I have been blogging about how individuals and businesses can work hard to reduce debt. At a macro level, that may be at the expense of spending to stimulate Canada’s economic activities in the short term, but it may well be a very good plan for shoring up your personal financial stability over the longer term.
Without a focus on more aggressive savings, it’s possible that your continued debt, rather than your wealth, will sadly become the legacy of your retirement. Getting your financial house in order sooner, rather than later, will help you build new “redundant income” with which to save in a variety of tax efficient investments including your RRSP or TFSA.
Savvy debt management will also help you get ready to protect your savings from two additional wealth eroders you may have to slay in the future: taxes and inflation.
You may be aware that governments’ biggest source of revenue is taxes on personal income. If governments are to continue spending to stimulate the economy in the short term, and future if sluggish economic activity expected over the next little while further reduces those tax revenues, an important recourse is raising taxes to meet the demands for government services.
That potential scenario puts all the more emphasis on the need for your to manage your personal finances with tax savvy. To minimize personal income taxes in your future, begin your tax recovery plan and create new resources for savings by knowing your marginal tax rate on every source of income you or your investments will generate in the future. You can then tweak your income and cash flow plan with tax efficiency.
It’s also important to take a family approach and employ income splitting techniques wherever you can. When you split and diversify your sources of income, you will pay less. Finally don’t forget the ideal order of investing. . .what should come first: your RRSP, your TFSA, an RESP, etc?
It’s Your Money. Your Life. It’s the tax savvy steps you can take now that can help you build real sustainable wealth. Speak to your tax advisors soon about creating new strategies to “average down your taxes” with income diversification, income splitting and the deferral of taxes on your investing activities.
Evelyn Jacks is President of Knowledge Bureau and has recently been named one of Canada’s Top 25 Women of Influence. Knowledge Bureau has just published new courses on debt management, updates to cross-border taxation issues and a new library of personal, corporate and GST tax matters to take recent court cases into account. For more information call 1-866-953-4768.