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January 7, 2020 | Dr. Garth

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

We may not be able to fully protect you from Donald you-know-who, T2’s coming tax fest, death-by-Reaper from above, critter-killing climate change, the Wexiteers or Drake’s forthcoming album, but we aim to combat financial stupidity, every chance we get.

And that brings us to Nurse Bethany. She’s 23. Wants to retire.

“Thanks for your daily posts. My uncle recommended I read them as I’m interested in personal finance (and retiring early haha). A little about me; I’m 23, an RN, no CC debt, and have a TFSA with a financial advisor, but just started doing stocks on my own as well. I wanted to take investing into my own hands but leave the current amount with my financial guy ($13K). What advice would you give someone my age, with a stable career/PP and looking to do some long term investing?

“Lastly, I have some student loan debt ($26K). Should I be more focused on paying that back or investing? Investing is more appealing, whereas the loan is more daunting and is going to take years to pay off. I’d love to be able to do both, but rent is expensive andI’m often choosing between loan and investments.  I also have the choice to a fixed (prime +2%) or floating (prime) interest rate on my loan. I am currently on the floating rate because I just started repayment in November, the floating is lower and if I switch to fixed I cannot switch back. Am I wise to take the floating rate or should I lock in a fixed rate?  Thanks again for your blog posts, from a 23 year old fan!”

Oh, B. Where to start? We admire the spunk and the aggressive investing, but you’re in negative net worth, kid. Debts exceed assets. And the student loan ain’t cheap – floating at around 4% or fixed at 6%. Any investments must churn out a big return in order to compensate for taxes and the costs of that borrowing.

Moreover, I hope the ‘financial advisor’ isn’t charging you anything to manage a small TFSA amount, or this just gets worse. And now you’re flipping stocks? Bethany, you’re a nurse. Focus on that – patients, bodily fluids, my golf times – not trying to outsmart the dudes on Wall Street. The best advice is to take your assets, apply them to your debts, stick with the floating rate on your loan and trash it in the next two years. Then get back to us. Unless you’ve retired.

Now, to Michael. The beat goes on…

“I’ve been reading your blog for a few years now and is my go-to therapy. My daily moment of zen….,” he writes, pleading for leniency. It won’t work.

“I am looking to get some unbiased advice. My wife (30) and I (31) live in Calgary. I’m an engineer, she’s a registered psychologist. We’ve been together since 2014 and now she’s finally making a salary. Together, we have combined liquid assets of around $260k, no debt of any kind, and total annual household income around $200k.  We sold our house in deep south Calgary last summer (at a loss…) and have been renting my mother-in-law’s house (she lives with her boyfriend now). With this “preferred” rent, we are able to save a combined minimum $6,000 from our paychecks each month (total combined take-home for us is ~$10,000/month). But now it’s time to get a place of our own as we are thinking of trying to have a baby in the next few months.

“Our dilemma is as follows…do we buy a move-in ready house ($675,000), buy a fixer-upper and renovate before we move in ($500,000), or rent a house ($2-3k)? I’m a part-time musician…and my instrument is drums…which basically eliminates the idea of renting a condo or townhouse. We’d like to have 2 kids one day. What should we do? And what percentage would be a reasonable down payment if we go that route, given this low interest environment? Thanks for all you do, please keep it going!”

Recap: the two of you live in a full house, pay dirt for rent, salt away six grand a month, got burned on Calgary real estate, and now want to jump back in. Plus your wife just landed a job after years of training for it, and wants babies. So everything has to change.


Can’t you have a baby and raise it in the house where you’re living? The kid won’t care if you rent. And if you failed in the rotten Cowtown market last year why so eager buy an even more expensive place now? Forget it. Rent. Even better, stay where you are. And drums, sheesh. Get a proper hobby, like soldering.

Now, Greg. He’s okay but I worry about his accountant.

“I own a business (farm) in partnership with my wife and my parents. My wife also owns another business in partnership with another person. I am not involved with her business. Her business has really taken off in the last two years and now we are getting ourselves in a bit of a personal tax situation. We have used up most of our accumulated rrsp room.  The accountant likes dividends and so does her partner. But I’m not so sure pulling money out of her company as dividends is the smartest way to do it. My question is how do we structure our income from either or both companies that is most effective for our long term financial safety?”

It’s a perpetual question. How should self-employed people pay themselves? Salary or dividends? Unfortunately, most get the wrong advice. And from trusted, myopic, accountants.

Divvies are paid from after-tax corporate earnings. So the company pays tax then distributes the rest to the owner, who also pays tax – but at a lesser rate than with salary. Because that person owns the company, she is in effect taxed twice – the total then equaling what the tax would have been on salary alone. There are no savings. It’s illusory. And by taking dividends the owner accumulates no new RRSP room to be used to reduce the tax load. Moreover, self-employed people don’t have pensions. If anyone needs RRSPs, it’s them.

Finally, indie operators have a big target on their backs here in Canuckistan, where the feds pillage small business. Accumulating capital inside a corporation is begging for punitive treatment as that money grows and throws off passive income. You’re better to bite the bullet, take salary and fatten up the RRSPs. Plus you’ll chop the fees of accountants who push you into complicated corporate returns. Just saying.

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January 7th, 2020

Posted In: The Greater Fool

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