Check-in

My goal with this blog was to write 5x a week…

This is my first blog in May, and looking in my HabitShare app, I only blogged three times in April. Just double that in March. This week, I’m hoping I can get a “green wall”, or hit that 5x a week goal.

Starting this morning.

My other habits have been going well. I’ve been clean. My running club is at 74%, and I only missed two days in all of March. Last week I managed to get out 4x, one more than the 3x, including a run with my wife! Devotions, or riding my Bible, is the big winner at 100% and a streak of 155 days. 3 things a day has also been great, at 94%, and a streak of 41 days.

My push-up set sits at 83%, and I have a personal best of 55 pushups! That one and weighing myself – 81% – are closely linked, as I do the latter right after.  Love Bree sits at 97% and I added one more, Walk with Bree, which sits at 100%. The goal is to do a quick 20 minute walk through Nose Creek Park after we put the baby to sleep.

So overall pretty happy with it, but I need to pull the 5AC and this blog numbers up a bit. It’s fair to say I’ve got out of the habit, and it’s time to bring it back in. So here we go!

It will be a good lineup this week. We recently purchased a 1994 Bonair 1050 Tent Camper, which we’ve had to do a couple upgrades to. Well, repairs. The first biggee was one of the corner cables needed replaced – no easy feat. Then, we needed a hitch receiver on the van and learn how to hook-up and pull a trainer. That’s still a work in progress. But then we needed to figure out why the lighting didn’t work, which we traced to a faulty ground. Inflate the tires. It’s a work in progress. I’ll talk more about that tomorrow and in the lead-up to our May Long camping trip this weekend.

On Wednesday, we get the house we are renting appraised and consider a purchase decision. We like the place, and if we can get it for the right price, I think we might. Like my TFSA / RRSP blog, there’s plenty of options, and we want to try to pick the one that makes the most sense. But they’re all good options, and there’s a multiplication starting to happen.

Speaking of – my work savings plan is back, so instead of my humble $500 a month saving plan, I’m starting to put that away per paycheque, and my employer will math it 100% (less tax) in a year’s time. So the savings should start to really ramp up, which is a blessing as we limp ourselves out of this COVID year.

So plenty to talk about this week. I just needed to get a couple down on paper to motivate myself as I get into the week. Stay tuned!

Photo courtesy of http://sipxcom.org/aws-ansible-sipxcom-blog-series-part-5/5-checkmarks/. I had to Google whether to use “check-in” or “check in”. Check-in is an adjective or noun, and check in is a verb.

TFSA or RRSP (Part 1)

This is a good one to get out.

Out of my head, that is. As per my blog post two days ago.

I rattle this question around alot. I’ve asked many a person, and there doesn’t seem to be a huge consensus. It’s one of those, it depends.

Can you repeat the question?

Take a very simple example. It’s February 25th and you have $10,000 sitting in a savings account. Should you put that into a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)? If you don’t know the difference, check out an explanation by Adrian at Canadian in a T-Shirt. TFSA here, RRSP here. Full disclosure -> I’m a paid subscriber on his YouTube page.

Oh, and by-the-way, I’m not a financial advisor. So all the usual disclaimers on that, don’t sue me, do your own due diligence (DD in Millennial). I have no idea what I’m talking about!

RRSP. In our simplistic example if you put the $10,000 into an RRSP, you’ll turn around and get a $3,600 tax refund. That’s assuming you’re in (and stay in) a 36% marginal tax bracket. And you didn’t reduce at source. Don’t forget the RRSP contribution deadline is March 1st.

That’s why I’m writing the blog today, just a few days before that deadline. Which (ugh I know we aren’t supposed to start a sentence with that), btw, is really tomorrow, because the last two days of February fall on the weekend.

Fun fact -> February 2021 is a perfectly rectangular month. Full description on that here. And I’m a Christian, so yes, Sunday is the last day of the week.

Stay with me here.

Now, knowing that you are going to get a $3600 tax refund, you can take out a short-term loan for $3600 and invest $13600 into an RRSP. Now, you’ll get a $4,896 tax refund ($13,600 x 36%). You can pay off your short-term loan and still pocket just over $1200.

Or, planning ahead, you can take out a $4800 short-term loan, add that to your original $10000, put $14800 into an RRSP. Now your return is $14800 x 36% or $5328. Pay off the $4800 loan and pocket just over $500. Diminishing returns, yes, but I developed a formula that calculates the exact amount.

Where x = loan amount, y = initial principal, and z = marginal tax rate.

In our example, x is the unknown. Y is $10000, and Z is 36%. Plugging that in, the exact amount for our short-term loan is $5625. So you take out a $5625 loan, add it to the $10000 you have sitting there, and put $15625 into an RRSP. You get a tax refund now of $15625 x 36%, or $5625, and pay off the loan in its entirety.

Great, so if we go the RRSP amount, we can turn our $10000 into $15625. So why not go that way?

Because one day, you’ll retire and pull that out. And if your in the 36% tax bracket, you’ll be back to your original $10000 (plus any interest / growth you make in-between).

If you go the TFSA route, no fancy math and your $10000 grows tax-free since you’ve already paid tax on it. So you end up with the same amount of money.

Ok, so it’s a tie-breaker then? Flip a coin.

Not quite. Where the delta (difference) comes in is if you change tax brackets. I assume all the millennials have exited the chat by now.

Take the same $10000 and assume you’re in a 50% tax bracket now. Plugging that into our formula above, you can put $20000 into an RRSP. $10000, plus a $10000 loan. Your refund will be $10000 ($20000 x 50%), pay off the loan. Now you have $20000 working hard for you.

Fast forward to retirement, pull that $20000 (plus growth) out, but now you’ve dropped to a marginal tax rate of 36%. Well you only get dinged with a $7200 tax bill (only?), so you walk away with $12800. That’s more than the $10000 if you had left it in a TFSA.

Ah.

That is how I understand an RRSP works. It’s a deferred tax vehicle, so you kick your tax obligation down the road until, hopefully (?), you’re in a smaller tax bracket.

So now we can conclude, based on all of this and my non-tax-expert rambling, if you think you’re in a higher tax bracket than you’ll be in retirement, go RRSP. Otherwise, TFSA.

That’s generally what most financial advisors have told me…but.

There’s this thing called Canadian Child Benefit (CCB), Goods and Services Tax (GST) and / or Harmonized Services Tax (HST) refund(s), and Canada Education Savings Grant (CESG). You see, if you lower your taxable income by contributing to an RRSP, the amount you get for those starts to ratchet up as well. But I’m already past a page, so that will have to wait for tomorrow.

Photo courtesty of https://www.mashupmath.com/blog/perfect-february-2021