September 2013
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'Fall'ing back in to a routine.

 

Greetings!

  

With the first few weeks of school behind us, many of you are starting to settle in to a normal back-to-school routine. We want to make sure that taking care of your finances is part of that routine, so we've gathered some articles this month to help you to start to be more budget-conscious this year.

 

If you have any questions about starting an RESP, please feel free to give us a call.

 

Be well.

 

Regards, 

Peter, Richard, Claudio and Joanna

Expert advice for back-to-school on a budget

by Brighter Life - August 2013, brighterlife.ca

 

Bracing your budget for the impact of back-to-school shopping? Cost-saving tactics from a panel of experts can help make it a softer landing.

 

With the first day of school just around the corner, every parent has different concerns: How will Emily cope with the homework? Is Jacob going to have trouble fitting into his new school? Will that big kid still give Madison a hard time? But regardless of their individual situations, nearly all parents face one particular issue: What's all this going to cost and how can I afford it?

 

When you add up the cost of school supplies, clothing, electronic gadgets and up-front fees for field trips and sports, this can be a very expensive time of year. (Not to mention the cost of college or university looming in the distance.) Can you save money while still equipping your kids with what they need?

 

In a word, yes. We asked a panel of three experienced parenting writers to share their best back-to-school budget advice. They don't always agree, and their suggestions may not all work for you, but there are sure to be some tips you can use.

 

Tamara McPherson is the mother of four girls and the creator of WonderMoms.ca, an online community and information resource for mothers in the Greater Toronto area and points west.

 

"Back-to-school shopping is like competing in the Olympics," she says. "Make sure to complete the list of required elements or the judges at school will be sending home a request form."

 

Loukia Zigoumis is the journalist and mother of two boys behind the award-winning Loulou's Views. She lives in Ottawa and also writes about shopping for the Yummy Mummy Club.

 

Marci O'Connor is a Montreal mother of two boys who writes Being Marci (tagline: It's complicated ... send pie) and comments for several online publications on topics ranging from parenting to fitness to style.

 

Brighter Life: What creative ways do you use to stay on budget for back-to-school shopping?

 

Tamara: It seems like every year we end up buying the same things over and over again. With four children in school, it can cost a small fortune to get all the items that schools ask each student to provide. The list is definitely longer now than when I was in school, so proper planning and a little creativity can make for an easier transition from summer mode to school mode.

 

My family often scours the back-to-school flyers in the weeks leading up to D-Day. I don't mind heading out to different stores if the deals are worth the trip. When it comes to basic items such as pencil crayons, erasers, scissors, pens, rulers, pencils, calculators and the like, it doesn't matter where you purchase them. They tend to be better priced at places like the local dollar stores. Buying in bulk or in family packs can bring down the per-item cost somewhat. On the other hand, items such as binders, duo-tangs, lined paper and dividers seem to be more reasonably priced in the big-box stores or larger office supply outlets.

 

I set a budget for each child and try to stay within that budget. Make a list of "needs" versus "wants." Show your children the list and tell them that only the items on the list will be purchased, and only within the budget limits. This will not only keep you within your budget, but also instill a sense of satisfaction when your child knows he or she has shopped wisely. You may even try to make it a competition to see who can get the most on the list for the least amount of money. An incentive or prize for the one who spends the least can make a fun game out of the shopping experience.

 

Loukia: That works for me, too. I like to challenge myself - and my boys - by making a budget for back-to-school shopping and sticking to it. It can actually be a lot of fun! We make a list of things we need to buy and start comparison shopping. There are brands I am used to and brands that I love, but the price of certain items does make a difference in my purchasing decisions. From new clothes and shoes, to school supplies like lunch boxes and pencil cases, it's a challenge every year to stay on budget - but we have fun with it and look for items that we absolutely need. Another great idea is to stock up on winter gear items early, since they can sometimes be cheaper off-season.

 

Marci: Buy sturdy knapsacks in boring, solid colours (no more TV show characters that they get tired of two weeks into school when they realize they actually prefer the other show). We bought them solid-colour packs and they choose a few keychains or pins to personalize them. The bags have each lasted three years so far and we just update the embellishments occasionally.

 

School supplies are tricky. When a teacher requests a name brand, we comply. (What happens to the ones buying the generic brand? Are they expelled?) The only time I go rogue is when they ask for paper folders. I buy plastic ones instead, so I can reuse them each year. We've been doing this for three years and have only had to replace a handful so far.

 

I don't purchase individually packaged snacks. I buy in bulk and send in reusable bags most of the time. The school appreciates the eco-friendly efforts and we save a few bucks!

 

Brighter Life: What's the number-one thing kids don't need when going back to school (but that everyone seems to think they do)? What should you never skimp on?

 

Tamara: There are so many possible answers to that first question, including an iPod or MP3 player, a laptop computer or a whole new wardrobe! But truthfully, there are items that, if purchased right the first time, can be recycled and reused for more than one school year. Good examples of this are backpacks and lunch bags. My kids are always asking to get new ones and my reply is often, "You don't need one, because I purchased a good one last year." If you invest in a good-quality, high-grade nylon backpack, you won't have to replace it mid-way through the second semester, or even next September. Buying the cheapest one you can find doesn't always make sense. I was looking at my kids' backpacks just the other day; they are all in great shape to be used for this year. Don't skimp on backpacks or lunch bags, or be prepared to replace them half way through the school year.

 

Loukia: Most people seem to think their children need an entirely new wardrobe before the school year starts again. And as much as I love to shop, this is not an absolute necessity for children heading back to school. I'm all for buying my children some new clothes, especially for the first day of school - that is a tradition that we have. But besides a few new pieces, we don't have to go all-out for new clothes. I will always buy my boys new shoes right before the start of the school year, though - that's a must-have on my back-to-school shopping list! I also love to buy my boys new backpacks every year, and I always order new personalized labels to label all their belongings, from pencil cases to umbrellas.


Marci: Did you know that cheap plastic knapsacks only last 43 days and then they will conveniently rip beyond repair 52 minutes before the mall (which is 17 minutes away) closes? Yep, this is a stat. (I can find the study if you want.) It is also a very good example of getting what you pay for. I bought this "thrifty" knapsack because my son excitedly chose it as his very first school purchase when he started kindergarten years ago. I imagined him tucking a few little snacks in there and maybe the occasional birthday party invitation and gold star-studded paper from his teacher, telling me how cleverly he draws circles.

What I did not expect was the amount of food I'd need to stuff in there to get him through the school day. Or that the school would require him to have more costume changes than Lady Gaga (gym shorts and tee, art smock, mittens, extra mittens, hat, extra hat...).

 

Brighter Life: Is long-term saving for your child's post-secondary education on your mind? How do you keep that on the radar when day-to-day costs are piling up?

 

Tamara: For many years we have been concerned about the kids' post-secondary education. How were we going to afford to put four children through university? We had to devise a plan early on so as not to add that worry to the other stresses of parenting. We came up with the idea of saving $50 each week. (It doesn't have to be that much; the key is to establish a regular amount and stick to it.) A little each week amortized over 18 years adds up. If you calculate it, $50 a week times 52 weeks equals $2,600 a year. Multiply that by 18 years and you have a tidy little sum of $46,800 plus interest. It may not be enough, but it is a very good start. Start saving early, while you have time on your side. You can even go one step further and consult a financial professional for direction and guidance. You don't need to go it alone.

 

Loukia: My children are both so young - one is entering Grade 2, one is starting kindergarten. But still, even though they have years of public school left, the thought of them going to college and/or university one day in the not-too-distant future is already on my mind. Both my children have their own bank accounts where we save money for them so that when the time comes to make that important life decision about where to attend post-secondary school, we know we'll have enough saved up for them. It's hard to stay on track with putting money away for them, but we try to. My older son actually loves saving money, too, and when family members ask him what he wants for occasions like his birthday or for the holidays, he asks for money, and I take him to the bank so he can understand the entire process.

 

Marci: When each of our boys was born, my mom opened up a small savings fund for him. But since we have no doubt our boys will end up at an Ivy League university (oh, don't worry, yours will, too!), we need to start saving more aggressively now. We have been adding a portion of their birthday loot to the plan and this year (as my oldest enters Grade 7), we will map out a financial path. Ideally, they'll contribute to their post-secondary education by working part-time, but I expect that my husband and I will carry most of the financial costs. We are more than happy to do it but I'd rather not take on debt to get them through university. After all, our plan is to have them supporting our retirement one day. That's how it works, right? Right?

 

View original article here.

Personal finance 101: Student life

by Stefania Moretti - August 2013, moneysense.ca

 

College is the perfect transition period for students to become financially responsible, according to Robert Stammers, the director of investor education for CFA Institute. To be financially responsible doesn't necessarily mean 100% self-sufficient money-wise but it does mean being fully accountable.

 

The idea is to have students slowly take over budgeting and spending decisions over a four-year period, explained Stammers. In the beginning, parents will have most of the decision-making power. "By the time (the student) is a senior, they should be fully in control," he said.

 

The road won't be easy-people learn from their failures just as much as their successes, Stammers says-but you'll all be better off for it.

 

The first step is to work together to create a back-to-school budget (try the government's student budget worksheet). Determine how much you'll need to cover tuition, course materials and living expenses. Friends and older siblings can be helpful in setting realistic expectations, keeping in mind that the average undergraduate tuition fee was $5,366 for the 2011/2012 school year, according to Statistics Canada. Tack on roughly another $10,000 per year for students living away from home.

 

Next, calculate how much you expect to receive from government student loans and grants/scholarship and how you intend to cover the difference. Will mom and dad step in? Is there an RESP to tap? Will the student use some of his or her own savings? Or work a part-time job? Perhaps a personal loan or student line of credit is needed to finance the gap?

 

Whatever funding methods are chosen, it's important to set clear expectations. Let's assume mom and dad agree to pay for food while the student accepts responsibility for monthly transit passes. During freshman year, parents should probably provide a food allowance on a weekly or monthly basis. As the student progresses, however, consistently meeting their own payment deadlines (bus pass), parents should be able to distribute cash when it's convenient for them without worrying that their young scholar will call home in a panic because they blew the cash all at once and have nothing left for groceries.

 

"In the beginning, you're going to get the calls," said Stammers. "Hopefully you get them less and less."

 

This type of self-discipline becomes important when and if you take on a student line of credit. As Stammers rightly points out, parents have to sign off on initial bank paperwork but it's often the student who decides how much, when and where to spend the borrowed cash.

 

"There's a real temptation to overspend. Borrow only what you need."

 

Graduating with student debt is expected-the average debt load is $37,000, according to the Canadian Federation of Students-so you'll want to keep that already-high figure as low as possible. To do so, avoid going into debt for non-essentials like concerts and spring break trips.

 

To finance things like entertainment and travel, which (within reason) are part of a full student life, a part-time job is your best bet. Juggling course work and a few short shifts a week is possible; it can actually create good time management habits, Stammers said.

 

"It helps drive home that idea of deferring immediate gratification for future savings goals."

 

As for credit cards, "I don't think they are necessarily bad. They are great for emergencies but you've got to make sure they are not an excuse to spend," he added.

 

If students can successfully balance a budget while in school, chances are they'll be able to manage their own debt repayment when the time comes.

 

View original article here.

RESP Withdrawal rules

by Jim Yih - September 2013, retirehappy.ca

 

It's that time of year again when students of all ages head back to school.  For younger students, parents are reminded to think ahead and put money into RESPs to help pay for post secondary education.

 

For those that are now going to post secondary school, it's not about putting money into RESPs as it is about getting money out of RESPs.  Let's walk through an example of Jessica and her daughter Brandi who is going to post secondary college for the first time to help understand the RESP withdrawal rules

 

Over the years, Jessica has been putting away money into and RESP for Brandi.  Now that Brandi is 17 and going to post secondary education, these RESPs are going to come in very handy

 

Withdrawals from the RESP

To get money out of the RESP, the first step is to contact the financial institution that holds the RESP (in this case, it's Jessica's financial advisor) to request a withdrawal.  The terminology is that the subscriber (Jessica) initiates the withdrawal and not the beneficiary (Brandi).

 

Proof of education

The RESP beneficiary must attend a qualified post-secondary educational facility as determined by the government.   Proof that the beneficiary is enrolled in a qualifying educational program at a post-secondary school level at a designated educational institution is required.

 

The definition of a qualifying post secondary education facility is quite broad.  As long as you are getting a certificate or degree, it probably qualifies.  If you are not sure, you can check with the financial institution that holds your RESP or even Canada Revenue Agency (CRA). The government has a Verification of Enrolment Form

 

In 2007, rules were changed to also allow for part-time studies to count for RESP withdrawals.

 

Some RESP withdrawals are tax free

If we look at the example of Brandi's RESP, CRA looks at all the money deposited by her mom as contributions and therefore any withdrawal of these contributions are not taxable.  When Jessica originally put money into the RESP, there was no tax deduction and thus there is no tax on the way out.  These withdrawals are called Post Secondary Education Payments (PSE).

 

The government looks at the contributions as Jessica's money.  As a result, it is Jessica who must request the withdrawal.  Jessica can have the money go into her bank account or the money can go directly to Brandi at Jessica's request.  There is no limit on the amount of PSE that can be withdrawn once the child goes to a qualifying post secondary institution.

 

Some withdrawals are taxed and restricted

If the contributions can be withdrawn tax free, then the rest of the money in the account is government grants and investment growth.  Any withdrawals of non contributions are considered taxable to the student.  CRA calls this Educational Assistance Payments (EAP).

 

Unlike withdrawal of contributions (PSE) which is non taxable and the limits are unrestricted, the withdrawals of EAP are not only taxable to the student but also limited in the first year.

 

There is a $5000 limit on EAP withdrawals in the first 13 weeks of schooling.  When making withdrawals from RESPs, it is important to designate where the money is being withdrawn from because that affects the taxation of the withdrawal.

 

The final strategy

Brandi has about $27,000 in the RESP account.  $14,000 of the total amount is money that her mom put in and the rest is government money and growth.

Even though Brandi only needs $3500 for tuition and books, her mom wants to take out the $5000 allowed in the first 13 weeks of school.  She decides to give Brandi the $3500 to pay for tuition and books and an extra $500 as a congratulations gift to buy some new clothes.

 

If Brandi was going to a school overseas where tuition and books are not only more expensive but also the cost of accommodations and living come into play.  If this were the case, Brandi's mom could take out $5000 of the growth and grant money and then up to $14,000 of the contributions for a total withdrawal of $19,000.

 

When withdrawing money from RESPs it's important to understand the RESP withdrawal rules.  It's especially important to understand the different tax rules when withdrawing money.  Also make sure your advisor or bank understands the rules.  Unfortunately, I have met many people that were not told about the different tax rules for RESP withdrawals.

 

View original article here.

Issue: 33
Financial Markets
In This Issue
Expert advice for back-to-school on a budget
Personal finance 101: Student life
RESP Withdrawal rules
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Peter Bailey
Wealth Advisor
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1 

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