Last edited by Koala; 2012-02-16 at 02:20 AM. Reason: ETA: Maybe this question should be answered in my money journal or in a new thread, I don't want to hijack this journal!
CRA has an 'attribution rule' that relates to intent of avoiding taxes.
So in your joint account, say each month, $10,000 goes into the joint account - $9000 from your husband, $1000 from you.
If suddenly, you start investing $5000 ea. month, clearly the money was not earned by you, and since your husband has such high income, they want the gains earned from his income to be taxed at his higher marginal tax rate. By gifting the money to you to invest, CRA would view this as him trying to avoid paying taxes on those gains by shifting the investment earnings to you, the lower income spouse.
I think the way to properly split this would be to invest your maximum $1000, and use all his monies to pay your bills etc. I don't know how CRA really does this during an audit if any $ over your maximum theoretical saving amount would qualify as attributable to the earner.
One of the trading accounts is a trust account, and it's got about $8500 in stocks right now. There's $3k in cash right now which I'm trying to figure out what to do (eg. dividend stocks, couch potato, etc). For the RESP, we're contributing what we need to maximize the govt contribution, so I suppose it's neither here nor there if I put the additional funds into the RESP account or into a couch potato.You could open a trust account for him, since you won't be able to invest directly under his name. We keep track of gifted money, but end up putting this into our own accounts. There is no point in a 3 year old having $3000 to his name. Perhaps you can use those funds to invest into his RESP rather than using your own.I think this is probably what I need to do. I've been treating my mutual funds as my "core" and long-term holdings and my stock portfolio as my "play" portfolio (for the lack of a better term). That is, if my stocks go down or I take a loss, I can accept it.I would step back and really take a look at your investments - it seems you have the time and knowledge to tackle a DIY ETF based portfolio and your combined assets are large enough to warrant this approach. I would recommend you consider your entire portfolio as a single unit, look at all the mutual funds, individual stocks, etc and determine if the breakdown is (i) low-fee, (ii) fitting of you risk tolerance/profile, (iii) capable of producing returns to meet your mid- to long-term goals.
I'm a bit concerned with the amount you are paying every month in life insurance. That's a lot of money. Over a year it's over $3000. May I ask why you are paying so much for that? If you're working full time, many company benefits plans have a life insurance policy included. Seems to me this is a luxury spend, but I may be wrong.
P.S. No need to quote every reply.
It's a policy that we bought when we got married 7 years ago and something that I've thought about occasionally. I honestly don't know much about life insurance, and it was something that our family recommended us to do at the time.
Given our ages, family situation, and financial situation, would you recommend going with term insurance instead? I'll check our company benefits policy to see what type of coverage we have.
Re: RESPs - $3000 Cash is fine. I think you need to set out a goal/plan for the RESP. Whether you will have a fixed asset allocation or change this over time. Our son is about 15 months old and we have him at about 80% equity and the remaining allocated to cash and/or bonds. As he gets older and closer to school age, we plan to reduce equity exposure in favor of fixed income and cash. The point of having the cash on hand is for diversification, and to take advantage of any buying opportunities if the markets fall.
Re: insurance - (i) how much coverage do you have? and (ii) does this align with what you need. In your scenario, at the pace you are saving monies, you can probably be self-insured (i.e. have enough assets to cover all your liabilities and support your son/family in event of disaster/death) by the time your son is 15-18. You have relatively low liabilities so I personally would go for a Term-15 or Term-20 policy if I were in your shoes [and they are quite similar ]
To assess adequacy of you policy, just plan for the worst case scenario in the event of loss of you income - what would you like paid off immediately, how long would you have to support your family etc. Do this for death, permanent disability, and prolonged medical expenses. Only after you set out those targets should you judge whether you are paying too much or possibly even too little for your policy. I would also get a little extra coverage since your son is so young, and it may be possible you have more children/dependents.
My husband and I bought a whole life policy 26 years ago , I did not realize until Last year it was not the best way to go.The only plus side is we are getting guaranteed 8% annually on the cash value and dividends.That was back when savings accounts were paying about 12% interest !
I looked into our life insurance a little more. From work, we both have coverage for 1-year's salary. Each of our private policies are for $100k. Also, roughly have of the coverage is for critical illness, so we have both life insurance as well as CI.
Given our difference in incomes, should I move all of the holdings in my margin account to her name and continue buying stocks only in her name (aside from TFSA)?
It's been about a year since my last update, so here goes:
Last year, I listed our short/medium term actions would be: 1. Have another kid; 2. Start a spousal RRSP; 3. Pay off mortgage in 5-6 years, and 4. Possibly move. #1 will be accomplished next month, and I did start a spousal RRSP to help balance out the weighting of the assets. For #3, we are well on our way, and I expect the mortgage to be fully paid in 2 years, so we're ahead of schedule there. For #4, we're definitely not moving this year since I don't want to move with a newborn, so I expect this will happen once this house is paid off.
As far as income, both of us switched roles within our company last year, and our combined gross income not including bonuses is now about $155k. I'm always a little worried that both of us work at the same division within the same company, but our division is still growing, and the entire business unit was left intact despite a 10% global headcount reduction for other groups.
Here's the net worth calculation...
Bank Accounts: $53.3k
Chequing - $7.8k
Savings - $24.5k
My TFSA Savings - $10.5k
Her TFSA Savings - $10.5k
Home - $390k purchase price (FWIW, builder selling for $570k nowadays)
Mutual Fund Investments: $229.1k
My RRSP - $145.3k
Her RRSP - $68.1k
Spousal RRSP - $4.9k
Son's RESP - $10.8k (maxing out govt contributions)
Stock Portfolios (using today's prices): $62.6k
My Margin - $28.8k
My TFSA - CWT-UN - $4.7k
Son's In Trust - $10.2k
Wife's RRSP - PG, MCD - $7.4k
Mine/Wife's ESOP - $11.5k
I didn't have much time to focus on the stock portfolio last year as I was just busy with work, but it's pretty much the same as last year but I got rid of a couple of losers and picked up a few more dividend payers.
Mortgage - $85k
Total assets - $735k (I included our house at purchase price and didn't include stuff such as cars or material possessions)
Total liabilities - $85k
Total net worth = $650k
That's an increase of $162k which is 33% increase compared to the from $488k last year. Overall, I'm very happy with how things turned out last year. We've lead a fairly frugal life over the past few years, but with another child on the way, we're gonna start to spend a little more. In addition to child-related costs, I'm sure we'll be doing more vacations and stuff as well. I've really started to realize that there's no point in worrying about money so much and saving so much and not enjoying life.
Wow, time has flown by in the last 3 years. Lots of changes:
- We had a second kid, and they are now 6 and almost 3.
- We moved to a bigger house last year and now have a fairly big mortgage again.
- I moved to a competitor, and my wife was recently let go from her job. We had been talking about having her stay home with the kids anyways, so we'll probably try that for the next year or so.
Here's the picture as of a few weeks ago (some figures may be off due to rounding):
Bank Accounts: $52k
Chequing - $8k
Savings - $32k (Will be the war chest while my wife is at home if we need extra money)
Kids Savings - $12k (I'm putting this in a couch potato in a few tranches)
Home - $1.05M purchase price
Mutual Fund Investments: $372k
My RRSP - $189k
Her RRSP - $123k
Spousal RRSP - $29k
Sons' RESPs - $31k (maxing out govt contributions)
Stock Portfolios - $95k
Mortgage - $446k
Total assets - $1.6M (I included our house at purchase price and didn't include stuff such as cars or material possessions)
Total liabilities - $446k
Total net worth = $1.15M
Our overall net worth has increased significantly in 3 years, but a lot of it is due to real estate. That said, the investment portfolio has grown by a lot as well, and we continue to save. The main thing that's on my mind, however, is the cash flow if my wife isn't working. Here's a quick monthly summary:
Take home pay - $6774 ($120k gross per year plus 15% bonus, the take home is net of an RRSP contribution as well)
Baby bonus - $320
RESP/RRSP contributions - $760 (will reduce by $100 when my wife stops receiving severance)
Daycare for younger child - $566
Mortgage - $2816 (accelerated payout schedule)
Property tax - $503
Car/home insurance - $324
Life insurance - $265
Utilities - $248
TV/internet/home phone/cell phones - $342
Gas - $240
Transit/parking for work - $233
Dining - $285
Sports - $231
Misc - $647 (This line includes stuff like groceries, household goods, personal care, clothes, etc). I'm too lazy to break things out.
Net cash flow - ($371)
As you can see, we're in a little bit of a deficit on a monthly basis. We've started to be more frugal in general by buying less stuff that we don't absolutely need. If we want something, we buy it, but we are not big spenders by any means in terms of things that we like (eg. designer clothes, expensive electronics, etc). I've been thinking about a things we can do to bridge the gap:
- Move into a smaller house. Our house is much too big (3300 sq ft) for the 4 of us, and I'm leaning towards moving back to something smaller. I think we can now get $1.15M for the house, pay off the mortgage, and be left with $700k to buy something else. Ideally, we can get a small detached or a townhouse, and that will wipe the mortgage right off and free up $2800 per month.
- My wife get's a part time job. Our little guy goes to school for a half day every day, so could she find something to do either in the mornings or several days per week. Her mom is around to help with childcare, so it's not a big deal. One of the most important things is that she gets something low stress. Her last job was fairly stressful, and it took a toll on her home life.
I'd love to hear comments/feedback.