ideas. But they are the key to financial health and wellbeing. In my Toronto Star columns, I like to tell readers about the bad things that can happen when you don’t pay attention to your money. Horror stories have the power to make you change your behavior. Here are a few areas where I have helped business owners fight back against injustices. XX Credit and debit card payment processing terminals. The
contracts often have hidden charges and penalties if you cancel before expiry. XX Solution: Ask payment processors if they have signed on to the code of conduct for the credit and debit card industry in Canada. The code, which took effect in April 2015, lets you cancel a contract without penalty after being notified of a new fee or a fee increase. XX Telephone and Internet service providers. They can be arbitrary and dictatorial dealing with small businesses. One firm that disputed $3,000 in long distance charges paid the undisputed part of the phone bill, but was still disconnected without notice. XX Solution: Get in touch with the Commissioner for Complaints for Telecommunications Services (CCTS), www.ccts-cprst. ca, a nonprofit body funded by industry members. Small businesses can complain to the CCTS about local phone service, wireless and Internet service after their provider says no. XX Business travel with airlines, hotels and car rentals. Travel companies can be slow to correct errors and give refunds. One company waited four months to get a $907 refund after employees had to take a later flight because of a credit card issue. The airline was at fault, but only budged after I become involved. XX Solution: Check an airline’s website to find policies on flight delays and overbooking. If you think an airline didn’t follow its policies, file a complaint with the Canadian Transportation Agency, www.cta.gc.ca. Gabor Lukacs, Canada’s foremost advocate for the rights of airline customers, is on Twitter. Follow him at @ AirPassRightsCA XX Legal services. A company hired a lawyer to defend itself against an onslaught of litigation. The cases were settled four years later at a cost of $1.25 million, plus $300,000 for work that
In my view, you have to be a smart consumer. This means knowing your rights and knowing how to fight back when service providers walk all over you. should have been covered by director’s and officer’s insurance, but was not submitted in time. XX Solution: If you have a complaint, you can go to the Law Society of Upper Canada, www.lsuc.ca. If you think you were overcharged, you can ask the Ontario Superior Court’s assessment office to review the bill. When choosing a lawyer, talk to at least three to five firms, ranging in size. Ask about cases similar to yours they worked on (both wins and losses). In my view, you have to be a smart consumer. This means knowing your rights and knowing how to fight back when service providers walk all over you. Remember Dave Carroll, the Halifax musician who recorded a viral video, “United breaks guitars,” after a fight with an airline that smashed his expensive instrument? He’s written a book on customer service, speaks about it around the world and has a business, called Gripevine, designed to resolve complaints. Check out his blog for great examples of how to respect and disrespect customers, www.davecarrollmusic.com.
Ellen Roseman writes a weekly column on consumer issues at the Toronto Star. She is the author of seven books, including Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery. You can reach her at www.ellenroseman.com, on Twitter (@ellenroseman) or on her Facebook page.
MONEY® Magazine • Issue 25 - 5
TE A R O RA
D
R
UN
B E ST
BEST RATE AROUND®
MONEY® MAGAZINE
BEST RATE AROUND® refers to exactly that - the highest interest rates paid, the lowest mortgage rates offered and the best rates, ranking and returns overall on all core financial products, services and investment schemes.”
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Exchange Rates
GIC RRSP RRIF 1 Year 1.70% 1.55% 1.70% 2 Year 1.90% 1.77% 1.90% 3 Year 1.95% 1.86% 1.95% 4 Year 2.11% 1.91% 2.05% 5 Year 2.27% 2.15% 2.20%
Canadian $ 1
www.thecanadiandollar.ca $0.739 USD
www.theamericandollar.ca
Precious Metals
Mortgage Rates - MortgageCentre.org 1-Year 2-Year 3-Year 4-Year 5-Year 7-Year 10-Year
The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre
Gold $1,672.91 - CAN PER OZ Silver $21.10 - CAN PER OZ Platinum $1251.60 - CAN PER OZ
2.19% 2.24% 2.29% 2.49% 2.64% 3.44% 3.84%
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Stock Update
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Small business in Canada
is a key driver of the economy, but...
what makes a small
business
successful? By PAT BOLLAND
I had the opportunity to ask a man who owned an HVAC business... His answer was "That’s easy - great service and find your niche”. I had the opportunity to ask a man who owned an HVAC (heating, ventilation and air conditioning - you always wondered what the ‘V’ was for didn’t you … me too) business with a dozen or so employees, including his wife. His answer was ” That’s easy great service and find your niche”. I was reminded of my first foray into business. A neighbor was studying commerce at Western and had started a window-washing business. He knocked on my door and asked if I might be interested in washing storefront windows on the main street of Oakville. He would collect the money every couple of weeks from the stores and hopefully grow the business by going door to door and soliciting potential customers. I got paid by the window and made something like $50 for a Saturday, not bad for a teenager in those days. He made about the same and the relationship worked for a while. Here’s the thing, I was the one washing the windows and I was the one that - in rain or shine, suffocating
heat or freezing cold - was there. Shopkeepers saw that I was consistent and dependable and asked me to wash their windows. Part of the deal I had with my neighbor was that I could keep the proceeds of newly-generated business that I brought in myself. Soon it grew to exceed what my neighbor was paying me. Naturally my neighbor discovered my success. He’d walk into a store to garner business and lo-and-behold I was already washing the windows. You see, when the weather was tough he was nowhere to be found, I was. He wasn’t providing the service, I was. I had the relationship. He fired me. So I bought a bucket and squeegee and the next Saturday set out to start my own business. After a couple of months my neighbor was out of business. Over the next year I quadrupled my income. Over the next few years the business put me, and my brothers and sisters, through university. The HVAC owner talked about his niche; water-based heating/cooling
systems for condos. My niche was storefront windows. I’m always amazed when I pass a strip mall and see two dry-cleaners virtually side-byside. Really? Two so close? What were they thinking? Then I see a sign in one that says ‘Alterations’ and in the other that says ‘2-for-1’ and realize that they too have a niche and provide unique services.
There’s a lot of niches and a lot of service out there. Small businesses - less than 100 employees - make up more than 98 percent of all firms in Canada. They created more than 3/4 of all private jobs from 2002 to 2012, a little over 100,000 jobs each year. Small wonder then that small business is the key driver of Canada’s economy. It’s not taught in school either, except the school of hard knocks.
MONEY® Magazine • Issue 25 - 7
A Small Business Loan When You Need It - Now.
Getting a small business loan from Lendified is easy, quick and paperless. You'll get your approval immediately. And, best of all, once you're approved, your funds are deposited directly into your account, as early as the next business day. So you can get back to doing what you do best running your business.
Apply Today Visit lendified.com or call 1-844-451-3595
Small Business Tips:
Improve Your
Cash Flow By Troy Wright, Founder & CEO of Lendified
"Cash Flow can make or break any business, be it a large, medium or small business."
Cash Flow
can make or break any business, be it a large, medium or small business. At times it can seem like ample cash is flowing into your business, but by the next quarter, that wellspring may have dried up. And during those lean weeks (or months), bills are still due and creditors and vendors are awaiting payment. For smaller businesses, there becomes the question of making payroll manageable, let alone your own pay. Every business, large and small, can run into cash flow challenges. Cash flow problems are one of the leading risk factors that result in business failure. Fortunately there are ways to help weather the drought as well as prepare your business to better predict and manage your cash flow going forward. Good cash flow management boils down to three things: Measurement and forecasting; improving management over payables and receivables; and lastly, preparing for shortfalls.
Know Your Businesses Highs and Lows.
upcoming cash outlays and inflows. There are an increasing number of tools and software available that provide statements and automated forecasts as well as cash flow management tools that can help streamline this process. Today, financial services technologies companies, such as Mentio.ca have predictive cash flow forecasting capabilities to help small businesses forecast their cash flow positions. These programs are extremely valuable in helping small business owners and their accountants gain insight into the near future.
Offer Multiple Methods of Payment
Stagger Bill Payments
Despite your best efforts in preparing forecasts and projections, cash shortfalls are a possibility - especially if your business is light on cash to begin with. For this reason, it is essential that small businesses put some money aside when times are good. It seems intuitive, but the temptation to reinvest in growth can often undermine your efforts to maintain cash reserves. Your cash flow projections can help guide you on when to spend, and when to save.
Many bills are due around the same time (e.g. the end of the month). If you pay your bills once a month, at the same time, your cash flow will always decrease significantly over a single period. And during a slow period, this could really put undue pressure on your business. Instead, try setting up your bills strategically spaced out throughout the month. Work with your suppliers to put in place arrangements that help manage this outflow.
Invoice Promptly
Study your past financial records to pinpoint periods of negative cash flow (when outflow was greater than incoming cash), as well as periods of positive cash flow, identifying any events or trends that might have contributed to these positions. For instance, is your sales cycle seasonally driven? Is there a time of year when expenditures are higher than usual? Understanding the highs and lows of your business will help prepare you for lean cash flow periods.
If you have a regular billing cycle, it might be time to re-evaluate it. Invoice a client when the job is done, instead of waiting for your usual billing routine. Another approach is to either ask for a deposit or retainer before work on a project begins. This can help to pay upfront for the costs and labour associated with the project and lower your working capital requirements.
Prepare Cash Flow and Sales Projections
Waiting on money owed can be a real cash flow drain. Offer a discount or reward for prompt payment, targeting customers that typically lag in payment. Leverage tools to track, identify and send automated reminders to these accounts. This not only can be effective in improving your receivables flow, it can also help build customer satisfaction and loyalty by rewarding your best customers.
Good cash flow management is more science than art - beyond broad analysis, a deeper dive is required to truly succeed here, as assumptions can lead to problems. The key to making accurate cash flow projections is collecting very detailed information about the amounts and dates of all
Offer Incentives for Quick Payment
Being flexible in how your business receives payment provides added convenience for your customer – which is always a good thing. But the benefit to you as a small business is that by leveraging emerging financial technologies to improve your customer’s point-of-sale experience, you’re also enabling your customers to pay you faster.
Keep Cash Reserves
Seek Out a Loan or Line of Credit It is not uncommon for companies with or without sufficient cash reserves to struggle with cash flow requirements. Even the best cash flow projections have some assumptions that may be educated guesses - not a peek into the future - so when things take an unexpected turn, a line of credit or loan may be required. Applying for a loan at a traditional bank can be a lengthy, time-consuming process, often resulting in rejection, or receiving the funds too late. Fortunately several financial technology companies like Lendified. com offer same-day loan decisions through a 100% online application process – the value proposition being that you can spend more time on your business as opposed to preparing for lengthy credit adjudication processes. With a good understanding of your future cash flow requirements and access to a credit line or an online small business loan, you’ll be much better equipped to meet the challenges of growing your small business.
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Women in Capital Markets Announces
2015 Leadership and Rising Star Award Recipients “Great role models and senior-
About WCM
level sponsorship are critical
WCM is the largest network of professional women in the Canadian financial sector and the voice of advocacy for women in our industry. WCM is committed to the advancement of women in business and to increasing the number women in senior leadership roles in the Canadian economy. We work with our partners, members and the broader public to promote initiatives which successfully increase women's representation and impact in the boardrooms and executive suites of the financial industry and corporate Canada more broadly. www.wcm.ca
to creating the environment TORONTO, Nov 5, 2015 - Women in Capital Markets (WCM) and title sponsor EY today announced the 2015 winners of the WCM Rising Star Award and Awards for Leadership during a luncheon held at the Fairmont Royal York Hotel. The WCM Award for Leadership, now in its ninth year, recognizes senior executives, male and female, who have combined professional excellence with a demonstrated commitment to advancing and supporting women in capital markets. The Award for Leadership – Male was presented to Mark Wiseman, President and CEO, CPP Investment Board, and the Award for Leadership – Female was presented to Kirsten Kennedy, Managing Director, Canada Investor Sales, BMO Capital Markets. In its sixth year, the WCM Rising Star Award honours an individual who is a high-performing role model in the workplace and has made a lasting contribution by providing inspirational leadership and mentorship to young women in the industry. The winner of the 2015 WCM Rising Star Award is Rachel Megitt, Director, Global Initiatives, RBC Capital Markets.
and opportunities for the advancement of women into leadership roles in business,” says Jennifer Reynolds, President and CEO, WCM. “Today’s award recipients demonstrate an ongoing commitment to these two vital elements for women to succeed in the financial
About EY
industry and I am delighted
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
to recognize them today.” The luncheon also included a presentation by keynote speaker Marnie McBean, one of Canada’s most decorated Olympians, member of Canada’s Sports Hall of Fame and Officer of the Order of Canada. The three-time Olympic Gold Medalist and expert in turning potential into performance spoke to guests about her personal experience setting and achieving goals, in sports and in life. Marnie’s passion for empowering young women is demonstrated in her role as an ambassador for Fast and Female and Plan Canada’s Because I am a Girl initiative.
Learn more at www.ey.com/ca. For further information: Please contact: Sonia Prashar soniaprashar@sppublicrelations.com 416-560-6753
Women in Capital Markets
357 Bay Street, Suite 402,Toronto, ON M5H 2T7 MONEY® Magazine • Issue 25 - 13
Tangerine Bank Review: The Best Overall Online Bank? Written by Tom Drake When it comes to choosing a
bank, it’s important to carefully
consider what will work best for
your situation. The right bank can provide you with a place to keep your money, as well as help you
with other needs, such as saving for retirement or getting a mortgage.
One of my favourite players in the Canadian banking space is Tangerine. If you are looking for a bank that doesn’t charge daily banking fees, and if you are looking for a fullservice bank with competitive yields and low interest rates, it makes sense to consider Tangerine. Here’s what you can expect:
14 - MONEY® Magazine • Issue 25
High Interest Savings and Free Chequing
Tangerine bank that has some of the best interest rates and free chequing accounts. My review found Tangerine is the best overall online bank in Canada. My wife and I already have TFSAs at Tangerine, and while we’re happy with PC Financial, we are thinking of switching our chequing over there as well. The biggest reason is that Tangerine doesn’t charge fees for savings accounts. You can earn 0.80% on a “regular” savings account, RSP account, or TFSA account. It’s also possible to earn triple interest for the first six months (making it 2.40%) and get up to $50 in bonuses, no matter which savings account you open. There are no fees and no minimum balances.
Tangerine also offers savings accounts in US dollars (although the yield isn’t as high), and RIF Savings Accounts that pay 1.25%.
A chequing account at Tangerine also pays interest on every dollar you earn. You don’t have to worry about fees or minimums with a chequing account, either. You earn interest on your chequing account starting with the first dollar in the account. You can add overdraft protection to your account (but you will need to pay a fee for that) and Tangerine provides your first 50 cheques free. You can also send Interac e-Transfer money to for a low fee of $1.00, and receive the transfers for free.
With the chequing account, you can switch your payroll direct deposits, or make a change to one pre-authorized payment, and get $100 added to your account.
Tangerine Money-Back Credit Card
Tangerine will be launching a credit card that offers a unique way to earn cash back. You can choose two different categories that offer you 2% cash back. Your options include: XX Grocery XX Eating places XX Furniture XX Hotel/motel XX Gas XX Drug store XX Recurring bill
payments
XX Home improvement XX Entertainment
use the fixed payback plan to work on paying it off as quickly as possible. The current rate on the line of credit is 3.35%.
Another feature offered by Tangerine is the RSP loan. The interest rate is a low 1.50% if you take out a loan from Tangerine and then use it to contribute to your RSP at Tangerine Investing (the rate is much higher if you put You can even invest with Tangerine. the money in an account at another Tangerine offers different fund financial institution). An RSP loan provides you with the chance to see returns that more than make up for the 1.50% that Tangerine will be you pay on the loan. launching a credit card You won’t be charged fees or have to deal that offers a unique way with early repayment penalties. to earn cash back. You
can choose two different categories that offer you 2% cash back.
XX Public transportation
and parking
You can pick the two categories that make the most sense for your spending. If you know that you will spend the most money on groceries and gas, you can pick those categories and then pay for everything with your Tangerine credit card. It’s also worth noting that you can change your 2% cash back categories to fit spending later. You get 1% cash back on all spending that isn’t related to your categories with higher cash back. The interest rate is a relatively low 19.95% APR and there is no annual fee.
Mortgage or Line of Credit
Tangerine offers you the chance to get a mortgage. The current rate for a five-year variable rate on a mortgage with Tangerine is 2.70%. There is also an interesting prepayment option with the Tangerine mortgage. You can increase your regular payments by up to 25% of your original payment amount. It’s also possible to make lump sum payments of up to 25% of your original mortgage amount on any regular payment date. This is a great way to help you save money on your mortgage. You can also tap into your home’s value with the help of a home equity life of credit from Tangerine. You need to have at least 35% equity in your home, and if you do, you can
options that are relatively low cost, compared to many of the Canadian mutual funds out there. Tangerine relies on an indexing strategy, which I prefer with my own investments. You end up with a lower cost in those cases. Tangerine offers income and growth portfolios. You can also set up an automatic investment plan so that you can take advantage of dollar cost averaging to keep on track with your investment plan. Other accounts you can use as investments through Tangerine include: TFSA Investment Fund: You can get a TFSA account that makes use of investments, rather than only relying on savings. This can be a way to take advantage of the tax breaks offered by these accounts. TFSA GIC: You can earn up to 1.90% on a tax-free GIC through Tangerine. You don’t have to worry about paying taxes, and there are no fees or service charges. RSPs: Use an investment fund account for a higher potential return, or you can get the GIC version of the RSP or the savings account. RIF: Retirees can also take advantage of investment accounts designed for growing wealth while at the same time withdrawing what you need. In addition to fund investments, you can get GIC and savings account versions of the RIF.
Banking Options
Finally, Tangerine offers a number of great ways to bank. You can go into some locations in Toronto, Vancouver, Montreal, and Calgary, but for most Canadians, the benefit of Tangerine is in the convenience of online banking. If you really want to set up an account in person, but don’t live near one of the locations, keep an eye out for pop-up locations as Tangerine tours around Canada. Tangerine also offers telephone banking. Online and mobile banking offer the greatest flexibility. You can open an account online, and you can connect that to your mobile device. Once you are set up this way, you can manage all of your accounts, pay bills, transfer money, and even access mortgage tools. Finally, you can access your money for free through more than 3,500 ABMs all over the country with the Scotiabank ABM network. Pay attention to where these are located so you can avoid paying ABM fees when you access your own money. Tangerine offers everything you need in a bank, and does so at a low price. There are similar free chequing accounts, and savings accounts that currently have higher interest rates. However, if you are looking for a bank that gives you some of the best rates, free accounts, and the most banking options, I think Tangerine is the best overall online and it might be the best choice for you.
MONEY® Magazine • Issue 25 - 15
EARN FIXED
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Minimum $30,000 investment Capital Pointe, Regina
Erik Mitchell Mortgage Agent
Syndicated Mortgage Specialist
King Charlotte, Toronto
Note: This is an example based on a standard 4 year investment term.
647-883-5600 erik@fdsbroker.com investwitherik.ca
FL-A002 03/25/15 - FDS Broker Services (FSCO license #12367) offers consumers the opportunity to invest in syndicated mortgages by becoming a lender in Fortress Real Developments projects. All syndicated mortgage transactions are closed by Centro Mortgage Inc. (FSCO Lic #10102), unless specifically noted otherwise. The relationship between FDS Broker Services and Centro Mortgage is governed by a co-brokerage agreement between the two companies. Should you choose to participate in a syndicated mortgage investment product offered by FDS Broker Services, then FDS Broker Services will receive a co-broker fee from Centro Mortgage for facilitating your investment. Terms, conditions, and other loan details vary by project. Please refer to specific loan and project documentation for complete details. Additional information can be found at www.fdsbroker.com. If you have been referred to FDS Broker Services by another licensed Ontario mortgage brokerage or by a duly licensed Ontario mortgage broker or mortgage agent, be advised that the brokerage, broker or agent providing the referral is not employed or licensed by FDS Broker Services. The relationship between FDS Broker Services and the individual or entity providing this referral is governed by a referral agreement between the brokerage, broker or agent and FDS Broker Services for the provision of referral business for investments in syndicated mortgages. E&OE
END OF THE
RRSP RUSH Scot Blythe
It’s the end of RRSP season and time for a consideration of the state of savings – for consumers, and for Canada. But, you need to look behind conventional wisdom – or rather belief. It’s easy to lose sight of it in the mad rush to meet a deadline and pick what you think may be a top performer. RRSP season isn’t the situation where there’s a mad rush. We experience it daily in our commutes between home and elsewhere, be it work, the store or … When everyone is rushing at the same time, things can happen – accidents, for example, that seem unpredictable, yet, in retrospect, were foreseeable.
Here’s an example. The new federal government campaigned on tax reductions that, in its rush to the hustings, were presented as revenue neutral. To offset a drop in the middleclass income tax rate, the government proposed a new tax rate on highincome earners. But the result is not revenue-neutral; there is a shortfall on the high-income side. Here’s a more pertinent example. Many Canadians believe that there is a pension crisis, and there is a rush to solve it. It is true that Canadians in general are not saving as much as they could. But that’s not true of all Canadians. By and large, high-income earners are saving enough to fund their retirement. They maximize their RRSPs and their TFSAs, and often have other investments. Lower-income Canadians don’t use RRSPs or TFSAs very much. Nevertheless, they will be served just fine by Canada’s state pension system. It’s the middle that worries Canadians – the middle caught in the traffic jam ==
and therein lies a conundrum. RRSPs were created in the late 1950s to give workers and entrepreneurs who didn’t have access to workplace pension plan the same opportunity to save, tax-deferred. As we know, outside the public sector Defined Benefit pension coverage has declined precipitously – in lockstep with the decline of large industrial enterprises. Big steel comes immediately to mind. Still, middle-class Canadians have had the opportunity to invest for themselves in the absence of a workplace plan – at their own speed. It’s just that, without that workplace plan, they haven’t hurried along – because they haven’t been forced to save. RRSPs were always intended as a voluntary plan. It is largely as a result of the middleclass savings deficit that governments across Canada have eyed pension reform, whether as voluntary vehicles such as Pooled Registered Pension Plans, an expansion of the CPP, where participation is compulsory, or a go-italone provincial plan modeled on the CPP. The benefits of any such plan are a long way off into the future. They won’t affect people who are approaching retirement who have not saved enough. Still, people may choose to save more, or retire later. That may not be such a bad thing. As life expectancy expands, people are going to need to be invested for a lot longer than they did at the inception of RRSPs and CPP. Can they do that? Yes, in ways big and small. And they may no longer need to use RRSPs. RRSPs are useful for high income earners who get a tax credit. They can use the taxes saved to invest in a TFSA, or an investment account, or they can spend it, or pay down debt. But, it has long been noted, RRSPs are not for everyone. Young savers may not earn enough for the RRSP credit to be worth their while. Older savers may baulk at a tax credit that may soon have to be repaid, and which may affect their government entitlements.
Canadians now have a substantial amount of contribution for Tax-Free Savings Accounts. They are useful to young savers who may want flexibility in managing their money. They can be useful to low-income earners because withdrawals won’t affect their government pensions. And they can be useful to older savers for the same reasons. Given the modest uptick that a new workplace pension plan may provide, it may not prove the best vehicle for all savers, all the time. IBM depends on each saver’s personal situation: their goals, their income levels, the assets they have now or may have later. That’s one reason why I’ve stressed, in previous articles, having a financial plan that captures your total situation. Maximizing the inputs into that play – most especially investments – may be more complicated. It’s complicated because markets are volatile and the future isn’t guaranteed. Certainly, people are feeling a chill from inclement market weather right now. The solution is to minimize your risk by controlling the one risk that you can control – and that’s yourself. I mentioned inclement weather. People react differently to weather. Actually, they react in all kinds of ways to traffic. Some want to get to their destination as quickly as possible. Others are content to use cruise control. Cruise control today can probably be done better by driver-less cars. But there’s one problem. Driver-less cars are very good at getting people to their destination in reasonable time and in reasonable safety. But they’re not perfect. Human drivers muck them up. Human drivers are irrational. So are many market participants. That is one reason for inclement market weather. It may not be entirely avoidable, but its impact can be minimized. If you have a plan and set a speed that you’re comfortable with. MONEY® Magazine • Issue 25 - 17
Back to School for Investors
How to buff up your
PERSONAL-FINANCE
By Gail Bebee
I.Q.
Personal finance writer, speaker, teacher Author of No Hype-The Straight Goods on Investing Your Money
www.gailbebee.com
According to futurist Jim Carroll, human knowledge is growing at an exponential rate, forcing us all to accept lifelong learning in order to survive in the 21st century. The personal-finance area has certainly not escaped the unending flow of new information and the resulting changes to everyday life. To cite just one example, exchange-traded funds were little known in Canada 10 years ago; now they are an established fixture in the investing marketplace. Keeping your personal-finance knowledge current can be challenging in our time-starved society, but it’s worth the effort more often than not. If you are thinking about buffing up your personal-finance IQ, the fall is a good time to take action. Many continuing-education courses on this subject begin when children head back to school. If you crave structure and you want a low-stress (no tests, no
18 - MONEY® Magazine • Issue 25
assignments) and relatively lowcost educational experience, check out the non-credit continuingeducation classes at your local school board. For example, I teach a five-week evening course on Investment Planning for the Toronto District School Board. Available courses depend on the specific school, but typically cover such topics as the basics of investing, stock trading and retirement finance. Community college and university continuing-education divisions are largely oriented to professional development, but some have ventured into general interest areas such as personal finance. The University of Toronto offers a six-week course called The Facts of Life about Your Finances. (Disclosure: I am the instructor for this course). The Personal Financial Fundamentals course at Camosun College in Victoria is a three-session course which is also available in a couples version.
Your local public library may have just what you need to improve your personal-finance savvy. Besides accessing the usual printed materials and online resources, at some libraries you can attend free talks on money matters or sign up for an online course.
MOOC List includes numerous courses in the finance area and is updated regularly. The course on Financial Literacy from Australia’s Macquarie
Newfoundland and Labrador Public Libraries holds information sessions for patrons on taxes and money management.
Consumers who prefer a less structured learning experience can turn to the web to improve their personal-finance knowledge. The key to success with this approach is to be selective.
Online courses and other distancelearning opportunities are a growth area in the lifelong learning world. The Canadian Securities Course is an interactive online course that provides a comprehensive rundown of investing in Canada. Completion of the course is a requirement for many jobs in the financial-services industry, but individual investors can sign up if they are ready to do some heavy academic lifting and spend some serious dollars. CSI, the company offering the course, recommends 135 to 200 hours of study to prepare to write the final exam and receive formal credit. CSI also offers the Canadian Securities Course for Investors, a non-credit course tailored to retail investors. The content is parallel to the CSC, but there are no exams and the lower tuition fee is easier to fit into the family budget. A less demanding option for consumers who want to improve their investing knowledge is to join the Investors-Aid Co-operative of Canada. This consumer web-based co-operative gives members access to educational materials and tools as well as online support, webinars and coaching for an annual membership fee. Massive open online courses (MOOC) -- free, non-credit online courses designed for large-scale participation via the Internet -- are a new educational innovation well suited to lifelong learning. The
University would be a good introduction to personal finance.
In my opinion, the two best websites for unbiased personalfinance information for Canadians are: •
The Financial Consumer Agency of Canada - an independent body established by the federal government to protect and educate consumers of financial products and services;
•
GetSmarterAboutMoney.ca a site sponsored by the Investor Education Fund, a non-profit educational organization established by the Ontario Securities Commission.
Both sites provide easy-tounderstand information, as well as tools and calculators on a wide range of money matters faced by average Canadians. Mastering the materials at either of these websites is equivalent to completing a course on the basics of personal finance. Other useful online sources include Morningstar Canada, Globe Investor, the Financial Post, Yahoo Finance Canada and MSN Money Canada. This is only a partial list. With so many options for lifelong learning in the personal-finance area, a little research should uncover an opportunity that fits your specific needs.
PRACTICAL REASONS WHY PEOPLE
DO NOT MAKE THEIR OWN WILLS Ed Olkovich Danny had questions about wills when he called my law office. My practical answer may help you decide how to make your own will. Danny: I have to make a will and don’t know how. All my friends of my age say it’s easy. I have gone online and found so many websites. They offer will making services and free forms. Is it true I can make a will by myself? Will it be legal? Ed: I should clear up the common misconception about making your will by yourself. There are more practical factors to consider when making a will. The simple answer is that there is no legal requirement for you to make a will with a lawyer, Danny. But most people prefer to invest in a lawyer-prepared will. There are many reasons why you may never get around to doing it yourself. I am not trying to sell you a will. Let me email you more reasons that you can share with your friends. Here is the gist of the email I sent Danny. 1. Time – you are busy with your job and family. They take all of your time. You do not have extra time to do the research needed to make your own will. If it was a priority, you would have done it by now. That is the issue. It takes time to do things right. •
You never know what an online source produces is guaranteed right for you. Who is qualified to prepare a valid will? Sure, they can ask you a standard checklist of basic questions such as:
•
Are you married or single?
•
What province do you live in?
•
Do you own a house?
•
But more importantly, can you ask anyone questions?
•
Here are things that are important to you like:
•
How do I make sure my children will have money to go to school?
•
Who should be my executor if I have no one I trust?
•
How can I save taxes?
•
What obligations do I have to my spouse or common law partner?
•
Can I do whatever I want with my money?
•
You can read my blog post to answer this last question, Honey is it Truly only Your Money?
2. Paperwork – most people make mistakes filling out simple forms. Making a will and having it properly signed is important. Mistakes you or your witnesses make can mean your will may not be legal. If you make a will mistake, who knows about it? Usually nobody, until you are gone, that is. It is then too late for you to fix it. Your beneficiaries may then need to hire lawyers. Your relatives and their lawyers will need to see a judge. It will cost thousands to try and repair any mistakes. Some will mistakes can’t be repaired.
There other factors you need to consider as well, Danny. Investing in a professional prepared will provides protection. Here are benefits to consider: 4. Security – knowing a professional has prepared your will. This gives you added comfort. You don’t have to worry about the what-ifs and if you’ve made a mistake. 5. Making an investment – will lawyers are available almost every price range. A lawyer-prepared will is an investment. Like insurance, it saves you money down the road. Spread the cost of a lawyer-prepared will over the years. The protection and comfort you receive costs pennies a day. 6. Comfort and peace of mind – your loved ones and property will be protected. You will need guidance from a professional if you: •
own a business;
•
share ownership of more than one property;
•
are in a second marriage or common law relationship;
•
have assets in more than one province;
•
have minor children;
•
your beneficiaries have special needs;
•
charities count on your financial support;
3. Advice – most people do not understand their legal obligations. When you make a will you deal with complex laws that change daily. These include family law, property, estate and tax laws.
•
have a cherished pet to provide for.
You may think your situation is simple. But I find people want and need help when making important decisions.
Danny, resolve to invest your time in finding the right lawyer to help you. Then invest in a professionally-prepared will.
Deciding who should be your executor or guardian for minor children is a complex decision. Most people need help understanding all their options. Only a lawyer can provide legal advice.
Edward Olkovich (BA, LLB, TEP, C.S.) is a nationally recognized estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts Law. Edward has practiced law since 1978 and has written numerous estate books. Visit his blog, mrwills.com, for more free valuable information. (c) 2016.
That would leave you without a will. Wasn’t that what you wanted to avoid in the first place? Most people do not want to die without a will. You do not want to force your relatives to hire lawyers and go to court. Dying intestate or without a will passes all your estate burdens to them. Without an executor in your will no one has the power to pay your bills.
Using an online form to prepare your will does not help you with your specific questions or circumstances.
Make sure you get the right estate planning advice to make a will. Don’t leave it to chance or until you have the time to do it yourself. Get it done right.
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YOUR
RICHLY
IMAGINED FUTURE... IT'S ABOUT MORE THAN JUST MONEY. BY ROBERT M. GIGNAC I was thinking about the concept of the ‘future’, how quickly we are moving toward it and the fact that our future is out there somewhere on the horizon. But where is that horizon? A quick search of the Internet tells me the horizon is approximately five kilometers away if you are 6 feet tall. But that didn’t satisfy my curiosity, it only served to create larger questions: How do we expand our personal horizons, goals, and create a better financial future? Here are four steps that I think we can use to create this expansion and reach our horizon.
Step One – Understanding Our Current Reality We have a fetish about our current reality, with far too many people living by the motto: “Give me data or give me death”. We were taught in Management 101 that if you can’t measure it - you couldn’t manage it. Every time we get the opportunity we measure something. It seems to be a little known fact that the most important things in life are not measurable. You can’t measure love in that way – it doesn’t equate to a number. Happiness is the same – we can’t be 77% happy. So what is the problem? We are supposed to look forward to the horizon, to think about tomorrow, but we get 22 - MONEY® Magazine • Issue 25
stuck in yesterday. Then we perpetuate it, because we keep going over and over yesterday. I’m not immune to this, I do the same thing - I look at my seminar evaluation forms - 79 responses, 77 thought it was great - 2 people thought I was an idiot, and I lie awake that night wondering what I did wrong. I missed the positive data to focus on the negative. Here is an important point - where does all of our data come from? Data comes from yesterday - there is no data about tomorrow. Every Stock, Mutual Fund and ETF can tell you what it did last week, month, quarter, year and since inception. Not a single one of them can tell you what it will do next year. Since there is no data tomorrow, we spend our time looking at yesterday’s data. Unfortunately, the more we look at yesterday - the more we tend to duplicate it.
Step Two – Discovering Our Richly Imagined Future People often talk about their future using the term “Vision Statement”. I like the phrase ‘Richly Imagined Future’; I think it is more imaginative and paints a better picture than ‘vision statement’. Since I’m talking about something more
important than money - let me give you an example… I was speaking for a financial services company recently, at their annual sales conference. Those of you in involved in sales can identify with this. The president stood at the podium and said to her sales force, “Our mission for the year 2016 is to achieve 250 million in sales!” Huge applause, plenty of whooping and hollering. I was speaking after her, what was I going to say? I spoke about creating a ‘Richly Imagined Future’ on a personal level, and then I asked them the following: “Based on the average client usage of your products & services, how many lives would you positively impact in the year 2016 if you hit your sales target?” They looked puzzled. Then someone offered up the number 5,000. I asked them to try this out: “Our mission for the year 2016 is to positively impact 5,000 Canadian lives”. Which one would inspire you get up in the morning? Can you see the difference? If our ‘Richly Imagined Future’ doesn’t focus on the service aspect, doing things for people that make us happy and proud to be in business - then I wonder if we are doing the right thing. Certainly we all want to make money, don’t get me wrong, I’m a big fan of making money. But our purpose and ‘Richly Imagined
Future’ should be about service and inspiring others, not just about dollars and cents. Our “Richly Imagined Future” future should be a picture so clear and vivid that we can carry it with us mentally. It’s only when we focus on that picture for our future that we start to take action toward accomplishing it. It’s the power of our goals that drives our actions. Everyone says they want “more” money – they really don’t – they want the life experiences that can be enjoyed because of the money.
Step Three - Learning to Disrupt Ourselves In life we have two options: 1) We can disrupt ourselves, or 2) We can wait for the world to disrupt us. In either case we will be disrupted. If the world disrupts us - good luck. If we disrupt ourselves we get to make our own choices about our future. We need to choose wisely between these two options. Let’s not kid ourselves though – disruption is not easy. Comfortable is easy – change is more difficult. I like the metaphor of LEGO®. Flash to your house on a snowy Saturday morning - “Dad, there’s nothing to do!” and our immediate response is an exasperated “I’ve spent more on toys for you in the last year than my parents spent on me in their entire life.” Their response: a blank stare. Finally they dig out their LEGO® and make something for us, usually some sort of flying vehicle. They’re excited to show us where the pilot sits, how the wings fold up, etc. On the way back to their room, you take one last look at them, and what are they doing? Flying their creation down the hall and crashing it into a several hundred pieces. Our response: “What are you doing? You just made it?” Here is what our kids understand that we seem to have forgotten. It is as much about “blowing it up” as about putting it together. Disruption. Version 7 is much better than version 1. Not us though, we’re adults. We glue our blocks together – we did it, we’re done, on to the next thing. Financially, disruption is all around us: •
Fine-tune your investment strategy – but – don’t chase return.
•
Hire a financial coach – but - be cognizant of the costs.
•
Run your own portfolio – but - will emotion overrule logic?
•
Insure the risk in your life – but – doesn’t that stuff happen to other people?
If you and I are going to create a ‘Richly Imagined Future’ we have to start disrupting things in our life. The truth is we are all stuck in our routines. We want everyone and everything else around us to change while we get to stay the same. We have to disrupt if we want to go someplace else or create something new.
Step Four - Making Better Choices For Ourselves Making better choices is the bridge between our ‘Current Reality’ and our ‘Richly Imagined Future’. I’m confident that every person reading this article right now has a choice to make and they aren’t making it - including me. Some of them aren’t that consequential - “Should you buy the new Wi-Fi router I saw on sale at Staples yesterday?” Answer: “Yes!” Others are life changing choices - “Should I stay in my current job?”,
order to move from our ‘Current Reality’ to our ‘Richly Imagined Future’. Bringing inspiration and meaning to the people we interact with. Creating a financial reality that allows us to have the life that we envision for ourselves and our families. Ultimately, it all comes down to choices - which are what magazines like this are all about. Read. Learn. Do something different. Make a choice.
So Where Do We Go From Here? If we look inside ourselves (and this won’t be easy for many of us…) we’ll realize that it is up to us to continue expanding our horizons, growing personally as well as financially. When we choose to understand our current reality, positively impacting others by creating a mission of service and make the decision to push our own buttons - only then will we be able to confidently find our ‘Richly Imagined Future’.
If our ‘Richly Imagined Future’ doesn’t focus on the service aspect, doing things for people that make us happy and proud to be in business then I wonder if we are doing the right thing. “Should I pursue my dream of writing fulltime?”, “My dream job is in a different city where I don’t know anyone – do I move?” These are difficult life choices. If I could put two buttons on your desk right now “Go/Stay”, “Buy/Sell”, “Yes/ No” - Bang! You know which one to push already. You’ll claim you are waiting for more data (see Step One - Current Reality). No, some of us (and I’ll admit to being here at times in my life…) are waiting for somebody else to push the button for us - that way we can become a martyr. Then we can say, “Do you believe what they did to me? I had no choice!” We have to start pushing our own buttons, making our own choices in
Bio: Robert Gignac is the owner of “Rich is a State of Mind” providing keynote presentations, client seminars and workshops on personal financial development and motivation. He is the author of the Canadian best seller “Rich is a State of Mind” (17th printing/40,000 copies sold). Sample chapter and video clips at: www.robertgignac.com. To book Robert to speak at your next corporate or organization event, contact him at: robert@robertgignac.com Copyright 2015 – Rich is a State of Mind MONEY® Magazine • Issue 25 - 23
Digging Your Way out of Debt
Janice Bandick is a Digital Brand Experience Specialist at Ashton College, a private college in Vancouver, BC. She is in the Metro Women’s Soccer league and can be found playing volleyball on Vancouver’s beaches in summer. Canadians are poised to become the most financially vulnerable in decades due to the growing increase in household debt. According to the Parliamentary Budget Office (PBO) report “Household Indebtedness and Financial Vulnerability”, the ratio of debt payments -- including principal and interest payments -- relative to disposable income will creep upwards over the next five years as interest rates rise. The office projects that by the end of 2020, this ratio will increase to 15.9 per cent of disposable income from its late 2015 level of 14.1 per cent. Among G7 countries, Canada has experienced the largest increase in household debt relative to income since 2000,” the PBO said. “Households in Canada have become more indebted than any other G7 country over recent history.” While the budget office highlighted findings from a 2012 Bank of Canada research paper that revealed that households headed by an individual 24 - MONEY® Magazine • Issue 25
aged 31 to 35 years old held the highest levels of debt, research also found that debt levels decreased steadily as the age of the person heading the household increased. It’s clear that Canadians of all ages are vulnerable to finding themselves in a financial hole. Debt can come from anywhere, whether student loans, a mortgage or personal debt resulting from poor habits or job loss. And because spending money is often much more enjoyable than saving it, paying off debt is easier said than done. According to Bryan Dar Santos, a financial advisor with over sixteen years of experience and a Financial Services instructor at Ashton College, Canadians need to be more invested in well, investing. “Don’t let your financial decisions be made solely by a stranger that you barely know. No one cares about your money more than yourself. While it’s important to work with a professional who understands your goal of reducing your personal debt levels, it’s also necessary for Canadians to educate themselves about their debt consolidation options, as well as the
principles of building (and sticking to) a budget.” The first thing to do when tackling debt is create a plan. Complete a personal financial inventory and detail what you owe and to whom. Find out what you own, what you owe and how much you’re spending. This will help you to identify areas where you can trim your spending, as well as to prioritize your payments. Once you have taken stock of what you owe, it’s time to meet with a professional. Financial advisor Mike Weston (Investors Group) counsels that clients “need not be embarrassed of their situation. Advisors are like doctors - we’ve seen it all. While many Canadians may believe that financial advising is only necessary for those with significant wealth, the reality is that Canadians of all income levels can benefit from professional planning advice. An advisor can help you to set up a realistic budget, consolidate your debt, and begin saving for your future.”
In addition to meeting with a professional and building a budget, indebted Canadians can also take the following steps to reduce (or eliminate) debt more quickly: • Don’t carry credit cards with you • Pay for purchases in cash • Plan for major purchases (anything over $100) by making it a rule to wait 30 days prior to plunking down cash • Turn down credit line increases • Tell friends what you’re trying to do to rally support • Pay credit card bills on time to avoid late fees • Make no more than one ATM visit a week • Track your spending and eliminate non-essential purchases • Write out a shopping list - and stick to it
Dar Santos suggests those trying to develop new habits “set realistic targets and don’t be too aggressive. Changing spending habits doesn’t happen overnight, so try lowering your budget a little bit at a time to get used to reduced spending.” Remember, perfecting your spending plan is a process. If the plan you put in place for one month doesn’t work, it doesn’t mean you should quit. Instead, continue to tweak the plan and figure out how to make it work to accomplish your goals.
Insights by: Bryan Dar Santos
Mike Weston
After entering the investment industry in 1999, Bryan Dar Santos started an investment research company that provides independent analysis of investment products and strategies in addition to providing consultation and training to financial advisers. Bryan is also the publisher and chief editor of Life Cents Magazine, a consumer publication that helps Canadians to understand the role of money in our everyday lives and to enhance how we earn, grow, save and protect our money.
Mike Weston is a Consultant with Investors Group Financial Services Inc. A Certified Financial Planner since 2011, Mike focuses on wealth creation for Canadians and works with families, businesses and individuals to help them achieve their financial goals and address any concerns they have in reaching those goals on a systematic basis.
MONEY® Magazine • Issue 25 - 25
Precious metals investors want a way to hold gold and silver bullion within a registered account while knowing that they can see and touch the actual product they have purchased. Guildhall Wealth Management Inc. now offers precious metals investors the ability to
OWN PHYSICAL GOLD & SILVER within your RRSP or TFSA.
This is the first investment vehicle of its kind to be offered in Ontario, Canada. It is by far the safest and most secure way to invest in bullion. With this method your precious metals are fully allocated and segregated in a depository facility. The depository is fully secured, insured and located in Canada. This means that there is zero counter-party risk associated with your bullion holdings.
How It Works: Guildhall is an authorized bullion dealer for Questrade, Canada’s premier discount brokerage service. Clients will utilize Guildhall services to buy and sell physical metals within their RRSP. Guildhall does not provide any additional services or advice relating to RRSP`s. For more information please visit: http://guildhallwealth.com/what-we-offer/tfsa-rrsp/
Popular Bullion Products Offered SILVER
GOLD 1oz Silver Maple 1oz Gold Maple 10oz Royal Cdn. Mint 1oz Royal Cdn. Mint 100oz Royal Cdn. Mint 10oz Pamp 1 Kilo Bar
G U I L D H A L L W E A LT H . C O M All bullion products offered and held in registered accounts are London Bullion Market Association (LBMA) approved.
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MONEYŽ Magazine • Issue 25 - 27
H OW MUCH MONEY D O YOU
REALLY
N EED TO R ET I R E? B Y
J O N A T H A N
It all depends on your lifestyle expectations. The short answer is that a Canadian with very modest needs can get by without saving a penny. The catch is you’ll have to wait till age 65, at which quite generous Government pensions like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) kick in. The bad news is that if you have expensive tastes and have no employer pension, you’ll need to be a millionaire, or even a multi-millionaire to retire with the kind of lifestyle you enjoyed when working. Those who have toiled at one or two employers with Defined Benefit pension plans can enjoy a more lavish middleclass lifestyle strictly on those pensions, CPP and perhaps some OAS. Again, if you don’t want to travel in luxury or eat out in expensive restaurants, you may not need to save much extra, although of course the more you sock away in an RRSP and ideally a TFSA, the better. If you’re reading this, odds are you’re still working, have expectations for a more lavish retirement lifestyle and perhaps are not fortunate enough to have a DB pension, or switched jobs too often for a single one to really “take.” If you earned
28 - MONEY® Magazine • Issue 25
C H E V R E A U
a decent salary along the way hopefully you maxed out your RRSP throughout, as well as your TFSA since 2009. Marie Engen, the fee-only financial planner who is the “Boomer” half of the Boomer & Echo website [www. boomerandecho.com] devoted a recent blog to the three lifestyle categories described above: the barebones low-budget scenario, a middle-class retirement, and finally a “Deluxe” Retirement that (in the absence of DB pensions) could require upwards of $2.2 million.
Barebones Retirement Canada is quite generous to those who have been unable to save for their old age (and I know a few people like this). If you’re a couple both aged 65, together you would get just over $32,000 a year from the Canada Pension Plan ($640.23 a month), Old Age Security and the Guaranteed Income Supplement, Engen estimates. A single 65-year-old would get slightly over $19,000. To be sure, this is a frugal lifestyle: perhaps renting an apartment, running no vehicles, eating in, traveling rarely and frequenting libraries and absorbing whatever “free” culture you can find.
Middle-class Retirement If you want to live in your own home, drive nice cars, travel occasionally and eat out and imbibe culture, odds are you’ll want a little more than the barebones Retirement allows. BMO estimates median spending by a couple over 65 is around $57,600 a year, while average spending is between $42,000 and $72,000, assuming no consumer or mortgage debt. Subtracting the $32,000 from CPP and OAS, and assuming no employer pension, Engen calculates
you’d need to save (RRSPs/TFSAs ideally) about $250,000 for each extra $10,000 in annual spending. So if you wanted $20,000 more than the government pensions provide, for a total $52,000 income, you’d need a $500,000 nest egg. For $40,000 more, for a total $72,000 income, you’d need a cool million dollars. A single retiree would need between $275,000 and $775,000.
Deluxe Retirement Not lavish enough for you? Perhaps you want luxury cars and a vacation property, and more frequent travel to more exotic destinations. Welcome to the Deluxe Retirement, which clearly will need a large nest egg to generate, again assuming no employer pension plans. If you want to generate the $100,000 a year that many dual-income professional couples enjoyed in their full-time working years, then you’re going to need a nest egg of well over a million, and possibly two or three times that much. The problem here is that the more you earn, the less the Government will be chipping in: not only won’t middleclass retirees qualify for the GIS, but in the Deluxe bracket, many will also find their OAS benefits clawed back partly or completely. There’s no escaping the fact that in the deluxe retirement model, one of your biggest expenses will be taxes. If that seems unfair and you want to maximize your leisure time, try living on a lot less and emulating the frugal barebones or middle-class retirees. Jonathan Chevreau founded the Financial Independence Hub and can be reached at jonathan@findependencehub.com.
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Planning for RRSPs Beyond Today BY BECKY WONG For many of us still in the wealth accumulation stage, we were likely topping up or contributing to a registered retirement savings plan (RRSP) the past two months. Longer life expectancy today forces planning for retirement to be even more important. We also need to have a plan to pass on this potentially large asset in the event of death. What are the options available to help with minimizing the tax burden at death?
basic personal tax credit for that preceding taxation year ($11,327 for 2015). In addition, if the child or grandchild is a minor, the taxation of the RRSP can be spread over a number of years by purchasing a term certain annuity with a maximum term to age 18. The annuity payments will be taxed in the minor’s hands up to age 18.
So what happens at death? According to the general rule, the fair market value of an RRSP at the time of death is included in the deceased person’s income for that year and taxed at their marginal tax rate. Amounts paid from an RRSP upon the death of an annuitant is known as a “refund of premiums”. This amount can be transferred directly or indirectly to a qualified beneficiary of the deceased annuitant.
In the case of a child or grandchild who is financially dependent because of a physical or mental impairment, the income threshold is the basic personal tax credit plus the disability amount tax credit resulting in a total amount of $19,226 for 2015. This recipient can transfer the taxable amount of the refund of premiums to his or her own RRSP, again, deferring its taxation until withdrawal.
Spouse or Common-law Partner
The infirm child or grandchild may also choose to purchase a life annuity with the refund of premiums and the annuity payments will be taxed to the child or grandchild.
One of the most recognized and accepted option is to have our RRSPs rolled over to the RRSP of the deceased person’s spouse. To transfer a refund of premiums to an RRSP, the qualified beneficiary must be 71 years old or younger at the end of the year the transfer is made. As such, the amount will be exempted from the deceased person’s income and added to the income of the spouse or common-law partner. The issuer who receives the transferred funds will issue a receipt to the qualified beneficiary. The beneficiary can use the receipt to claim a deduction on his or her income tax return for the year the refund of premiums was received. This spousal roll over has resulted in deferring taxes until such time that the recipient makes a withdrawal.
Dependent Child or Grandchild When a child or grandchild who is financially dependent on the deceased person at the time of death is designated the beneficiary of the RRSP, the amount paid can also be exempted from the deceased income in the year of death. The refund of premiums received by a financially dependent child or grandchild will be included in his or her income and since the child has little income, this is generally advantageous. A child or grandchild is considered dependent if his or her income in the year preceding the death does not exceed the 30 - MONEY® Magazine • Issue 25
Infirm Dependent Child or Grandchild
Since July 1, 2011, proceeds of a deceased annuitant’s RRSP is permitted to be rolled to a registered disability savings plan (RDSP) of a financially dependent infirm child or grandchild. The maximum rollover amount into an RDSP is $200,000. All contributions and rollover amounts made to any RDSP of a beneficiary will reduce this amount. A grant will not be paid into the RDSP on amounts that are rolled over. All of the above options can be facilitated on a partial roll over basis. It may make sense for the deceased annuitant to report some of the RRSP income if a capital loss is available. Tax losses dies with the deceased, hence, it may be advantageous to make use of it on the terminal return. In conclusion, planning for RRSPs beyond today should consider several factors as a combination of options may be more appropriate for your specific circumstance. Tax rules on death can be complicated and seeking the advice of a tax accountant or financial advisor is prudent.
Becky Wong, B.Comm (Hons), CFP, FMA, Independent Financial Planner, Richmond, BC. www.beckywong.com
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MAKING SMALL BUSINESSES
BETTER! BY DON SHAUGHNESSY
Experience is the best teacher and for the price, it damned well better be. Why then do small and medium enterprise (SME) owners choose experience as their principle source of learning?
There are few large businesses. »» 1.1 million SMEs in Canada at the end of 2012. One for each 32 of us. »» SMEs account for 98% of all
»» SMEs have 90% of the employees and create more than 90% of all new jobs »» 75% employ fewer than 10 people. »» According to StatsCan under 100 employees is small and under 500 is medium.
Employee count is a poor way to categorize. Four hundred employee, medium-sized businesses have little commonality with a 4-person operation. Even businesses in the same category are vastly different. A medical corporation with a neurologist and two other employees is not like a children’s 32 - MONEY® Magazine • Issue 25
clothing store with the same revenue operating with husband, wife and an assistant. One earns $500,000 while the other barely makes a living. A better way to think is the businesses is owner managed or not. A 20-employee store that is part of a chain is not the same business as a 20-employee independent operation. The differences help to understand choices.
Lesson 1: Owner-managers make decisions in real time When Bill Lear created the LearJet in the mid-60s he didn’t build a prototype. He built a factory and started making airplanes. When testing, he decided he didn’t like its stall characteristics and decided to reshape the wing. He called an auto body shop in Wichita and had them bring templates and some Bondo. Within a few hours they had rebuilt the wing and tested it. Two days later the new shape was in production. Boeing takes longer to do that. On the downside, there are spectacular failures.
Lesson 2: Owner-managers are motivated. If you work for yourself, you have the most demanding boss possible.
Lesson 3: Owner-managers
are focused. Focus is efficient but sometimes not effective. The outside
world has the bad habit of changing and sometimes people see it too late. Focused managers ignore feedback that conflicts with their view. They spend time and money on the things they are good at rather than weaknesses. Think effective (doing right things) as well as efficient (doing things right.)
Lesson 4 There are underutilized defenses Outside advisors help overcome narrow focus, lack of feedback, and too quick decisions.
Outsiders provide advantages because they don’t know or understand the details. They can still see the forest. I know of no successful businessperson with an enterprise scale operation who does not use outsiders as sounding boards. They do not always follow the advice given, but they can explain why they did not follow the advice. Knowing why you are not doing something is as important as knowing why you are.
Lesson 5: In any business, only
three numbers matter. None, few and many. Change disrupts; know when it will. Changing from no employees to one is difficult. Reporting, regulation, scheduling and other administration appears. A change from three employees to five is unnoticeable. Same thing with customer count, supplier count, location count, and more. Watch for the few to many change.
Lesson 6: Failure is easy
32%
of startups with fewer than five employees fail in the first two years. Poor preopening planning or outgrowing their competence are common reasons. Missing skills include no product line discipline, and weak customer selection. The easiest customers to get are the ones your competitors don’t want.
Lesson 7: Money is not usually
the limit For a long time I would have believed money was a serious limit. The curse of money comes to good businesses that have other blemishes. It is like poker. No one loses much with a bad hand. Only a good hand costs big. Similarly, you can’t lose much money with a bad business idea, Manage growth carefully. Understand that the top line is a weak measure.
The organization structure looks like a garden rake. That matters if something happens to the owner or the owner wants to sell. Even take an extended vacation. With no continuity of management, businesses are worth half or less.
Lesson 11: Build middle
management Other people fill knowledge and time gaps. The hurdle will be when the owner is passionate about some project and the hired middle management does not want to do it. I saw one such case evaporate after three years of careful team building. One meeting in the board room ending with, “You guys put up half the money, you can make half the decisions. Until then I make them all.” Ninety days later the rake org chart had reappeared.
Lesson 8: There are other things to Lesson 12: Learn some stock notice In 1977 York University professor, Rein Peterson, wrote “Small Business: Building a Balanced Economy.” It opened my eyes to the idea that money ranked fourth or so as a problem. Other problems included developing decision and control systems, finding enough of the right people, and surprisingly, the number one concern in all sectors studied: “I need someone to talk to that understands me and business in general.” General advice is something in short supply. Business people know the solutions to their own problems and another person can help them keep the story straight long enough to understand the problem and its possible solution.
techniques Buy or lease is a common. If you want to use the asset and can control it without owning, a lease is often better. Make or buy is a challenge. Kodak made Polaroid film for a long time. Advertising. Use pros. Most people will tell you half the money spent on advertising is wasted. The problem is no one knows which half and it is not the same half all the time or in every market. Hire smart people and trust them. If they are not smart, or you won’t trust them, don’t hire them. Know your unique skills. Do not bury yourself doing “stuff.” You will never be good at bookkeeping or payroll or invoicing. Work at your best skill.
13: Succession has subtle Lesson 9: What’s the business for? Lesson problems. How much is it worth? What People create businesses for one of two reasons. 1. To build an enterprise that operates independently of its owner. 2. To supply the owner with a great lifestyle and money to invest. Most start in category two and many stay there. That makes them vulnerable. When you own it for lifestyle, investment in innovation, personnel development, new skills, and new markets is harder to rationalize. You gradually lose your competitive advantage.
Lesson 10: Management depth
matters Small businesses are often good ones but they are not very deep.
if next generation managers contribute greatly to ongoing value? Should they buy themselves? How much cash do you need? How do you get it?
How do you afford the taxes? Accountants and lawyers can help if they come on board early enough. There are tools and methods you won’t think of. Do the successors know how to run it? I had a client who, for two years, kept notebooks of everyone he talked to about the business. Contact information and why they mattered. About 800 pages worth. His son told me he knew fewer than half the people. Debriefing barely conscious information is important and difficult. Start early.
Lesson 14: Defend what you earn
Corporations make sense for almost everyone. Holding companies do too. If you lend money to your corporation take security such as a registered general security agreement. Consider paying interest instead of all salary. In Ontario, interest does not attract Employer Health Tax, while extra salary does.
Lesson 15. Defend from taxes
Have your accountant design an efficient compensation plan. Know what you need to take out. Paying non-deductible expenses inside the corporation helps if there is a business reason for them to be there.
Lesson 16: Understand Risk comes in two forms.
Variability, which is innocuous and manageable. Not every month is the same. Variability is stressful when you require certain outcomes at a certain time, or have unrealistic expectations. Catastrophic risk means loss. Fire, liability, death, and disability are possibilities that can be devastating. Insure them.
Lesson 17: Stay out of the ditch
Choose tactics carefully. Bad strategies drift if tactics are weak. Good tactics quickly prove out both winners and losers. Good managers quit quicker than weak managers do and they let winners run longer. Successful business build a hierarchical structure with some redundancy for emergencies. They have strong outside advisors who bring insight, information and tools to help achieve the goals. They hire and pay good people well. They function as part of a community. They are primo suppliers and good customers. Look after the business and the business will look after you.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment group in Peterborough Ontario.
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Should I Refinance My Mortgage? Eddie Quindamo
With the pace and stress of today's
modern world, thinking about your mortgage is likely the last thing on your mind. However, if you’re sitting with a lot of equity in your home yet can’t seem to manage your debt payments, perhaps thinking about your mortgage is the best thing you can do. With credit card interest rates often pushing the 20% range, fiveyear fixed-rate mortgages at 2.69% to 2.89% range and variable rates even lower, you may want to consider paying off high-interest debts. Like many financial decisions, you need to look at the big picture. Here’s what you need to know. A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing mid term, but you will be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.
Here are some reasons to refinance: Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget. You can refinance to purchase another property. Using the existing
equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible. You could also take out some of the equity for investment purposes — an option that many homeowners consider this time of year as they look ahead to the new year And there are more uses for your equity such as helping putting your kids through school.
Repayment Remember that borrowing against your property is not free money. You still own the home so the mortgage loan has to be repaid.
Spending Habits While using the equity in your home to pay off debt certainly eases financial stress, there may still be challenges. However, some people have experienced a job lay-off or an illness that contributed to their unmanageable debt loads. Make sure you understand what got you into your current situation.
Real Estate Market Equity measures the fair market value of your property against the balance owing on your mortgage. If you borrow against your property, you may worry that the market will drop and your home value with it.
However, the government added a few safeguards over the last few y ears with respect to refinancing: where once you could refinance up to 95% of the value of your home, that percentage has dropped to 80% of the value of your home. By making that change, the government is basically saying it is somewhat confident that house prices will not likely fall far enough for you to lose equity.
Speak to a Professional to Understand Your Options As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Let’s talk about your unique situation and the options available to you.
Eddie Quindamo, Principal Broker - I Direct Mortgages Inc. Phone: 905-652-3000 ext. 200 || Fax: 905-652-0148 E: quindamo.e@mortgagecentre.com MONEY® Magazine • Issue 25 - 35 www.quindamo.com
How can Small Busin Right now it’s no secret that selling merchandise to Americans is pretty lucrative. We also know that it hasn’t always been this way. A relative of mine who sells lighting products to customers the U.S. is a case in point. My brother-in-law built a very successful business with his wife from the ground up. Their decision to sell to markets in the US worked fine, but the real boost to sales occurred when their son joined the business and talked them into selling on the Internet. Online sales boomed, but of course so did their company’s vulnerability to exchange rate risk. A few years ago, he was struggling to make his usual margins (which are not that big at the best of times) when the CAD/USD exchange rate approached par. In other words, a C$ was pretty much equal to the US$. Cross-border shoppers from the Canadian side of the border were in heaven (myself included), whereas exporters were beginning to panic. After all, their costs were still in Canadian dollars, which was an advantage when they received sales revenue in a much stronger $US. 36 - MONEY® Magazine • Issue 25
Converting back into Canadian currency provided a substantial bonus to their profits and quality of life. Things are great once again, but how can a smaller business owner(s) plan ahead to make sure that currency risk doesn’t threaten their livelihood? The graph below illustrates the impact currency can have on a business. Imagine a fictional Canadian company that began selling a specialty cheese to the U.S. marketplace in June of 2006. The sale price stays the same (due to competitive pressures) at US$ 2.50. Costs are steady in C$ 1.98 range. Sales made in US dollars must be converted back to Canadian dollars.
USD-CAD sales and profits
R U C R
FLUCTUA
It is easy to see how just the exchange rate can wreak havoc on a businesses revenues and profitability. Is it possible to anticipate or prevent this volatility? When companies are accustomed to very large orders, it is possible to contact your bank and make arrangements to use the currency forward markets in order to ‘hedge’ your profits. For instance, if one expects to have to convert a significant amount of foreign currency into one’s domestic currency once the order is delivered, you can arrange to lock in the forward exchange rate today, thereby knowing exactly what your margin is (and will be).
However, the orders for most small businesses aren’t large enough to make hedging a viable option. Can you plan for currency fluctuations? Experts agree that there is no robust way to forecast exchange rates. Experts have been frustrated trying to predict exchange rates for years, and the
By Malvi
forward markets/ futures markets are not very good predictors of the exchange rate that will actually occur in 3 to six months. One approach that has been around (seems like forever) is the purchasing power parity theory. The price of a consumer product (same materials, can be
ness deal with today’s the remninbi or RMB) adjusting for the exchange rate as it is in Berlin Germany (euros). As you can see from the table, this is not the case (the prices and exchange rates are not 100% accurate due to rounding).
iPhone intl pricing
EN
AT
CY
Because Germans and the Chinese have to pay an even bigger price, it suggests that the USD is overvalued relative to those currencies. The Canadian dollar on the other hand, based on this overly simple approach is actually still a bit overvalued compared to our neighbour to the south even at these depressed levels. Of course, our proximity to the US might simply give Canadians a great deal on iPhones not available in other countries.
O I NS?
n Spooner
sourced locally or at same prices) should be the same in different countries, once adjusting for the exchange rate. Below, the table compares the price of the rather ubiquitous iPhone in Canada, Europe and Asia. The price of the iPhone 6s 16GB (unlocked) in the U.S. is about $699, and should be more or less the same in Nanjing, China (their currency (is
We should therefore expect the USD to depreciate relative to both the EUR and RMB in due course – the forces of supply and demand (for products, services and therefore currencies) should cause disparate prices to equilibrate. The mobile device in theory should cost the same to the consumer no matter where he/she lives. Should the USD decline significantly (perhaps even compared to the Canadian dollar) then the margin on good and services businesses in those countries are earning today with decline.
When sales are in another currency The problem, is that historically purchasing power parity is also a poor predictor of exchange rates. The game of international finance is extremely complex. Not only are exchange rates determined by differing interest rates in countries, balance of
payments, trade balance, inflation rates and perceived country risks, the rates are also influenced by expectations associated with these variables and more. The bottom line for smaller businesses is that when it comes to foreign exchange risk – they are completely exposed. So what can be done? Planning. It is tempting to become overly optimistic when exchange rates have drifted in your favour, encouraging further investment to facilitate more sales in the stronger currency. Buying equipment, hiring permanent labour and leasing more space introduces higher fixed costs that might dampen or destroy profitability when the tide turns the other way. It is important to consider ‘what if’ scenarios frequently – and especially before laying out more capital. For entrepreneurs the biggest mistake is to take for granted that the status quo will continue. All of a sudden, you might be buying yourself a bigger house, a fancier car and sending the kids to private school – all based on current income which is linked to the current prosperity of your business. Currency instability is a fact of life, and the best way to be prepared is to expect the inevitable. Rather than rush to spend more on expanding the business put aside a ‘safety’ cushion during good times that can be drawn upon during bad times. If your commitment to the US, European or other markets is firm, then park the cushion into currencies you are vulnerable too. For example, invest your cushion in US dollar denominated assets – U.S. Treasury bills will provide a natural hedge for your sales. Similarly, if a significant volume of your sales are in Europe and the company borrows funds for operations, borrow some funds in euros as a hedge – then if the euro appreciates you’re able to pay those obligations in the same stronger currency thanks you your euro receivables. It is widely believed today that the USD is likely to depreciate relative to a number of other currencies, and perhaps imminently. Today might indeed be the ideal time to begin considering ‘what if’ scenarios and the actions you can take to plan ahead. MONEY® Magazine • Issue 25 - 37
How Bitcoin Technology Can Change the World of Finance BY GERALD TRITES Bitcoin, that infamous digital currency, has captured the imagination of many people, but has failed to penetrate mainstream finance, even though it is recognized as a currency and can be exchanged for conventional currency. Probably it is most well known for its use by criminals and fraudsters. The technology that underlies Bitcoin, on the other hand, is brilliant, and is beginning to have an impact on mainstream finance. This technology consists of two main elements – blockchain and distributed ledgers. There has been quite a widespread fascination with these two technologies and their potential. Blockchain essentially organizes transactions into blocks of information. All of the blocks are timestamped and linked together and cannot be changed after they are linked and closed. Distributed ledgers complement blockchain by providing a means of recording transactions in a way that is open and transparent and secure. They differ from conventional ledgers in that they instantly produce copies of the transactions in different locations. That is, various people involved with the transactions, and others, will have a copy of the transactions and will know immediately if any of them are changed. Blockchain and distributed ledgers have attracted the attention of financial institutions because of their
transparency and the secure way in which they can preserve the integrity of the transactions. For example, in a report by the UK Government Chief Scientific Adviser, titled “Distributed Ledger Technology: beyond block chain”, the technologies are recommended for a variety of financial functions because of their potential for security and integrity. The report points out, for example,
“The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger. Entries can also be updated by one, some or all of the participants, according to rules agreed by the network.” A major distinguishing feature of blockchain and distributed ledgers is that they are transparent and there is a record of all transactions that cannot be changed. Another major feature is that because all transactions can be recorded at the same time in different venues, it is possible to settle transactions instantly. There are numerous transactions in finance, such as share swaps and derivatives that take too long to settle, and being able to settle them instantly is extremely attractive.
Despite these attractions, some have raised concerns and doubt as to whether the banking system is ready for change of this magnitude. They point out that adoption of blockchain and distributed ledger technology would require major changes in their IT systems. Since these systems are very critical to large volumes of transactions currently taking place, any changes would themselves be critical and very sensitive. There would also be issues of integration with other systems that are not directly affected by the transactional systems involved with the adoption, but nevertheless need to interact from time to time. In the end, blockchain and distributed systems offer up some real advantages to the banks – advantages that should override the issues around systems change. Major among these is the unquestionably high level of security they provide Banks. They need to have secure systems, and the present ones do not offer enough security at all. Existing commercial systems do indeed need a major overhaul in terms of security capabilities and blockchain offers up an innovative and effective solution. And the ability to settle transactions on the spot is something that is badly needed in certain areas of finance. These technologies are likely to gain more mainstream support in future.
bitcoin
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A Franchise Can Be the Best Formula for Wealth Creation through Business Ownership
We hear it all the time. 'Why would I buy a franchise? I can do that myself! 'What is the value in paying royalties' or 'it is a waste of money.' 'I have all the expertise and I learned all I need to know in my job. I know what to do.' Well if that was true, why it is that small businesses have a much greater failure rate then franchises.? Why do you suppose that is? I worked with a client two years ago who was adamant that he could do this on his own and he did not need a franchise. To his credit he stepped out on his own and tried to replicate the franchise models he had been examining. It is with sadness that I inform you that he failed miserably and lost a lot of his hard earned wealth in this adventure. He was a very intelligent and quite an astute business person. At the same time I also showed a similar gentlemen the same business idea. In the end, he took the plunge and acquired the franchise, and I'm pleased to announce that not only is his business thriving but he is enjoying the lifestyle he wanted to have. So what was the difference? Why did the franchise succeed and the small business ownership attempt fail? They were both sharp intelligent business people. Here are six key points to consider why owning a franchise might be the right small business ownership route for you.
1. You start with reduced risk When everything is ready to go, you have no excuses, you just proceed with the proven system and put on your boots and go to work. Clearly it is like having the house framed and now you simply decorate. Unlike starting from scratch were you have to find the lot to build on before you can start.
2. You start the business without trial and error You do not have to take time to test and create business plans and models and marketing materials and all the mistakes that go with that and financial resources and time it will eat up. A franchise is turnkey and your money is spent on building your client base immediately. Let’s not forget you are trained with the right tools and the right methodology. The franchiser is invested in your success. You have a legitimate partner.
3. Brand power People do like to buy from a recognized name brand. And franchising, is about building a brand. When you watched the Super Bowl, did you notice how many of those brands belonged to a franchise system? This is the power of the collective and you benefit and share in that collectivity. How does a small company in wherever match that? Do not forget as well that there is formalized service techniques that drive consistency across the model. Even if you provide great service 40 - MONEY® Magazine • Issue 25
BY JOE WHITE and have great staff, you still have the challenge of competing, and a franchise system just makes that easier.
4. You are in control of your life No one is getting you out of bed or saying you have to go here or there for the company on Sunday night. You take your holidays when you want, you attend the kid’s events. You determine your level of income. You make the decisions. I want to also tell you that it is your responsibility to drive and grow your business with your franchise partner. It will not be easy. It does take hard work, but when you control your life, it certainly will be a lot more fun. You have to be committed to achieve the goal you want in your life. One of candidates once said to me “I am prepared to do what I have to do now to be able to live the life I want two years from now.” That truly captured the essence of the task at hand to take control of your life through business ownership.
5. The power of the collective It is reasonable to suspect that you will gain purchasing power in most cases because of your affiliation with a franchise. It stands to reason that a vendor will be more interested in suppling materials like cars and vans and shelving to a company with multiple units at a reduced rate.
6. You set the wealth ceiling Most franchises will enable you to grow the business and do not get in the way of creating wealth. Needless to say, a good accountant can benefit you by giving proper tax advice. You will set your salary and saving plans. Many business owners fail to take the time to truly think about these advantages. Nobody but you will determine your annual increases. These are six great reasons to invest in a franchise. I want to share one more thing. If you do not clearly define these goals and these wishes you may get trapped in the wrong franchise system. This is the single biggest reasons a franchisee will fail in my mind. Love what you do and you will not work a single day. If you are not prepared to follow a system and a program and trust your franchise partner, you should not invest in a franchise. You should take the more risky approach of going on your own. Or do nothing and stay in your job. Joe G. White is Owner of MFR Inc. “The Franchise Rainmaker”. He provides professional advice to people looking to engage in franchise ownership. He can be reached at 647-724-0742 or jwhite@franchiserainmaker.com.
“Success through knowledge”
MUTUAL FUND REVIEW® January 2016
MONEY® MAGAZINE
Starting assets (December 31, 2015) $1.0006 trillion + Net sales -$0.3193 billion +/- Estimated market effect -$14.8331 billion (-1.5%) = Ending assets (January 31, 2016) $0.9855 trillion Top 3 Categories
Bottom 3 Categories
Asset Growth ($)
Canadian Money Market: $456 million Global Fixed Income Balanced: $364 million Global Fixed Income: $357 million
U.S. Equity: -$2.449 billion Canadian Neutral Balanced: -$2.433 billion Global Equity: -$2.141 billion
Asset Growth (as a % of starting assets)
Miscellaneous – Other: 25.9% Commodity: 4.7% Precious Metals Equity: 3.4%
Greater China Equity: -12.0% Sector Equity: -11.2% Asia Pacific ex-Japan Equity: -7.6%
Net Sales ($)
Global Neutral Balanced: $1.905 billion Global Equity Balanced: $488 million Global Fixed Income: $347 million
Canadian Neutral Balanced: -$1.649 billion Cdn. Dividend & Income Equity: -$711 million Canadian Equity Balanced: -$569 million
Net Sales (as a % of starting assets)
Miscellaneous – Other: 27.7% Alternative Strategies: 3.2% 2025+ Target Date Portfolio: 3.1%
Cdn. Focused Small/Mid Cap Equity: -2.3% Real Estate Equity: -2.0% Floating Rate Loan: -1.9%
Performance (Fund Category Averages)
Precious Metals Equity: 5.3% Global Fixed Income: 1.0% Cdn. Long Term Fixed Income: 0.6%
Greater China Equity: -9.6% Preferred Share Fixed Income: -8.4% U.S. Small/Mid Cap Equity: -6.0%
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The Mutual Funds Newsletter was created specifically for the investor-advisor relationship and mostly as an important communication tool that really helps to explain important trends in the mutual fund industry. Financial consumers and Mutual Fund Investors as shareholders today are more savvy and demand more attention and better service towards their long-term investment goals. It is clear mutual funds stakeholders expect open disclosure, ethical investing and then superior returns in exchange of quality customer service. Helping make, save and preserve more of your money more of time is indeed the essence behind this important, timely and newsworthy communique. Consult your advisor or a recommended professional on a regular basis and engage them in this important information, data and focal point for decision making and portfolio design and maintenance.
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Here’s what can
effect your
CREDIT SCORE BY GUY WARD Okay, you’ve worked hard to build up your credit score. You pay all your debts on time, have focused on getting out of debt –maybe even closed a few of those accounts because you don’t need them or want them anymore. Then one day you apply for a loan and there are issues. What??? Everyone understands the need to pay down debt and pay bills on time but there are a few wonky things that affect your credit score. Remember those cards you canceled? Well as counterintuitive as that sounds closing accounts can hurt your score. The reason for the ding is that closing an account drops your global credit limit, which increases the percentage of debt in relationship to the limit. For example, you have two credit cards with a limit of $1000 each, for a total of $2000. You owe $500 on one card and $800 on the other. That debt load is 65% of the global limit. So you decide to pay off the $500 and close the account. That reduces the global limit to $1000 with an $800 balance. Now the percentage of debt is up to 80% and your credit score takes a hit. The ideal percentage between global limit and debt owed is 30% to 35% – the lower, the better. Here’s another stunner: Having a credit card or line of credit and not using it. Yep, having too much unused credit can have a negative impact — a creditor can’t tell how you manage credit payments if you don’t use it. Here’s something I know you’ve done in the past. You’re in your favourite store and you’re offered an amazing discount if you open a credit account. As tempting as that is, just say no. Store cards carry much higher interest rates than major credit cards and your credit score may take a hit. An inquiry can drop your credit score between five points and 35 points, depending on your credit profile.
Shopping around for the best rates on anything – a car, or a mortgage or any other big purchase affects your score. Each time you apply for credit, it creates a hard inquiry, which lowers your score. If there are a lot of “inquiries” within a short period of time, it doesn’t look good. Shopping around for rates is not a bad thing to do especially at mortgage renewal time, but let me do it for you – your credit report gets pulled only once as we review multiple options for you.
So how do you get a keep a really high score? Here are a few tips: • Length of credit history – 30 year plus. • Two major credit cards with no more than 15% balance • Two store or gasoline cards with no more than 15% balance • A car loan or another secured loan • No late pays • No bankruptcy • No judgments If you’d like more information about your credit score, call me today.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM
42 - MONEY® Magazine • Issue 25
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How to Coach Yourself to
Better Financial Results Your 'IIOs' are the Key to Improving your Financial Future Philosopher William James said: “Where you are in life is no where near as important as the direction in which you are headed.” It applies perfectly to your financial situation too. Regardless of where you are, you can always get better but you can always get worse. The key is always to be headed in the right direction for you and your family. The truth is that you cannot stay where you are. You are either getting better financially or you are getting worse. Financial success is an everyday battle to keep getting better. It takes effort too. If you can compress the time between income opportunities and expand the time between expenses, you will maximize your wealth. It’s simple math. There is a way to coach yourself to financial success, if you are prepared to listen to your own best advice. I believe that most of us have enough built in financial instinct to do what needs to be done to stay on the upward side of the curve. We just need a way to know what that is and then take action to make it happen. I have that way. Most of us know what we need to do to achieve our financial goals. The trouble is, we usually don’t know how to get at those ideas and make them a reality. My friend, world renowned life coach John Kanary gave me the spark of an idea recently that opened up a great way to coach yourself, really whatever you want to accomplish. So, with due credit for the spark to John, here goes. When you look at your past financially you will undoubtedly come up with a few “If I onlys…”. This is the refrain of regret for financial opportunities lost. We all have “If I onlys…” (IIOs) but they are usually the source of depression, not enthusiasm. Today we will turn that upside down. 44 - MONEY® Magazine • Issue 25
You can turn you IIOs into “Now I Wills” (NIWs) and launch your finances to a new level. Your IIOs they tell you what your super computer subconscious has determined you should do to be your best financial self and achieve the financial goals you want in your life. Think about it. The phrase “If I only…” is always followed by an great opportunity or risk not taken. If I only saved this amount. If I only budgeted some of my expenses. If I only said no to more useless expenses. If I only saved the money I spent to impress myself. If I only took that course. If I only took that job. You get the picture. We all have them. So, consider your recent financial performance for your specific IIOs. When you do, you will inevitably find a list of rewarding, financial behavior risks you didn’t take. The things you regret not doing (IIOs) are the things that will turn your finances around for the better. That is of course, if you are prepared to listen to and coach yourself. You know these behaviors will help you move forward if you do - That’s why they are “If I onlys”. Subconsciously, you know they would have made a difference in your financial results “if only” you had accepted the challenge. This is powerful stuff. Once you have that list, sort for the highest payoff opportunities. Put the most profitable at the top. Take those highest payoff risks to change your financial situation, starting today. Start at the top
of the list and work your way down. Work on that list like your future financial success depends on it… because it does. Then, decide that making excuses for nonperformance of those risks is no longer acceptable. Just say it. “I no longer excuse my non-performance with my money.” Believe it. Then, follow though. You know what needs to be done, make it happen. Make your IIOs your NIWs – your “Now I wills”! Now you are headed in the right direction to achieve your wildest dreams, regardless of where you started. This approach applies to anyone at any financial level. Finally, decide once and for all that you are “all in” with improving your finances and your success is sacred to you. Never be backwards about taking your finances forward again. It’s simple stuff really but all great ideas are. These three steps can make you the financial achiever you want to be. Find your “If I onlys”. Accept the risks they offer. Stop excusing non-performance and then make your success sacred. You will never be the same.
Jim Ruta
THE SOCIAL CURRENCY
MONEY® MAGAZINE
Making Print, Broadcast and Online Media The vast majority of post Korean War Veterans – called “Modern Day Veterans” (MDV), not in receipt of VAC benefits, are excluded from Last Post Fund indigent funeral & burial program. No funding is contributed for Modern Day Veterans, whose applications are rejected due to the specific nature of eligibility requirements. The number of MDV in Canada currently stands at approximately 600,000 with an average age of 58 years, giving rise to an estimated 4001 cases per year of indigent MDV requiring assistance to have a dignified funeral and burial. [1] Figures provided by VAC
In-person, regional interviews with Major-General E.S. (Ed) Fitch (retired), OMM, MSM, CD, Vice-President (West), Last Post Fund, are available throughout this campaign. MGen Fitch can be reached: +1 250 381-1166 or +1 250-893-1162. "In Memory of Our Veterans", Campaign BC/Yukon Branch * 1-800-268-0248 203 - 7337 - 137 Street,
ACCESSIBLE to All Canadians. Accessible Media Inc. (AMI) is a not-forprofit multimedia organization operating two broadcast services, AMI-audio and AMI-tv, and a multi-functional website (ami.ca) for the purpose of bringing media in an alternate form to those not able to follow traditional ways. AMI’s mission is to make all media accessible to all Canadians.
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CONFIDENTIALITY
Agreements January, 2016 Ken Kivenko, P.Eng. After a prolonged and aggravating process with customer service, compliance officers and ombudsman, frustrated investors finally attract attention by threatening litigation. Legal action and the threat of a public airing of their grievances seems to motivate financial institutions to settle a complaint, at least some times. The cost of legal action or even arbitration is not insignificant and the outcome is far from certain. Firms are well aware of this and take this into account when negotiating settlements. Rarely do investors recoup their full losses. Most are lucky to get 20-50 cents on the dollar . The vast majority decide to write it off as a learning experience. Settlements can save both sides the money and time [ and investor stress] of dragging litigation through the courts. But you won’t hear about them in the media because one of the stipulations made is to adhere to the terms of so-called Confidentiality clauses, NonDisclosure Agreements or as investor advocates call them “Gag orders.” As they pay their hush money, dealers add disclaimers that such settlement agreements do not constitute admission of wrongdoing by the firms -- though that’s the real reason they’re settling. In return for financial restitution, these investors are unfairly put in a position where they would violate legal contracts if they disclose specifics of their deal and become subject to legal intimidation. Often, such settlement agreements provide that the parties will not make any negative or defamatory statements about one another.
Sometimes, the investor is so embarrassed at his/her situation he/she might actually welcome silence. Some “creative ”agreements may require settling investors to withdraw or alter claims that have been filed with regulators. Such provisions are obstructive and frustrate the ability of regulators to enforce prevailing regulations. They also interfere with the ability of other law enforcement agencies to take appropriate action. There are rules that prohibit confidentiality conditions that are intended to prevent a client from initiating or continuing a complaint with a regulator or enforcement agency. The only other exceptions are for disclosures made to lawyers, financial planners or accountants for income tax purposes. Typically, you will be given a week to 10 days to sign. If you do not , the offer is withdrawn and you are on your own. The investor, who is happy to be recouping at least some – typically a fraction- of his or her actual losses, is eager to sign on the dotted line and move on with his/her life. Consequently, he or she is unlikely to voice a vigorous objection to the so-called “boilerplate provisions ” of the Confidentiality provisions of the agreement. From the investor’s point of view, the dispute is over. A mutual fund dealer or brokerage firm may have sound business reasons for inserting the “boilerplate provisions. Confidentiality can make sense – at least from the broker’s point of view. Investment dealers do not want to encourage other similarly affected clients to file claims, or
signal a predisposition to fair settlements. For investors who have legitimate complaints against their dealers/ brokers, the gagging can be emotionally stressful. By keeping settlements secret, other investors with the firm are in the dark even though the malfeasance and the resultant settlement may also be applicable to them and may still be occurring. Financial services firms aren’t the only one wanting to keep information confidential. A complaint to the Ombudsman for Banking Services and Investments (OBSI www.obsi. ca) also places restrictions on disclosure. By signing their engagement letter, you agree that OBSI’s correspondence and discussions with you as part of the complaint process, and OBSI’s files, are confidential. You must also agree that in the event of any subsequent legal or other proceedings you will not use that correspondence or information. In addition, OBSI require you to agree that you will not seek to compel OBSI to produce its files and records, or seek to compel the Ombudsman or any other OBSI staff member or advisor to give evidence or testify in any such proceeding. Although some of our regulatory leaders say they believe in transparency, nothing is being done about the industry practice of covering up widespread wrongdoing and then settling with complainants by making “ low ball”offers and covering up with gag orders.
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IN YOUR BANK ACCOUNT Written by Jim Yih, RetireHappy.ca Normally I am not one for completely misleading headlines like the one in this article but the truth is it may not be misleading at all. Canadians have over $100 billion dollars in regular savings and chequing accounts. Add in the fact that there is another $75 billion in money markets and you have a lot of money sitting in short term accounts earning next to nothing. Frankly, this surprises me considering that most bank accounts are paying a meager 0.25% or less. There are two very important questions that you need to ask yourself: How much interest are you earning in your bank account? How much are you paying in service fees for your bank account? In most cases the answer to question one is “little to nothing” and the answer to number two is “way too much”. There is a real opportunity to change the way you do banking so that you turn this situation around. Several financial institutions now offer high interest bank accounts, many of which have low minimum balances and no fees. What rates are these banks offering? Online Banking Currently, there are about a half a dozen institutions offering high interest bank accounts that range from 0.8% to 1.7%. Some banks will offer attractive short term incentives to get you to open an account. For example, Tangerine (who is offering up to $50 in bonuses and 2.4% interest for 6 months). 48 - MONEY® Magazine • Issue 25
While these interest rates may not seem overly high, keep in mind that it is higher than most money market funds and higher than the 1-year posted GIC rate at the major banks. In fact, more often than not they pay higher rates than conventional bank accounts, money market funds, cashable GICs and sometimes even higher than shorter term GICs. The benefits are very clear – high interest and less fees. So why would someone not use these high interest bank accounts? Savings vs. Chequing accounts – In some cases, these high interest bank accounts act strictly as savings accounts. However, there are some institutions like Tangerine that offer chequing privileges for free. You can make the switch to Tangerine easily with their Switch Assistant and get a $100 bonus. There are solutions for both savings and chequing accounts. Awareness – I think many investors are just unaware of the options. For many, high interest bank accounts are foreign to them. Convenience – In my opinion, this is probably the biggest hurdle that you must overcome. Mainstream bank accounts offered by the 5 big banks have been part of our habits for so long that it can be difficult to change the way in which we bank. Many of these high interest accounts are offered by companies that we do not naturally relate to banking like Tangerine, President’s Choice, or Manulife Bank. I know many people who have banked at the same bank for 30 years or more. Regardless of all the change in personnel, the fact that
the bank has been there for as long as they can remember, why should they change? Security – Many investors fear not knowing much about these banks that offer high interest accounts. Part of the fear of the unknown is the lack of brand recognition and the fear of the bank going under. There are two things to keep in mind. First, find out if the bank is a member of CDIC and whether you would be covered up to the $100,000. In most cases, I think you will find you will be covered. Secondly, keep in mind that many of these banks are part of the big 5 banks. For example, President’s Choice Financial is actually owned by CIBC, and Tangerine is owned by Scotiabank. BMO has also entered the high interest bank account market. The bottom line When you simply do the math, you can increase your returns on your bank account by 10 times. This in itself is reason enough to take the time to look into high interest accounts. You might be amazed at what you will find: It is possible to get your bank statements and actually earn interest each and every month. It is possible to reduce the amount of fees that you pay without a lot of effort or bartering. I think the more people that use high interest bank accounts; the more pressure there will be on all banks to offer higher interest rates and less fees when it comes to banking.
Do you have the “right stuff” to be a franchise business owner? Let Joe White the Franchise Rainmaker guide you towards the best possible franchise match for you.
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