Taxes, Just Another Savings Account

I don't have a lot of spending money.

Don't feel bad for me; I'm doing fine.

I don't have a lot spending money, and it's by design.  By design, I mean that I have almost 10 different chequing and savings accounts between which I partition my money and only one of them has an Interac Card.

Bank accounts: the new money envelope

The Wealthy Barber advises that you pay yourself first, "yourself" meaning your retirement savings.  I pay myself first, but I also pay my house repairs, my future car, my vacations and my education first.  I have an account that exists just for my property taxes.

I'm not this bad.

Do I drown in bank fees?  No, I don't pay any bank fees.  One account requires a minimum balance, which I keep.  The others are all free.

In my main account, where I get my spending money from, I keep very little money.  We won't quibble about exact numbers, but once I'm done squirreling money away, I get to "keep" about 5% of my take home pay, after taxes.

And by "keep" I mean use it for things like new clothes or books or gadgets.

Or hiding in convenient cubby holes, for winter.

I arbitrarily don't have a lot of spending money and it works well.

When I had a mortgage, about half of my take-home pay went to paying it off.  (A note:  My house isn't so expensive that I had to pay this much; I just wanted the debt paid off.)  An automatic transfer deducted the money after each pay day from my main account and placed it in a mortgage savings account, where the mortgage payments were automatically deducted.  I never saw that money again.

Except, you know, I got to keep the house.  So it wasn't exactly gone.

Which brings me to taxes.  I'm from Canada, and we are purported to have a very high tax rate relative to other countries.  The exact number of that rate is hard to pin down - I briefly checked two sources, and they quoted different percentages.  Let's break it down.

I pay income taxes to both the provincial and federal governments.  The taxes are bracketed, meaning that chunks of my earnings are taxed at different, ascending rates.  Those tables can be found from my most favorite Canadian tax website, for those who are interested.

It gives no advice on how to cure tax pain.

I also pay sales tax on nearly everything that I buy to both the provincial and federal governments.  A few years ago, the Ontario government teamed up with the federal government and 'Harmonized' their sales taxes.  It means that I pay more taxes, but only see one line item on my bill.  Harmony!

But it's nice to see them playing well with each other.

That number, in Ontario, is 13% - it varies by province and sometimes by city (Montreal, for example tacks on an additional 1%)

Finally, I pay property taxes on my house.  Even if I rented, I would still be paying this via my landlord, who would account for this fee in my rent rate.  How property taxes are calculated remains a mystery to me, probably relating in some way to horoscopes and numerology.

"Let's see, the house aligns with the axis of light on the third rotation of the moon.  It's also near a high school.  $3750 per year."

So the real amount that any person pays in taxes in Canada is relative to how much stuff they buy and how big their house is taken together with how much money they actually earn.

While the number varies from person to person, the sentiment generally doesn't.  Nobody likes taxes.  Filing taxes is not anyone's idea of a fun time.

What the face of a taxed person might look like.

People's reactions vary, but thus far I've managed to resist the urge to run away from civilization and build a sovereign commune in the wilderness.

They'd probably try to tax the commune's land and then things might get awkward.

Instead, taxes are a background noise that I ignore.

It might sound really pompous when I say it that way.  "Taxes are just background noise.  It's really hard to notice them over the jet engines on my yacht."

My SPACE yacht.

Except that doesn't even make sense - taxes don't make any noise.

Except when you least expect it.

I have a job, which deducts my taxes at the source.   Their standard calculations suck, as they assumed that I had a all manner of bouncing baby tax deductions that I do not have.

Cartoon babies: not tax deductible.

Holiday presents for my nieces: not tax deductible.

I was routinely paying a lot of extra taxes at tax season.

Last year.

How do taxes become background noise? Last year, I told the finance people to deduct extra money from my paycheck for taxes.  After a full year, the tax deductions did what they were supposed to do.  I could enjoy tax season because it meant that I got a refund.

This year.

Of course, there are detractors to this method, who rightly point out that extra money that you pay to the government is held interest free.  Any money you get as a tax deduction could have been sitting in your bank account or your brokerage, earning you returns.

There is one thing that these people neglect to include in their calculations, and that is human nature.  My tax return was in the ballpark of $1500.  This number is a bit ridiculous, but it takes into account a few unexpected things that I did this year, like earn less money and deposit some money into my RRSP.

Broken down over 26 pay periods, I paid an extra $57 to the government on each paycheck, money that I could have been investing that money or, more likely, spending it on all the random stuff that I spend my money on.  Maybe a few dinners out, maybe a pair of pants.

"I like them so much, I'll buy five."

At the end of the year, I sure wouldn't have had that money sitting around to pay taxes.

Taxes, like dentistry, are a necessary part of life.  Like dentistry, taxes are best when they are painless.  It's hard to resent the government when they're giving you money, even if it's your money that they're just returning to you.

So in one way, taxes are like an automatic savings program.  In another way they're better.  Sometimes they give money back to you.

Taxes - the introduction

Spring is reluctantly springing.

Biorhythms.

In Canada, spring means two things: allergies and taxes.

And the start of a unique time of year when temperatures are consistently above freezing.

Canadian taxes are usually due by the end of April.  This year, the Heartbleed virus hit the CRA's (Canada Revenue Agency, for the uninitiated) net-file website, so Canadians were given an extra 10 days to file their taxes.

The CRA, I presume, felt that this was sensitive information and did not post it on their website.

Armed without that knowledge, I returned from a sleepless weekend out of town and filed my taxes on what I thought was the last day of tax season.

I filed them thoroughly and accurately, for anyone who is keeping track.

It took me about three hours, consistent with last year's time.  Are you asleep yet?  Stay with me.

When I told one of my coworkers that I was starting a blog on finance, she got very excited.  She said: "Great, you can do topical posts.  March is coming up, so you can do some articles on taxes!"

Taxes!

My coworker is taking a series of university courses to become a chartered accountant.  She knows more about Canadian taxation laws then I ever will.  It was inspiring to see how much faith she had in my ability to write useful and succinct things about a topic as obscure as taxation.

Fortunately, I don't have to.  I get all of my information on Canadian taxation from a single website.  Do you have any kind of a question about Canadian taxes?  The only answers I know are here.

I bet you didn't come here to learn factual information about Canadian taxation.  I've got more to say on the subject, especially when it comes to the taxes of someone who has active finances.

Over the years of trying out different ways of investing and using and earning my money, I have turned my taxes from the standard person's type three numbers and claim some deductions style taxes into a marathon of data entry and a personal competition to see how many different forms I can invoke.

That's what I'll talk about next time.  See, I've run out of time.

Thanks again for all your patience.  See you in two weeks!

It appears that I have misled you

I promised to post something last Monday and then I did not.

Sorry about that.

There are reasons--involving a messy house and a hobby that doesn't relate to investment except as an object lesson on how NOT to save money--but these are excuses and don't get us any closer to the ultimate goal of amusing discussions about money-related topics.

There will be more to follow, if not next Monday, then certainly the one after that.

I appreciate your patience.

Obsessed with mastering games, or how I learned about the stock market

In Grade 1, we learned how to play the game Set, where you race to find a 'set' in a collection of cards.  

 I thought that it was fascinating.

I wanted to find all of the sets, even the multiple sets in the same layout.  Given sufficient time, I was sure that I could find all the sets.

Or any set...

 Eventually the game ended, as all games do.

"I will make a set appear with my mind."

My performance at the game was average, which left me with a feeling of deep dissatisfaction. The game was fun, but I had not yet attained greatness at it.

I needed practise.

She bought me the game, which I played incessantly.

Sometimes other people would play with me.  At first, they went easy on me.

That changed when I turned into an unbeatable set-making machine.

Eventually, being the best set player in my household got boring.

I was never actually THAT good.  But, you know the rules: my blog, my alternate history.

Having mastered the game, it was put away in a corner and forgotten.

In Grade 5 we did a unit at my school on the stock market.  It was the first and last time I ever touched on personal finance at school.

The teacher first tried to explain to a group of kids about what the stock market was. 

We visited the Winnipeg Stock Exchange to see the opening bell ring.

We fake bought a group of shares, picked from the newspaper.

"Well, these columns of numbers sure are boring.  I will pick... that one.  And that other one..."

Then, few weeks later, we fake sold those shares and saw who made a profit.

And I learned that randomly picking stocks is not a good strategy.

As a fun wrap-up, we gathered in groups to play the board game "Stock Ticker".

As with Set before, my performance at the game was average, and I was again left me with a feeling of deep dissatisfaction. The game was fun, but I had not yet attained greatness at it.

Christmas did come, and I did get the game for Christmas.  That year's Christmas featured guests from out of town who brought their two boys along.  

The game is designed so that you can't ever buy as many stocks as you want.  

We bypassed that rule by borrowing copiously from the bank.

Like full-time investing, Stock Ticker is a boring game.

 

 

Not everyone was as enthusiastic about the game as I was.

But all things end and eventually even Stock Ticker's other most devoted fan abandoned the game.

"The game could go on forever," he said.  "It's rigged so that we will win.  The trick is just to keep borrowing money."

I stared at my accumulated wealth, not wanting to stop playing the fun yet boring game.  I could have kept going forever, buying more stocks with the dividends that the stocks paid out.

But the moment was over - we would never again play Stock Ticker.  Yet somewhere deep down I still burned to master the game.

Then I grew up and realized that the real stock market is way more interesting.  It's nice how things work out sometimes.