May 8, 2014, 5:49 am

The Least Satisfactory Tax Return of my Life

by: The Financial Blogger    Category: Taxes

 

Last year, I decided to stop procrastinating with my tax return and completed everything in March. I was happily surprised to see how fast I got my tax refund back! I decided to do the same thing this year and I already cashed in my tax refund last week. Sometimes, the Government can be faster than you think!

 

WHAT IS A NOTICE OF ASSESSMENT

 

The notice of assessment (NOA) is the document you get back from the Government confirming how much you earned, your tax credits and how much you have paid in taxes. If you paid too much tax during the year, you get a nice check along with your NOA. This usually happens if you can deduct an amount from your earned income or if you are eligible for specific tax credits. For example, I had deducted my RRSP contribution and I’m eligible for several tax credits because I have children.

 

My employer calculated the tax to be paid on a salary of X. Let’s say I make 100K/year and I should pay an average tax rate of 35%. This means I pay $35,000 in taxes throughout the year. Imagine I invest $10,000 in my RRSP and I’m eligible for a $2,000 tax credit for my children. My tax able income is reduced by $10,000 (the RRSP contribution) . This means I should pay 35% taxes on $90,000 and not $100,000. The total tax due is then $31,500 (35% of $90K). Then, I receive a tax credit of $2,000. The tax credit doesn’t reduce my taxable income, it reduces directly the amount of taxes due. My taxes for the year drop to $29,500. Since I’ve paid a total of $35,000  from my pay check, the Gov’t will give me back a nice check of $5,500. Wow… I wish my example was the real life! Hahaha!

 

On the other hand, if you have earned other sources of income throughout the year and haven’t paid taxes on them (investment income, rental income, second job, etc), you may end-up paying more taxes after filling your report.

 

I LOVE RECEIVING MY NOA

 

I always look forward opening this letter from the government for two reasons: #1 I usually get a nice check. #2 This document confirms how much I earned last year. This always makes me proud and reminds me that I should appreciate having such a great job!

 

The NOA also tells you how much you can invest in your TFSA and your RRSP. This helps me plan my investments for the year.

 

NOW BACK TO WHY I’M DISAPOINTED BY MY TAX RETURN

 

In fact, I’m not disappointed by the amount but rather what I’m going to do with it. I deposited my checks last week and already used all my tax refund… to repay debts! As fast as it was deposited, it was applied to my loans just as fast. It wasn’t incredibly exciting to use my tax refund to pay down debt but I know it’s the right thing to do.

 

I’ve already paid for my vacation for the full year (including my summer vacation) so I know I will not have more expenses to come in the next 6 months. Reducing my debt is the #1 priority for the rest of the year and it starts with my tax refund.

 

The second step is to take my next raise to invest more in my TFSA to fund private school for my three children. Then, I should receive a part of my bonus this summer which will also be applied to my debts. By January 2015, I should have paid everything besides my car loan and mortgage, this will help a lot!

 

What are you going to do with your tax refund?

 

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May 6, 2014, 5:40 am

Another Look at Leveraging

by: The Financial Blogger    Category: Smith Manoeuvre

 

A long time ago on this blog, I wrote several posts about the Smith Manœuvre. This was a very popular concept a few years ago. More precisely, before 2008.

 

The Smith Manoeuvre was born in Western Canada when several households decided to convert their mortgage debt into a tax-deductible debt. After all, if Americans have the right to deduct their interest on their mortgage, why couldn’t we? The Smith Manoeuvre allows that over time. If you are not familiar with this strategy, I recommend you read my articles here and there.

 

The problem with the Smith Manoeuvre is that it implies leveraging. Instead of paying down your mortgage, you keep borrowing money from your line of credit to invest in the stock market. This makes this part of your mortgage tax deductible. But you still have a debt outstanding. As long as the market goes up, everybody is a king with this strategy. In 2008, most people were crying in their basements.

 

Now that the dust has settled, interest rates are still low and will remain low for a while and the stock market keeps rising, this looks like the perfect time for leveraging again. Back in 2009, I had to stop my leveraging strategy. Not because I was afraid of the market, but because my financial situation didn’t allow me to borrow anymore.

 

The key point with any leveraging strategy is to be able to support the stress.

#1 Stress from market volatility.

#2 Stress from the outstanding debts.

 

There were lots of changes in my life in 2009 and I couldn’t support having additional debt on my mind. We had our second child two years earlier and now my wife was about to stop working. The fact our budget had become thinner was the main motive why we decided to stop leveraging.

 

Right now, my situation is improving, I’m getting ahead of my debt payments and can feel the moment when I will have extra cash each month. I will possibly get rid of all my consumer debts (besides my car loan and mortgage) by January 2015. At that point, I will have more money to handle.

 

I’ll be left with two options: pay down my mortgage and car loan faster, or invest this money. Or… I could restart my Smith Manoeuvre!

 

I know leveraging is risky, but someone who has been borrowing to invest over the past 10 years is smiling today. Net of fees, a growth mutual fund (75% in stocks / 25% in bonds) did about 6.50% annualized rate. The investor probably paid an average of 3.5% in interest rate over that period. This leaves 3% net of fees and interest annualized for the past 10 years without disbursing a single penny.

 

If an investor had borrowed 100K 10 years ago, they would show a net profit of $52K after ten years (before taxes). So 52K is being made while enduring the most important stock market crash right in the middle of your strategy. 52K is being made without you putting a single penny on the table, not even to pay for the interest. 52K is being made and you can keep on going as the compound interest will make the next 10 years even more interesting. Because in 20 years, the same 100K borrowed will be worth $352K. Net of interest, and after paying the 100K loan, there will be 182K left in your pocket (minus taxes).  So now we are talking about 182K in profit when you didn’t use one dollar from your pocket to invest.

 

As I just mentioned a few paragraphs before, leveraging is not made for the faint of heart. If you can’t keep up with a portfolio down by 20% and an outstanding debt of 100K, you are not made to leverage. But for those who can afford it, this strategy makes a lot of sense these days. I’m pretty sure some were able to make the 52K from 100K in just the past 4 years…

 

What do you think? Are you in for leveraging again?

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April 30, 2014, 5:52 am

How Much Do You Need To Live Comfortably?

by: The Financial Blogger    Category: Personal Finance

 

 

Last year, I went through all kinds of questioning about my budget, future, job and online company. I really needed to put down on paper how much I needed to live and create a comprehensive budget.

 

Doing this exercise was great not only to focus on debts but also to realize how much I needed to live the good life in my own terms. Some people only need a couple thousand per month to live comfortably while others think they couldn’t live without spending 10K a month. It’s all about your priorities and what makes you happy…

 

WHAT MAKES ME HAPPY IN MY DAY TO DAY?

 

The first question I asked myself was what the most important things were for me. I’m not talking about my family and other personal values here but what is important in terms of material things. For example, I LOVE my house. There is no way I’m giving up my house in my budget. It fulfills all our needs and then some. We are incredibly comfortable in it and even benefit from the daycare at home (we have a separate entry and a room dedicated to my wife’s business). Living in this house definitely makes me happy in my day to day.

 

On the other hand, my RX-8 wasn’t bringing me enough happiness compared to its costs and wasn’t kept. While the car didn’t have any loan strings attached to it, gasoline and sporadic mechanical problems were enough to make me sell it. Life is a little bit more complicated with only one car and I’m considering buying a second car eventually but this will be a small economical car this time. I’m done spending money on wheels.

 

Saving money for my kids’ education and retirement also makes me happy. There is no way I’ll jeopardize their education or my retirement. This is why I’m putting almost 10K per year in my investment accounts.

 

I also love food and wine and I’m not willing to cut out much of my food bills. I’ve made some efforts with wine and restaurants but I really enjoy a nice meal with a great bottle of wine!

 

MAKING 2 BUDGETS AND DECIDE LATER

 

When I crunched the numbers last summer, I came up with two different budgets; the first one was the one I need to live comfortably (meaning I don’t compromise on anything) and the second one was the one with strict minimum expenses.

 

It had helped me to realize what I can really cut out in case of bad luck and what I could already cut today without weeping on the floor. This is how I realized I need about $4,500 monthly to live comfortably. Therefore, I need to find a way to make $54,000 net of taxes each year to keep what I have in place. Where I live, this is about 100K before tax. This is not an easy task but I have managed to reach this level of income since the age of 28 (you can read about the chronology of my income here).

 

I’m curious to know what your magic number is? How much do you need to be happy? What do you think of my number? Is it too high, too low?

 

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April 28, 2014, 7:57 am

March Monthly Income Report -58%

by: The Financial Blogger    Category: Blog Income Report

 

 

Reporting your income online is always a two sided sword. This month, I have to face publicly the fact that my sites’ earnings tanked. Part of it is due to the fact that I was on vacation, but still, it shows how hectic a side-business income can be!

 

NEW PRESENTATION OF MY INCOME REPORT

 

The main reason why I decided to post this report again is actually for my own follow-up. Since I having our third child, my online business has been harder to manage. Producing this report helps me to keep track of my main goal: making 100K online in 2014. A few weeks ago I outlined my business plan as follows:

presentation

Therefore, my revenues should be represented as seen in the following graph:

rev per segment

 

Instead, March shows the following results:

 

march rev

Overall, my online business has generated $3,363.48 (-58%). This is gross revenues and does not account for my expenses. My online expenses are around $3,000 per month. Therefore, this month is like working for nothing. This is quite insulting as I value my time a great deal. But everything can’t run smoothly all the time. This is why it’s so important to be able to look at yourself in the mirror and kick your butt for better results next time!

 

BLOGS BUSINESS $2,517.89 vs 6,470.87 (-61%)

 

 blog business

While last month our broker services peaked with several deals, the month of March was almost dead in this segment of our business. Adsense was stable but we didn’t receive any affiliate checks either. I know the advertising brokerage business is full of ups and downs, but March was particularly bad overall. I hope this is only temporary and that it will kick back into action this April. I also expect an $800 check from one of our affiliates in the upcoming weeks, let’s hope I’ll be able to deposit it in April!

 

PRODUCTS $706.58 Vs $1,280.60 (-45%)

 products

 

Since I didn’t do any promotion with my membership website in March, I only made money with my monthly members. This is great to see that I’ve stabilized my recurring payment at $500 or so, but I will need to push further to reach my goal of making $2,500 with this site. This shows how fragile a membership is when you dont keep advertising it.

 

I’m currently reviewing my marketing plan to include mentions of Dividend Stocks Rock across my network and more specifically within my mailing list. I have pretty strong email funnels generating affiliate income and generating traffic on my blogs. But I haven’t taken the time to include my membership website inside my funnel. I know how dumb that is! But time management is always an issue.

 

This business division also includes my two books for sale on Amazon:

Dividend Growth – a 4.5 Star Investing Guide

2014 Best Dividend Stock Picks – After beating my benchmark with my picks in 2012 and 2013, I’m back for a third year with 20 US and 10 CDN favorite picks.

Sales are stable right now with Dividend Growth (I sell about 1 copy a day) and the 2014 Best Dividend Stocks continues to roll as my picks are doing as good or better than my benchmark. The easy money is gone and now investors are looking more than ever for undervalued stocks.

NICHE SITES $139.01 Vs $193.40 (-28%)

 

 niche site

Back to square one with our niche sites as we didn’t benefit from a traffic boost for two months in a row. Then again, it’s a very frustrating month for all business segments. The positive point is that I’ve finished my niche site development plan in March and started to apply it last week. Hopefully, I will be able to improve my ranking with a few of our niche sites and make more money with Adsense. Everything is optimized, I just need more traffic!

 

The secret for traffic is not complicated: writing great content and make sure Google finds it. Simple, obvious, but this is what I need to look for if I want to improve this side of the business. All my niche sites were in the financial industry and all rankings have been hit hard by Google over the past 2 years. Dormant sites used to get between 2,000 and 3,000 unique visitors per month and now have dropped to 500. While they use to generate $50-$100/month each, they are now down to $10-$20 per month. This is why the niche site business has been hurt so bad.

 

I’m attacking 1 site right now to make sure I do things properly. Once this site is back on track, I’ll be able to create a process and bring all my sites back to life.

 

WHAT WENT WELL THIS MONTH

 

My biggest win in March is definitely in terms of strategic planning. I met with my partner and we worked a whole day on what we are going to do this year. We do this once a year in order to keep our focus in the right place.

 

This is exactly what we did a few weeks ago: focusing. We each have established 4 priorities which we will report weekly on what we have done. It increases the accountability and pushes us to work on what really matters. Here are my four priorities:

 

#1 Dividend Stocks Rock Content/Improvement

My first focus is obviously to produce high quality content for our membership website. We now have a bi-weekly premium investing newsletter (it was monthly before) that is about 12-15 pages per issue. The second point is to improve the website on a monthly basis. We started this project with a lean version (also known as minimum viable product) and we add new features on a constant basis. The latest one was The Rock Solid Ranking which is a complex scoring method to determine the most powerful dividend stocks at the moment. The ranking is updated on a weekly basis. We will add ETF portfolios shortly as well.

 

#2 Dividend Stocks Rock Promotion

Creating great content and adding new features are good to keep members on board but it doesn’t bring in new clients. This is why I also need a marketing plan. This includes special promotions, a referral system, affiliate program, guest posts, etc. I’ve written my first guest post last week (not published yet) and the affiliate program is almost ready (we changed our mind and switched affiliate systems last week! Doh!).

 

#3 Niche Site Link Building Project

I focus on driving traffic to one niche site at the moment to make sure I understand the “new” way Google wants sites to be. The idea is to optimize one site, create a process out of it and copy/paste the formula at a larger scale.

 

#4 The Financial Blogger Improvement

It’s been a while since I haven’t touched TFB seriously. I switched writing directions to more of a “make money online blog” about 2 years ago and I feel I had more fun writing about personal finance. This is why I’ll be changing the site slowly back to my previous direction. The site will continue to have updates about my online business, but the idea will be more targeted to my tag line “working 4 days a week, making a 6 figure income”.

 

WHAT WAS A MESS DURING THIS MONTH

 

I think it is quite obvious what a mess was: the money didnt come in! For the first time, I truly feel the absence of my VA (maternity leave!). While I save on expenses, I also have to work more. I was on vacation 2 weeks in March and almost took an entire week to get my work routine back. Therefore, I wasn’t the most productive guy on earth this month!

MARCH TASKS FOLLOW-UP

 

I had narrowed down my task list to 4 items for March, here there are:

 

#1 Finish the 500K+ portfolio and advertise it – Not Finished Yet

#2 Write two guest posts for my membership site – 1 Guest post written, not published yet

#3 Offer my affiliate program to three bloggers and walk them through – I’ve changed my mind and switched affiliate program. Still under work.

#4 Finish my niche site development plan – Done! I can now apply it!

APRIL TASKS

 

I started April with the most productive days I’ve had in a long time. I’ve already finished another side project for our membership site called The Rock Solid Ranking which is a complex math model to evaluate dividend stocks. It seems to work very well now!

 

Here’s the list of what I need to do in April:

 

#1 Publish 1 guest post for DSR

#2 Build links for my niche site

#3 Launch my affiliate program for DSR

#4 Finish and publish my 500K+ stock portfolio

#5 Change The Financial Blogger sidebar to reflect my new direction

 

While my results were very poor in March, it motivates me to the highest point. I really want to grow this business and improve my lifestyle. A bad month just tells me that I have to work harder in the upcoming months and this is what I’m gonna do!

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April 15, 2014, 5:00 am

What is The Best Emergency Fund?

by: The Financial Blogger    Category: Personal Finance

 

 

It may sound like a financial planning topic but this is only common sense: you need an emergency fund. If you are young and starting your career; you need an emergency fund to cover for a job loss. You have a young family and a mortgage; you need an emergency fund to cover a broken washing machine. You grow older, don’t have any debts; you still need an emergency fund to cover for healthcare. As you can see, all your life, you will need an emergency fund.

 

HOW MUCH SHOULD BE IN AN EMERGENCY FUND?

 

In financial planning, we often talk about 3 to 6 months worth of salary. If I look at my own situation, this would mean having $16K to $32K. This is a huge stack of cash to be sitting in my bank account doing nothing. Worse than that, if you are like me and have a young family, you know all to well that your money is going towards groceries, activities and clothing. Therefore, there isn’t enough money left to #1 pay off your debt, #2 save for retirement, #3 pay off your mortgage and #4 build an emergency fund.

 

SO WHERE DO YOU GET THE MONEY TO FUND IT?

 

We will all agree that we need an emergency fund. If tomorrow I need $5,000 to repair my house or because I’ve lost my job, I don’t want to put this money on my credit card. The problem is often finding the money to build your emergency fund. Most people can’t save more than 1-2K per year (besides all other obligations). So how can you save 3 to 6 months worth of income?

 

This is when you have to think outside the box and leave the savings bank account to frugal people. I will never be able to save that much money in my bank account, so I’ve figured out other ways.

 

 INSURANCE

 

Huh? How can spending more money on an insurance contract assure that I won’t need an emergency fund? By taking disability (or salary) insurance. This type of insurance kicks in when you are unable to perform your work. If you are depressed, ill, or break your leg, you can use disability insurance. This will compensate a part of your salary and will help you avoid falling into credit card debts. I have a pretty good plan insuring 70% of my paycheck in the event of disability. This would be enough to cover most of my expenses already.

 

Disability insurance is also offered on credit products to cover your payment (for a mortgage as example). Unfortunately, it is not cheap.

 

HAVE ANOTHER SOURCE OF INCOME

 

I just read an interesting take from Dividend Mantra saying he would rely partially on his dividend payoutsif he were to lose his job tomorrow. Last month, he made $700 in dividends and this is enough to cover his rent. Not bad, huh? In my opinion, having a second source of income is probably the best solution to fund your emergency fund. The money doesn’t sleep in a bank account in the meantime, but will quickly take care of part of your bills if you lose your job.

 

My dividend income is all in a registered account for tax purposes. This is why I can’t use Dividend Mantra’s technique. However, I do have my online company generating several thousand per month. If I was going to lose my job, I would not go for another one. I also have my employer stocks which fluctuates from 1K to 5K most of the time (this is because I keep selling them each year to pay off other debts).

 

HAVE A LINE OF CREDIT

 

If I have an unexpected one time purchase to make (like a washing machine or an expensive car repair), I also have a line of credit. I could put a few thousand dollars on this as well if I had an urgent need for money. I would rather use a line of credit as emergency fund than having 10K or 20K sitting in a bank account earning 1%. This idea is simple; you are losing money if you use real cash to fund your emergency fund. You could save interest on your debts or make money investing if you would use this emergency fund instead of having it sleeping in a bank account. This is why I think it’s better to pay off your debt but leave a line of credit open and available on the side for emergencies. If you don’t use it, the line of credit is free of charge!

 

HAVE AN EMERGENCY LIST INSTEAD OF AN EMERGENCY FUND

 

I often talked about the importance of having a plan B on this blog. The idea of a plan B is to get a way out of financial trouble in case of an emergency. When something bad happens in your life, your emotions put you on the edge and your head doesn’t think right. If your emergency plan is already drafted, you only have to look and follow it. No second thoughts, no hard decisions to make. They were all done in the plan when you had your mind set to think about it.

 

The good news is building an emergency list is not too hard nor complicated. It only takes a few minutes of your day and it can be revised on a yearly basis to make sure all your solutions are still in place. Here’s mine as a reference:

 

#1 70% of my income in case of disability (insurance)

#2 An average of 3K quickly accessible through my employer stocks

#3 A side business where I could rapidly withdraw 3K per month to sustain my lifestyle

#4 An average of 3K available on my line of credit to withdraw at anytime

#5 If I was going to lose all my income source for a while, I still have 50K in a registered account where I can withdraw money from it but pay taxes

 

*If you want to read more about this, I’ve already described my plan B here and there.

 

Do you use cash to fund your emergency fund or do you use other means? What do you think of my plan?

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