Taxes and Debt. The biggest impediments to your wealth. Let's consider a common scenario. Jack and Jill Hill are saving for retirement. They have decided to use a GIC – Guaranteed Investment Certificate. Guaranteed Investment Certificates (GICs) are secured investments. This means that you get back the amount you invest at the end of your term. At the end of a specified time period (term) interest is payable. If that GIC is outside a Registered Plan the interest earned becomes taxable. Interest income is taxed at an individual's marginal tax rate. This makes interest one of the least tax-efficient forms of investment income. So, what are Registered Plans? Most Canadians can take advantage of tax sheltering within a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). Registered plans now include the First Time Home Buyers Savings Account (FHSA) Knowing this Jack, and Jill Hill keep their GIC inside of a plan. Great, you say, what does this have to do with debt? Money not spent on taxes owed is money that can be used to reduce debt. Debt is money you owe a person or a business. It's when you've borrowed money you'll need to pay back. Usually, people borrow money when they don't have enough to pay for something they want or need. If you do borrow money, it's best to have a plan to pay it back. Key to understanding this are the difference between Principle (the amount borrowed) and the Interest (cost of borrowing). Take a loan for example. The principal (original amount borrowed) is divided into equal monthly amounts, and the interest (fee charged for borrowing) is calculated on the outstanding principal balance each month. This means the monthly interest amount declines over time as the outstanding principal declines. Example: a credit card debt of $10,000 at the typical rate of 19.99%. Question: how long would it take to pay it off with monthly payments of only $10? Answer: Never. What if you wanted to pay off that debt in 10 years? The bare minimum to pay off that debt is $200 per month and at the end of that period it would be estimated you would pay $10,710 in interest. The end of tax season is the perfect time to sit down and have a Financial Analysis of your situation. Message me. #angus#barrie#borden#brechin#coldwater#collingwood#creemore#elmvale#innisfil#midland#newtecumseth#ontario#orostation#penetanguishene#perkensfield#portsevern#simcoecounty#spingwater#stayner#tay#tiny#wasagabeach#washago#waubaushene
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Taxes and Debt. The biggest impediments to your wealth. Let's consider a common scenario.
