When you read this post’s headline, it may sound pretty corny to you (at this point, it probably is), but once you see the simple things that you can do to save money and getting free money on top of your savings, it’ll become SEXXXXY to be a saver. The things that I do can be done by anybody and there is no magic or loopholes – just knowledge. All you have to do is be disciplined, understand, maximize and enjoy the benefits to your advantage. Well, most of the items, not all. Some of the items require you to be married or have kids to get the benefit. As time goes by, I’ll continue to update this list and add new items that I discovered or others had shared with me. So let’s get started.
I appreciate the employee share ownership plan (ESOP)
For established organizations, the ESOP is a benefit that employers offer their employees to participate in the success of their organizations. This often involves buying the company’s stock and the company will match the employee’s contribution. For me, I was fortunate enough to work for an organization that gives me a 50% matching for every dollar that I contribute to my ESOP, up to 6% of my salary. To maximize the benefit, I directed all 6% of my ESOP contribution and 3% of my free matching from my employer to my RRSP account. The best part is the 6% of my earning never get tax deducted from my paycheques and I am one-third of the way to maximizing my annual RRSP contribution for the year (the maximum RRSP contribution limit for the current year is about 18% of your previous year’s income for most people). On top of that, the dividend that I receive from my company stock is tax sheltered and gets to grow tax-free until I withdraw it.
I enjoy the Annual Bonus
I know that not all organizations pay their employees an annual bonus, but for those people that are fortunate enough to be employed by one, you can direct the annual bonus payment to your RRSP account too. Once again, this extra income will not have tax deducted from your paycheque and it can start earning income right away if it goes directly to your RRSP account. For me, my generous employer pays me an annual bonus ranging from 8% to 12% of my annual salary, depending partially on my own, my department’s and the organization’s performance. By combining my annual bonus with my ESOP contribution, 14% to 18% of my annual salary is painlessly and efficiently tucked away and all the income generated is also tax-sheltered and will be compounded.
I am excited to maximize my RRSP contribution each year
From the ESOP and annual bonus example, you can see that I was able to contribute at least 14% of my annual income without having to do too much budgeting. If you are disciplined and have the RRSP contribution deducted from your pay before you receive the money, you’ll hardly notice it. I’ve done that for more than 10 years now and it had never affected my day to day finance. When you see the amount of money that you have in your RRSP account and the refund that you’ll get after filing your taxes, you’ll definitely want to maximize your RRSP contribution each year.
I feel rewarded when I contribute to a Registered education savings plan (RESP)
An RESP is a saving vehicle for family members (the ones with the $$$, such as grandparents, parents, aunts, uncles – well you get the idea) to save for the future education cost of younger members of the family (these members are usually kids in the family – I call them the $$$ suckers). For example, the subscriber, usually the parent, can contribute up to $2,500 per year per kid and the government will match that contribution with an extra 20% per beneficiary. That means each kid gets a maximum of $500 free from the government per year (here is a very thorough and well-written RESP article by Mike Holman). The subscriber does not get any present benefit at all, but the future benefit can be great (think of it this way, a little financial pain right now will prevent a lot of financial pain years later. Besides, you are investing in your kids. It’s worth every penny.)
I like getting rebate/credit for my Public Transit Cost
If you take public transit like the bus, streetcar, subway or commuter train on a regular basis and you buy monthly passes, you get a 15% tax credit on the total cost of your monthly transit passes. This is simple. All you have to do is keep the transit pass or receipt as proof of purchase and report it in your tax filing at the end of the year. For me, my average public transit cost per year is about $2,300. So I am getting an average of $345 per year in income tax credit.
I am glad that I found a cash back credit card
Last year, I got $386.92 in cash rebate from my credit card and did not pay a single penny in interest or annual fees to the credit card company. I have a no annual fee credit card that pays me 2% on my purchases of grocery and gas, and 1% on other purchases. So how did I earn that much cash back? I just use my credit card on every purchase from the merchant that accepts it – I rarely use cash nowadays. My monthly credit card bill is always paid on time and in full. That’s it. You can also check out my credit card analysis post.
I am satisfied with the high-efficiency performance and savings
When my A/C broke on one of the hottest days of this past summer, I decided to invest in a high-efficiency Carrier A/C and furnace combo. The total cost is about a little over $6,000 for both (make sure you get at least three different quotes. I almost get ripped off by one of the outrageous national vendors that quoted me almost $20,000 for a similar set.), but I get a total of $1,450 in rebate from Enbridge for having the high-efficiency A/C and furnace – sweet deal. On top of that, I know I’ll be saving on my utility and gas bills going forward. A few weeks later, Costco had an awesome sale of energy efficient LED light bulbs and pot lights. So I went all in and upgraded all my light bulbs and pot lights in my house. To my surprise, I have around a freakin’ hundred lights in my house. The good news was, I only need to change about half of it in places that were not so frequently used as I already had LED lights in high traffic areas of my house. The average cost of those LED light bulbs didn’t break the bank and cost me only a bit more than a dollar for one.
I am thankful for the Bundles of joy
If your family have a home phone, multiple mobile phones, the internet and cable tv, bundling them together you’ll save at least 5% on average for each item. Why stop there? You can also bundle your home and vehicle insurances too if you own both. The first two types of bundling are quite obvious and easy. However, most people forget that they can also bundle their chequing, saving and investment accounts, credit card, mortgage and line of credit with one financial institution too. Here are some of the obvious benefits: you’ll play fewer fees on your accounts and be able to manage your finances in one place. The hidden benefits are more bargaining power and performance efficiency. When you have that many products with your financial institution, your bargaining power goes up and you can demand better rates, fewer fees or no fees on some products and preferential services. The efficiency comes from combining all your investment accounts into one and being able to allocate and diversify your investment properly. Trust me, you don’t want to have five RRSP accounts with five different institutions.
I feel secure enough to have the lower-earning spouse own the high tax assets.
What do I mean by high tax asset? It’s the earning vehicles that don’t get special tax treatments like rental income, interest earning from saving accounts, GIC or Bonds in your non-registered account. For those assets, every dollar that you earn will be added on top of your existing income. When it comes to paying income taxes, the worst case scenario is you paying more than 50% in income tax for every additional dollar of income that you earn – that really sucks. Let’s take a look at a simple example, let’s say that your spouse’s top income tax bracket is 30% and your’s is 38% and your rental income = $3,000, saving account = $350, GIC = $200, Bonds = $500 for this year. That’s a total of $4,050 in extra income and let’s assume that both you and your spouse will stay in the same tax bracket after adding the additional income. At the current tax bracket, your income tax is $1,539 (=$4,050*0.38) and $1,215 (=$4,050*0.30) for your spouse. Hence, you’ll save $324 in income tax if the asset was in the lower-earning spouse’s name (This one requires a bit of advance planning and knowledge of your and your spouse’s earning potential).
I feel confident enough to file my own income tax
Every year when it’s close to end of April, people’s stress level starts to elevate and their anxiety shooting through the roof because it’s tax time. And most people hate tax time (including my wife). You’re thinking that this is the worst recommendation ever and I must be going mad. Hear me out and I’ll show you the benefits. Once you turn 19 years of age, you’ll have to file your income tax every year for the rest of your life, regardless if you have earned income or not for that year. So it’s fair to say that if you learn the little tricks of paying fewer taxes, you’ll reap the benefit for the rest of your life. For starters, you don’t have to file your income tax by paper (I’ve tried to do it once, not fun at all), you can use a software like TurboTax or UFile. This software is great and most of the existing and newly introduced tax breaks are built into the software every year. All you have to do is know what you can claim and what you can’t for each year (if you have noticed, quite a few items that I mentioned here are tax related). Take a look at some of the stats in the below and hopefully, that will motivate you. The annual tax refund looks sexier and sexier every time I look at it.
|Marginal Tax Rate||43% (my personal tax rate for the next dollar that I’ll earn)|
|Average Tax Rate||10.2% (This the the % of tax that I pay as a percentage of my total income)|
|Tax Refund||$10,266 (Need I say more? My fat 2015 tax refund cheque from the CRA)|
|Tax Refund by year||2015 (refund: $10,266), 2014 (refund: $6,477), 2013 (refund: $6,227), 2012 (refund: $5,009)|
I have other more advanced money-saving concepts that I will cover in future posts
– Investment tax loss selling
– Business expense write-offs
– Personal loans to a family member
I relish the opportunity give others my two cents
From most of the money saving examples listed above, it doesn’t take a lot of efforts or specialized skills to implement. Once you discover it, you can repeat it year after year after year (having more money in my pocket never gets old). However, it does require discipline, accountability, the willingness to learn, explore and investigate. I am sure there are many simple money saving methods out there like couponing, price matching, buying in bulk etc., that I have not fully explored yet. At the end of the day, what’s important is that you are accountable for your own finance and it’s up to you to determine how much effort that you want to spend to improve your financial well-being.
So, how do you love saving money? Can you count the ways?