In my previous post, I announced changes that I plan to make in my investment portfolio. Following those changes, I will be earning a 7 128.01$ in dividend (outside RRSP), for an equivalent of 594$ per month. No big deal, you might think... well, yeah, its a big big deal!
To help you understand the reason of the deal, we'll review my budgeting planning. Here's my monthly budget:
Rent: 555$
Minimum payment required on retirement savings plans loan: 111$
Minimum payment required on credit line 1: 100$
Student loan debt consolidation: 98$
Minimum payment required on credit line 2 (interest only line of credit): 70$
Minimum payment required on credit card balance transfer offer at 4.9%: 44$
Internet: 51$
Banking fees: 6$
TOTAL: 1 035$
To the 1 035$, I will add the minimum of the minimum required for food... 250$
1 035$ + 250$ = 1 285$ - the 100$ payment required on credit line 1 (renewable credit extremely renewable from a month to another...)
= 1 185$1 185$ - 594$ (dividend)
= 591$
What mean that 591$? It's the 591$ that I missing to be able to live from my dividend! This mean I could work only part-time at my weekend job and I could be able to make a living, working only 2 days a week. Of course, nothing of this will happen anytime soon, but I just wanted to illustrate the reason why this 7 128.01$ in dividend income is important.
Interesting, but its not anytime soon that I will be quitting my daytime job.
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4 comments:
I'm surprised you are still paying bank fees (unless it's a safety deposit box). If you don't want to move your funds to a bank without fees, you can consider this one of the best dividend paying opportunities out there. Keep a small float (depending on bank and the type of account) likely between $1K - $3K. If at the lower end $72/yr saved on a $1K investment = 7.2% return.
As your assets grow with a bank, you might also try to just negotiate the fee away. There's really no reason to pay bank account fees today.
Sunny, I think you forgot your single biggest living expense (or at least it is for most people)...taxes!
How much tax are you paying on the income you've earned? I suppose over the long term, you may have all this investment income inside your TFSA, but for now, unless you've structured your investments very wisely for tax effectiveness, you're not even close to living off your investment income. I seem to recall in an earlier post you mentioned you basically ignore the tax implications of investments. That's a shame. If there was one thing I would urge you to do, it would be to better understand the tax efficiency of your investments and other options available to you.
Maybe after this years tax return, you might consider? :)
Hello first Anonymous...
your observation is very good. I put 6$ as banking fee but in reality, its only less than 4$. I apply 6$ because of cheques that order - maybe once every 2 years...
A 1 or 3 000$ in my banking account? I never have that much left for a whole month. I hold too much debt for that and all extra money go straight for investment. I have a free banking account with RBC but I am limited to 5 transactions per month or something like it - not really enough for me at this time. I am not ready to move of bank, it will be just a misery to set up my direct deposit for pays and all the other stuff no another account. No way! I am too lazy for that.
Hello Anonymous number 2...
I am not an expert or an accountant. I don't know about everything. I do my thing the way I want and taxes are my last concern. But I will explain you why.
Roughly talking, my income of 2010 is around 40 000$. Not that much. For the fiscal year of 2010, I had contribute to my RRSP, the max, 7 000$. This bring my taxable salary to 33 000$. Do you really thing I will be paying more in taxes that what I already did? Maybe just a bit, but it will be nothing.
For the last couple of years, I always contribute to my RSP and, most of the time, to the max each year. This safe money on taxes.
For 2011, from what I understand, I will be taxes on capital gain coming from conversion from income trust to corporation. But even here, we are just talking of about, roughly again, 12 000$. And, from what I understand, I will be taxes at 30% on capital gain, which make 3 600$. Nothing at all.
Capital gain are not taxes like a salary you earn from an employer.
But I won't be paying that much in taxes. My current salary is low and also, when it come to dividend, I am not even at 8k.
I am safe on taxes because I don't earn a big salary like those people working for government agencies, getting paid at doing barely nothing.
Not too much in salary + not too much in capital gain + not too much in dividend + a maximum contribution to RRSP = not too much taxes.
So when it come to taxes, you know my portfolio, I hold dividend payer companies and on dividend, well, in case you don't know, you don't get taxes too much on dividend.
Do that answer all of your questions about taxes?
Sunny, you are right that taxes on capital gains, and Canadian dividends are not taxed at the full rate, but this doesn't justify the rest of what your wrote.
You really need to look more carefully at this. All that matters at the end of the day, is how much money you have left, AFTER you've paid your taxes. This is not the appropriate avenue to bring up some of the complexities of tax law, however, let me leave you with two ideas:
1. Your RRSP contribution could generate a credit for you, that potentially could be larger than the investment income you declare. You could potentially get a cheque from the government each tax season if you can structure your investments appropriately.
2. Where you hold each investment is very important (RRSP, TFSA, Margin account). For example, holding U.S. funds in a TFSA is not advisable. Humour me, and do some more reading about this. I hate to see you getting ripped off!
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