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Personal FinanceTax Planning

10 Mistakes To Avoid When Filing Your Personal Tax Returns

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As we begin the filing of our personal tax returns in Canada, most taxpayers will be filing their tax returns using a do-it-yourself tax software.

Often, these taxpayers assume that using a do-it-yourself tax filing software means they no longer need the support of their accountants.

While most of these personal tax software platforms are mathematically correct, provide “intuitive” guidance based on your responses to tax questions, and allow for ease of filing with the Canada Revenue Agency (CRA), they don’t provide advice when dealing with personal financial matters that may impact the current year’s tax filing.

As a result, you may miss important tax planning tips that may impact your current and future tax filings. Here are 10 of the common mistakes these taxpayers make so you can avoid them as you file your taxes in the coming weeks:

1. Taxpayers Tend To Put The Most Favorable Interpretation On Tax Rules And Regulations

For example, being self-employed does not usually mean you are entitled to expense everything that comes to mind. Certain expenses such as clothes you wear to work, meals and entertainment, and home office expenses may not qualify as eligible expenses.

Although these expenses could be taken as a deduction when you file your tax return, there are specific rules you must be aware of to determine eligibility.

2. Taxpayers Often Think They Can Claim What Their Friends Can Claim

You only look at your own situation. Each taxpayer’s circumstances are different. One of the most common tax filing mistakes is the belief that car expenses can be written off merely because you drive your car to work.

Vehicle expenses are only deductible where the vehicle is needed to perform the job, the employer demonstrates that need, and provides a signed and dated Declaration of Conditions of Employment to the CRA if requested.

3. Taxpayers Overlook The Benefits Of Carryforwards

Common examples of lost tax reduction opportunities from carryforwards are tuition fees, capital, and non-capital losses, medical expenses, and donations. All these carryforwards, if ignored, will result in a higher future tax expense for the taxpayer.

4. Taxpayers Do Not Keep Their Tax Files Long Enough

Taxpayers may be aware that as a general rule, CRA requires you to maintain all tax records and documents that support your filed tax returns for a period of six years from the end of the last tax year to which they relate.

Additionally, if you file an income tax return late, you must keep your records for six years from the date you file the return.

Most taxpayers will probably be able to find the original source documents in a box in the basement, but finding electronic copies of tax returns can be problematic as new computers are purchased, PDF files are lost, tax programs are erased or new tax software cannot read old programs.

5. Taxpayers May Think CRA Will Provide Them With A Positive Reassessment

If you fail to file information from a T4, T5, or other documents that are matched with the records of your employer or financial institution, the CRA will notify you, reassess you and undoubtedly charge you interest and, perhaps, even a penalty, for your oversight.

On the other hand, if CRA discovers through the filing process that you have missed inputting property taxes, tuition fees, disability, or any other deductions to which you are entitled, the CRA is under no obligation to notify you and send you a refund.

6. Taxpayers May Miss Opportunities To File Corrections

If errors or omissions occur in the filing, taxpayers may not know how to take advantage of the opportunity to correct the error by filing a T1-Adjustment. Thus, the possibility of reducing income tax liability may be lost forever.

7. Taxpayers Who Are Owner-Managers Of A Corporation May Fail To Record Draws And Loans From Their Company As Income

Failure to properly record this income may result in additional taxes, interest, and penalties.

8. Taxpayers May Miss Available Deductions

Interest expense on business or investment loans, income splitting, administration fees paid for investment counsel, combined with myriad deductions that may be available to a taxpayer may be missed.

These are just a few examples of deductions that taxpayers miss when they file their tax returns. As a result, they pay more than they should in taxes.

9. Taxpayers May Miss Available Credits

Tax credits directly reduce the amount of taxes due, dollar-for-dollar. Refundable tax credits like working income tax credit and non-refundable tax credits like charitable donations and spouse/common-law partner credits could be missed if care is not taken when filing your tax returns.

10. Taxpayers Get Upset When Dealing With The CRA

If you are nervous and feel generally uncomfortable dealing with your tax matters, you may misinterpret the needs of a CRA officer and inadvertently provide inadequate or incorrect information that may unnecessarily result in an expanded audit process.

Conclusion

Although most taxpayers are able to file their personal tax returns using many of the software platforms available, it is important to seek advice, particularly if you have a complex situation.

As a licensed Chartered Professional Accountant, I am always on your side. The truth is that filing personal taxes is not the hard part. What may be challenging is getting the appropriate insights from your tax returns that will enable you to plan better going forward. So, if you’ve already filed your taxes, can you answer these questions about your personal tax situation…

  • What’s the dollar amount I paid in taxes?
  • What’s my average tax rate?
  • What’s my marginal tax rate?
  • Why did I get a refund? Why did I NOT get a refund?

More importantly, if you have answers to these questions, do you know what to do next to earn more income in 2024 and pay less taxes in 2024 than you did in 2023? As I prepare taxes and look at these numbers daily, I’ve seen Canadians who pay zero taxes, 1% in taxes, 13%, 19% with income ranging from $50,000 to almost $500,000. But it takes planning to achieve results like this. As I’ve said many times when you don’t get insights, you end up paying more in taxes than you’re required to and a dollar lost in taxes today will not only cost you a dollar today, IT WILL COST YOU A MULTIPLE OF THAT DOLLAR OVER TIME! 

If you don’t have answers to these questions or if you don’t have an action plan, then I invite you to learn how my TaxInsights Offer can help you minimize taxes, improve cash flow and get ahead financially. 

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Personal DevelopmentSelf Growth

Four Ways to Significantly Increase Your Capacity to Learn and Profit

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If you struggle with learning and comprehending, master these four techniques and you will significantly increase your capacity to learn

“Learning is not attained by chance, it must be sought for with ardor and attended to with diligence” — Abigail Adams

I love to learn. I get excited when I learn something new. I’m immediately motivated by the knowledge and want to change my life and the world with my new-found knowledge.

Then the days roll by, and then weeks and months. And my life has not changed. And I’ve certainly not changed the world either.

What I did not realize was that all I had was just head knowledge. I had not really learned. And I was not going to change my life or the world. The knowledge meant nothing. Not to me. And certainly, not to the world.

I must confess that over the years, my approach to learning has been mediocre at best.

In fact, I am ashamed to admit that I have spent tens of thousands of dollars learning. Buying courses and training programs that I never start or never finish. Investing in a weekend or week-long training program that I never act on. And buying books that I either don’t read or finish reading. And the list goes on and on.

It is a pattern that has developed over time. This is how I grew up learning. Starting from primary school, all the way to my undergraduate degree and to my master’s program. It was all about information intake.

This is how most people learn today. Sitting down in a classroom setting and taking information. This is mostly how our schools are designed and structured.

What we fail to realize is that learning does not stop here. Stopping here only creates the illusion of competence. We have to take it a step further by doing something with what we’ve learned. This is where the real learning begins.

Moving from head knowledge to real learning requires doing something with what you’ve learned. In other words, some sort of output is required. Input without output leads to shallow learning.

At the end of the day, what’s the point of learning if you can’t do anything with it? Remember the popular saying…

Use it or lose it.

So, what’s the best way to learn?

There are many different ways to learn. And there are pros and cons to all of them.

Recently, I watched a YouTube video by Nishant Kasibhatla and I love the framework he suggested for learning using these 4 steps:

1. Focus on the Quality of Input

The first step of learning is the input. But, you have to be careful of the kind of input you’re taking in. If you want to learn how to fly, you need quality input from those that can fly. If you want to make money investing in real estate, you need quality input from those that have successfully made money investing real estate.

The quality of your input will determine the quality of your retention. It will affect the quality of recall and ultimately, it will impact your ability to productively use that information for your own good.

So, make sure the quality of the information is great.

2. Reflect on what you’ve learned

Once you’ve learned something from the information you’ve consumed, the next step of the learning process is the output. To deepen your learning, you need to focus more on the output.

One way to do this is to reflect on what you’ve learned. Reflecting requires you to consider how you can apply what you’ve learned. Pause and ask yourself, what’s the takeaway from this lesson? How can I use this new knowledge to solve the problem I have?

By reflecting, you’re often able to use learning from one area and apply it to other areas that may be unrelated. For example, I may reflect on lessons on marketing in the auto industry and consider how I can use this and apply it in a different industry.

3. Implement what you’ve learned

This is where the magic happens. If you learn without implementing, nothing happens. You will only end up with head knowledge. Your life will not change and there will be no transformation for you and for those that matter to you.

When you learn, ensure you focus more on how you can implement it. Stop and write down what you can take action on. Schedule it in your calendar and do it!

A lousy action to implement what you’ve learned is far better than no action at all. As one of my mentors puts it:

It’s all about imperfect action

By taking action, you’re actively learning. Active learning goes beyond just memorization or comprehension of information. It gives you the needed experience to transform that information into practical strategies.

Making a cake is the best way to learn how to make a cake…book knowledge of the recipe will only get you so far.

In fact, we learned this during this Covid-19 lockdown as we experimented with making different types of homemade snacks. Our first attempt at making meat pie was not something to be proud of.

But the second attempt got better, and the third attempt was even better. Over three attempts, we moved from talking about how to make meat pie (head knowledge) to getting it right the third time (actual learning).

For true mastery, you need to focus more on the OUTPUT, rather than the INPUT — Nishant Kasibhatla

4. Share what you’ve learned

I wish I had learned this a long time ago. For many years, I never considered myself as someone with something worthy to share. I underestimated the lessons I’ve learned and the knowledge I’ve gained from many years of experience.

As I considered teaching, these were the thoughts that initially came to mind:

“I’m not qualified enough to teach”

“I don’t have formal education on how to teach”

“I’m ashamed of my accomplishments”

“I speak with an accent that no one can understand”

“I will be ridiculed”

and on and on and on…

I must admit that the thought of teaching is scary. Standing on a stage in front of others to speak and teach is a frightening experience. I got the courage to start teaching when someone told me that you only need to know 3% more than your audience to teach.

Really? That’s all I need to know to teach? Just 3% more? Yes, it turns out that there is some truth to this. You don’t need to know way too much to teach. And the great thing is that you learn as you teach.

In fact, it’s one of the best ways to learn. When you share and discuss what you’ve learned, you’re helping your brain pay attention. You’re reinforcing what you’ve learned and you’re less likely to forget the lessons.

In Conclusion

If you want to grow in any area of your life, reconsider the way you learn. Apply these 4 steps when you take on a new hobby or when you want to deepen your knowledge in any area.

Remember, you learned how to walk by taking your first step. You learned how to ride a bike by jumping on the bike, pedaling, and taking your first fall.

So, if you want to learn deeply, you need to take in great information. Reflect on what you’ve learned. Take action and implement at least one idea. And more importantly, share what you’ve learned to create a bigger impact.

If you’re spending “X” amount of time on the input, you must spend at least “2X” on the output.

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Personal Development

How to Shatter These 3 Self-Limiting Beliefs That Are Holding You Back

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Your belief system will impact the results you accomplish

“The only thing that’s keeping you from getting what you want is the story you keep telling yourself.” — Tony Robbins

For as long as I can remember, I’ve always felt uncomfortable about sharing what I know, and I have often resisted contributing to a group discussion. While I can’t completely recall specific instances where I was ridiculed for answering questions incorrectly or for making contributions in a class discussion in my primary and secondary school days, I recall it was common practice for kids to ridicule other kids. I was involved in this and I was also a victim. We all participated in it. It was a fun thing to do, we thought at the time. A few times, we got in trouble for this, and other times, we escaped without punishment.

As a grew older and got more mature, I abstained from this childish behavior of ridiculing others in my later years in secondary school. However, I never really got over my own fear of sharing my knowledge or participating in class discussions. This continued throughout my university days and most of my work life in Corporate Nigeria and Corporate Canada. And I recall some of the reasons why:

  • I felt I did not know enough to share
  • I thought I was not smart
  • I was fearful of being ridiculed
  • I thought everyone already knew what I was about to share so I did not feel compelled to share with them what they already know
  • I was concerned they will ridicule my accent (in Canada)
  • I was worried I did not have a strong command of the English language to communicate effectively
  • I feared I will be misunderstood
  • I feared I will offend someone
  • I feared I will be disliked

I struggled academically in my primary and secondary school days so I believed I was not smart. While my academic performance went from mediocre to average and to above average as I progressed through undergrad and graduate school my belief system did not change as much. I was still stuck believing I was not smart.

Recently, I began to realize these are the core beliefs I had about myself and others. These core beliefs have been holding me back all these years. They have guided the decisions I’ve made in life. They have affected how I interpreted the events in my life and they have certainly influenced my thinking, feeling, and behavior.

We all have core beliefs that guide the decisions we make and these beliefs impact us in many ways. Your healthy beliefs serve you well. But, the unrealistic, self-limiting beliefs you hold onto can hold you back from reaching your greatest potential.

In an article titled, “The Impact of Limiting Beliefs” by Alissa Finerman, she noted that our brains can produce as many as 50,000 thoughts per day. Ninety-five percent of these thoughts are repeated daily. You decide how you think and what becomes a can or can’t. Your thoughts become your beliefs which, in turn, become your mindset. Your mindset fuels your actions, which create your reality.

Alissa goes on to illustrate the chain effect that your thoughts can have on your life: Words>>Thoughts>> Beliefs>>Mindset>>Actions>>Results.

It is clear that our belief system has an impact on the results we accomplish in life. Therefore, it’s important to acknowledge your core beliefs and examine which ones might be inaccurate and unproductive so you can take appropriate steps to let go of the beliefs that are limiting your potential.

Amy Morin, author of “13 Things Mentally Strong People Don’t Do” in an article published on Inc.com classified unhealthy and unproductive core beliefs into the following 3 broad categories:

  1. Unhealthy Beliefs About Yourself — This happens when you conclude that you are a loser, a failure, unlikable, or incapable. This belief system will prevent you from doing your best. Even overly optimistic beliefs can be unhealthy. Thinking you’re the best at everything you do or that you are above the rules can be just as dangerous to your well-being as an exaggeratedly negative core belief about yourself.
  2. Unhealthy Beliefs About Others — When you believe everyone is against you, untrustworthy, or manipulative, it will be impossible to develop healthy relationships. Similarly, believing everyone can be trusted or that everyone is a kind person can cause you to be taken advantage of or to get into relationships that aren’t good for you.
  3. Unhealthy Beliefs About the World — Assuming that you can’t succeed in today’s world or thinking that the world is too dark of a place to ever be happy will take a toll on your life. On the flip side, minimizing social problems and looking at the world through rose-colored glasses isn’t helpful either.

Unfortunately, we all have these unhealthy beliefs to varying degrees. And in many cases, we often think that all of our beliefs are 100 percent accurate. We hold on to them and we end up living irrational and unproductive lives.

Unhealthy beliefs will lead to unhealthy and sub-optimal results.

Unhealthy beliefs lead to unhealthy habits. And unhealthy habits produce negative outcomes that ultimately reinforce your unhealthy beliefs. It’s a vicious cycle that can be tough to break.

Amy goes on in her article to provide the following examples of how self-limiting beliefs turned into self-fulfilling prophecies from real examples from her therapy office:

  • A woman believed she was unlovable. She jumped from one unhealthy relationship to the next over and over again. Every person she dated treated her poorly, which reinforced her belief that she was unlovable.
  • A gym owner believed that small businesses couldn’t compete in today’s world. Membership dwindled, but rather than do anything different, she resolved that her business was going to fail. She found herself in a financial crisis and she concluded that she was going to have to close her doors because big chains were putting her out of business.
  • A man believed that everyone was inherently bad. Even when people were kind to him he assumed they had ulterior motives. He kept everyone at a distance and never developed trusting relationships. Any time he felt he wasn’t treated fairly, he thought it was evidence that further proved his beliefs that people are bad.

So, self-limiting beliefs have devastating consequences. As a result, we must make effort to first recognize them, and second, take active steps to combat them.

How can you change your self-limiting beliefs?

Without a doubt, changing a self-limiting belief is hard work. It is tough. And the reason for this is that you’ve likely held on to these beliefs for such a long time.

So, you have to confront these unhealthy beliefs head-on and start replacing them with new healthy beliefs through reframing.

In the article referenced above, Alissa provides the following examples of limiting beliefs and how you can reframe these beliefs:

  • For a job seeker: I’m terrible at interviewing. After one or two interviews that don’t go as well as you had wanted, it’s not rational to conclude that you can’t interview. Reframe and focus on where you can improve and prepare two to three stories that share your strengths and how you best contribute.
  • For an emerging leader: Because I am so young and managing others twice my age, people on my team don’t respect me. Age doesn’t equate to respect. Reframe and realize that you can earn someone’s trust and respect regardless of age and focus on the steps you can take to build respect.
  • For a manager: I’m not good at managing people and having tough conversations. Having one tough conversation with a challenging team member that didn’t go well doesn’t mean you don’t have good management skills. Reframe and realize that managing is a process and takes time to learn and develop your skills and that you have more work to do with tough conversations.

Confronting your limiting beliefs and reframing is one of the best ways to change your beliefs. This was what I needed to start shifting the self-limiting belief that I was not smart enough to share what I know with others. The belief that kept me incapacitated for such a long time.

In late 2016, I started chipping away at this limiting belief as I started teaching, first at the kids’ ministry at my church, later at the chess club, then at the university and now I am running training programs regularly, and sharing my stories on stages and on podcasts. I committed to teaching even as I was terrified of the thought of doing so initially.

As I put myself out there teaching, I slowly began to see evidence that the self-limiting belief I was holding on to was not supported by facts.

I could actually teach.

I could be understood.

I am smart.

So, reframing and taking action to confront your limiting beliefs is essential as you work to shift your mindset. In her article, Alissa suggested the following steps for recognizing your self-limiting beliefs and replacing them with healthy beliefs:

  • Bring awareness to the words you use. Does the belief help you move forward or limit your potential?
  • Be honest. Is the belief or story you are telling actually true?
  • Stick to the facts. Saying you are a young leader is true but saying you are a young leader so, therefore, people won’t listen is not accurate. Is there evidence behind it?
  • Take a pause before you finish the sentence with a belief that does not serve you. There is a big difference between telling yourself, “I don’t have experience starting a company” versus “I don’t have experience starting a company so therefore I can’t do it.”

Final Thoughts

When next you’re confronted with a new challenge or a difficult decision, ask yourself — what are you afraid of? Are your own beliefs keeping you small? You may be able to recognize the limitations you place on yourself are unfounded or lack evidence, and you may find a new, positive momentum toward achieving the outcome you desire.

By constantly recognizing your self-limiting beliefs, challenging them, and reframing them, you will begin to train your brain to see yourself, other people, and the world in a more accurate light. This will transform your self-limiting beliefs into healthy beliefs. And these healthy beliefs will lead to more productive results, results that will ultimately allow you to reach your full potential.

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Personal DevelopmentSelf Growth

5 Ways to Execute Effortlessly

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If you want to achieve your life goals, you must figure out a way to make execution effortless

“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.” — Steve Jobs

If you want transformation in your life, you have to execute.

You have to move from head knowledge to actually implementing the ideas you’ve learned. If you don’t execute, nothing happens. Your life will not change. You will not be better than you were yesterday.

To execute, you must develop systems that will make execution effortless.

You need a system to execute your priorities every day.

To execute, you must develop systems that will make execution effortless.

You need a system to execute your priorities every day.

A system that will allow you to break down your decade-long goals into annual goals, and eventually into your daily tasks.

You are three times more likely to achieve your goals by stating your implementation intentions. You can use the 3×3 Achievement System to reach your life goals by breaking down your:

  • Quarterly Big 3 Goals
  • Weekly Big 3 Outcomes
  • Daily Big 3 Tasks

By doing this, you ensure that you are doing at least one thing each day toward your long-term goals. And by taking one step towards your big goals every day, you’ll soon achieve your life goals.

Distraction is the main reason most people don’t execute well.

Distractions steal your time and clutter your focus. As such, to be successful in reaching your life goals, you must be brutally focused. You must minimize everything that does not advance your long-term vision daily.

Staying focused can be challenging, particularly given that we often have more things to do than time to do them.

So, instead of figuring out how to get more done, you should be asking, “What work is the best possible use of my time?”

“You can do anything you want, but not everything you want.” — David Allen

So how can you make execution effortless?

Here are 5 ways you can do this:

1. Find a System that works for you

You must start by developing a system that works for you. This must include writing down your goals and clearly documenting what you want to accomplish.

I use the 3×3 Achievement System discussed above and have found that it has dramatically improved my results in completing the things that matter most to me.

2. Regularly assess how you spend your time and energy

Do this by reviewing your calendars, writing things down, and keeping a journal.

I use a one-page calendar schedule where I write on a daily basis my top 3 90-day goals, my top 3 30-day goals, my top 3 weekly goals, and my top 3 daily tasks.

I find that when I write my goals down daily, it keeps them front and center on my mind. It keeps me motivated.

At the end of each day, I assess how I spent my time and make important notes on what went well and what I can improve.

3. Align your daily tasks to your goals

Always ask yourself, “Is there a way that this contributes to my long-term goals?” If the answer is “yes,” then all good. If the answer is anything other than “yes,” then delegate, defer or delete.

The use of the one-page calendar schedule helps me. As I write my goals down daily, it keeps them in focus, and it helps me align my daily tasks to my 30-day and 90-day goals.

4. Be ruthless with accomplishing your daily big three tasks

Doing this will give you massive momentum toward your long-term goals. If you get your big three daily tasks figured out, start with the hardest task, and do nothing else until you complete it. Then move on to the next task.

I have found this very helpful. It gives me great momentum toward getting important things completed. Even on days when I get off track and lose focus on my top 3 tasks, I still manage to get at least 1 or 2 of my top 3 tasks completed.

Here, it helps to be very specific on the tasks to be completed. For example, “Complete the first draft of chapter one of my eBook”.

5. Invest in self-awareness

Whatever that is for you. Spiritual, meditation, books — these things will help you figure out who you are, where you’re going, why it matters, what matters, and what doesn’t.

Do this every day and you will magically find the motivation to drive you toward your goals faster.

“One can steal ideas, but no one can steal execution or passion.” — Tim Ferriss

By regularly assessing how you spend your time, you may find the following as examples of things you can cut out of your life:

  • People that distract you from your long-term vision
  • Events/conferences and social gatherings that don’t inspire and add value to your long-term vision
  • Social media is an addictive waste of time and energy
  • Checking your messages and emails every time your phone beeps
  • Picking your phone every time it rings
  • Excessive addiction to news media
  • Doing chores you don’t enjoy when you can pay others to do them
  • Watching excessive TV
  • Wasting too much time learning and doing tasks that someone else can do, particularly tasks you don’t enjoy doing
  • And many more that I can’t list here…

“Never do anything that someone else can or will do, when there is so much to be done that others cannot or will not do.” — Dawson Trotman

In Conclusion

Mastering how to execute will make a significant difference in your life.

If you want to accomplish your goals in life, you must execute the plans you’ve put together.

Without execution, nothing changes.

Strategy equals execution. All the great ideas and visions in the world are worthless if they can’t be implemented rapidly and efficiently. Good leaders delegate and empower others liberally, but they pay attention to details, every day.” — Colin Powell

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Personal FinanceTax Planning

Do You Know the Three Accelerators of Wealth?

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How the right application of these accelerators can accelerate the growth of your wealth

Why are the rich getting richer and everyone else getting poorer? Are the rich smarter than the rest of the world? Are they more talented? What do they know that the rest of the population does not know?

The answers to these questions can be varied and sometimes complex. It is certainly true that there are things that the rich know that the rest of the masses don’t know. These 3 powerful accelerators of wealth are concepts that the rich have certainly mastered.

You too can learn more about these accelerators, master them, and employ them in your strategy as you build and grow your wealth.

1. Compound Interest

Compound interest is the principle by which the interest you earn also earns interest, and the interest on that interest earns interest, ad infinitum. This is in contrast to simple interest, where you only earn the same amount of interest each year on your original principal balance.

With compound interest, the larger your balance gets, the bigger those interest numbers become. As you may have heard in the past, compound interest is often called the eighth wonder of the world. Compounding is certainly one of the marvels of the universe.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” — Albert Einstein

To illustrate the power of compound interest, consider the following question: how much would one penny, doubled every day for one month, equal? If you’re like most people, your guess would be around $500. The correct answer? One penny, doubled every day for a month, equals a whopping $10.7 million!

This is absolutely shocking to most people, not because the math is too challenging, but instead because the answer is so unexpected. We think that a penny is worthless and that one month is a relatively short time. I was in the same boat too as I found this shocking when this same question was posed in a report by Adam Baratta that I read recently.

Compound interest has a similar effect, and just like in the example above, we often underestimate the power of compound interest. If you do the math to solve the question above, you will notice that the exponential growth in the number did not start until day 28 when it skyrocketed.

With compound interest, as the numbers get bigger, so does the benefit of compounding. Think of it like a snowflake turning into a giant snowball — the longer the hill is, the bigger the snowball can get.

There is a concept called the “Rule of 72” that helps to simplify the concept of compound interest and its impact. The rule tells us that at a given interest rate if you divide that rate into 72, the result indicates how many years it will take to double your money when it is compounding.

For example, if you earned 8 percent compound interest, your money would double every 9 years (72 divided by 8 equals 9); if you earned 10 percent compound interest, your money would double every 7.2 years. The impact gets even bigger when you compound monthly, weekly, or daily.

Bear in mind that to benefit from the “magic of compounding interest,” you need to redeploy that income quickly so you can start making returns on the money you made as soon as possible as well.

As you can see, compound interest can help you accelerate your wealth when applied correctly to your savings and investments.

“Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market.” — Warren Buffett

2. Leverage

Leverage simply refers to using other people’s money (OPM) — borrowing, incurring debt, taking bank loans, using credit cards, etc.

As you may already know, leverage is a double-edged sword. When poorly used, it can result in an unmanageable debt level that can cause more harm than good. When used judiciously as an investment tool, leverage can be an awesome thing.

Without leverage, accumulating wealth will be more challenging — it is not impossible to achieve some level of financial freedom without leverage, but it will take a much longer time and you will never truly achieve significant wealth.

The use of leverage maximizes your returns and substantially shortens the time required to attain wealth. For example, if you invest $100,000 in a GIC that has an interest rate of 2% per annum, it would yield a return of $2,000 per year. If you were to take that same $100,000 and use it as leverage to purchase a $500,000 property, assuming the same 2% growth on your new investment value of $500,000, you would get a gross return of $10,000. Which would you prefer?

If you truly understand and embrace this concept of positive leverage, and apply it in your investments over and over again, you will accelerate your wealth accumulation in the same way that compound interest does.

“Attempting to succeed without embracing the tools immediately available for your success is no less absurd than trying to row a boat by drawing only your hands through the water or trying to unscrew a screw using nothing more than your fingernail.” — Richie Norton

3. Velocity

This is one concept that most people may be unfamiliar with, particularly when it comes to personal finance. In the world of finance and economics, the velocity of money is a measurement of the rate at which money is exchanged in an economy.

It is the number of times that money moves from one entity to another. In economics, the velocity of money is usually measured as a ratio of gross domestic product (GDP) to a country’s money supply.

In Robert Kiyosaki’s book, “Who Took My Money?”, he writes that the velocity of money is one of the reasons why the rich get richer while the average person risks losing a large portion of their savings. According to Robert, as an investor looking to build and accelerate wealth, you want to:

1. Invest your money into assets

2. Get your money back

3. Keep control of the asset

4. Move your money into a new asset

5. Get your money back

6. Repeat the process

As you can see, the same money is reinvested into assets over and over again. The term velocity is associated with speed. So, how quickly do you want to reinvest? As quickly as possible!

There are two important reasons why we should use the velocity of money to our advantage. Firstly, it significantly reduces our risk; and secondly, it allows us to compound income at a faster pace (do you remember the power of compound interest?).

Billionaire Mark Cuban and owner of the NBA’s Dallas Mavericks once tweeted:

“People create wealth by owning assets that appreciate or create/earn other assets.”

If you think about this statement, you will see that wealth flows from using your assets to acquire more assets. The underlying force that allows you to do this is the velocity of money.

In Conclusion

These are concepts I wish I knew long ago. I think these would have made a significant difference in my planning and overall thinking in terms of building and accelerating the growth of wealth.

Along my journey, I have accidentally employed most of these concepts but certainly not strategically. Today, I have a better appreciation of these powerful accelerators of wealth and employ them as much as I can in my planning. I hope you now have a better understanding of these concepts.

These powerful accelerators of wealth — compound interest, leverage, and velocity — are fundamental concepts I discuss in my upcoming eBook. I show you how you can take these concepts and begin to build a plan to grow and accelerate your wealth in a tax-efficient manner.

P.S. I am on a mission to arm you with financial education. That’s one reason I wrote Tax-Efficient Wealth. This book will help you accelerate your wealth in a tax-efficient way. Grab a copy my book, Tax-Efficient Wealth, to learn how you can build wealth quickly using strategies that will save you a ton in taxes.

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Personal FinanceTax Planning

JOIN US – The 2022 Tax-Efficient Wealth Summit

Ken Green tax summit facebook cover

On Saturday, June 11th, 2022 we will be hosting the Tax-Efficient Wealth Summit in a live in-person event in Mississauga. We have assembled a great lineup of speakers that will challenge your thinking and show you ways you can build tax-efficient wealth. So grab your tickets now! We only have a limited capacity of 50 people so registration will close as soon as we hit capacity. This will be an intimate event taking place in Mississauga on Saturday, June 11, 2022! There will be opportunities to network with others, learn new strategies, build new connections and enjoy the complimentary snacks, coffee, and lunch included in your registration. Here are 5 reasons why you should join us:

Reason # 1: The taxes you pay (income tax, HST, payroll taxes, etc.) is your biggest cost, and tax rates are only set to increase in the near future. You need strategies to combat the impact of high taxes now and in the future.

Reason # 2: We live in an inflationary environment so you have to protect your purchasing power and protect the value of your investments and wealth

Reason # 3: With increasing prices, how can the next generation afford to buy anything? How can our kids own assets and how can we transfer our wealth in the most tax-efficient manner? Learn how to structure your affairs to minimize taxable events as you plan to transfer knowledge and assets to the next generation.

Reason # 4: It is becoming more and more challenging to go on this journey of wealth building on your own. Connect with others like you and learn how to leverage other people’s money, time, and resources to shrink the time required to achieve financial freedom.

Reason # 5: Luckily, the Government offers us tax-free opportunities through what I call the “THE TAX-FREE FINAL FOUR” – (1) Principal residence; (2) Tax-Free Savings Account; (3) Tax-Exempt Life Insurance; and (4) Lottery Winnings. You need to learn how to take advantage of these (Well…I don’t recommend lottery :)) and never have to pay taxes again.

To learn more and to register, Click Here!

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Personal FinanceReal Estate InvestingTax Planning

How to Manage Debt and Risk with a Solid Base of Income Producing Assets

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If you listen to mainstream media, you will agree that debt is a big topic, particularly household consumer debt. And in many cases, you will find experts hammering on not just consumer debt, but also on all types of debt.

While I totally agree that incurring unnecessarily high consumer debt is a bad idea, I don’t agree that all debt is bad. Using debt or financial leverage will allow you to build financial freedom faster. It will allow you to shrink time. The key is wise leverage. If used correctly, it has the potential to increase your wealth and improve your life. If used unwisely, it will burn you.

To leverage the use of debt appropriately, you have to manage the risk that debt introduces and one way to do this is to manage the risk with a financial reserve from a solid base of income-producing assets.

Let me explain.

There are 3 steps involved here:

Step 1: Build a Solid Base of Cash Generating Assets with Debt

Here, you want to buy a solid asset that has the potential to increase in value over time and an asset that can generate good monthly cash flow. This step will require you to take the highest amount of debt. To reduce the risk that this debt introduces, you have to buy an asset that will generate great cash flow on a monthly basis. A good example here may be acquiring a 20-unit residential building or building a portfolio of rental real estate over time as I’ve personally done over the last 10 years.

With the high real estate prices in Toronto and the Greater Toronto Area, you will require a lot of capital to do this step. However, you can start small by buying a starter home, and over time, you will build a portfolio of income-generating assets.

Now, you take the cash flow generated from this asset, accumulate it, and move to step 2.

Step 2: Buy Another Cash Generating Asset with Little or no Debt

Here, you take the accumulated cash flow from the first asset base to buy another asset. To successfully do this, you will have to be disciplined to save and accumulate the cash flow from Step 1. This means you need to have other sources of income to maintain your lifestyle, e.g., keeping your current job, running your existing business, or starting a side hustle.

A good example of an asset that will make sense for this step may be a small condo in a small city that you may get for less than $200,000. Or a manufactured or Trailer home you can buy for less than $50,000. Another example may be taking a position in a small and stable small business.

The idea here is to acquire the asset with little or no debt. As the debt here is way less than the debt in Step 1, the risk is significantly reduced. And because you have little or no debt payment, you will still generate a good amount of cash that may only be slightly less or even more than cash generated from Step 1.

After you acquire the second asset in Step 2, you now have two assets generating cash flow. The next step is to take the cash flows from both of these assets and go to Step 3.

Step 3: Buy A Third Cash Generating Asset with no Debt

In this final step, you take the combined cash flow from both assets acquired in Steps 1 & 2 and acquire additional cash flowing asset(s) with no debt. A great example of an asset here is a dividend-paying stock. You can acquire these assets at a much cheaper price compared to assets in Steps 1 & 2 and you can acquire them with no debt.

Since you’re buying these assets with no debt you eliminate the associated risks that debt adds. Obviously, you have to do some research to ensure you’re buying dividend stocks of great companies. These companies should serve a need that is essential in the marketplace, should have a great record of consistently paying dividends, and should have the potential to grow.

Notice that in all steps, one thing that is common with these assets is that they all generate cash flow. This is important as the cash flow is what enables you to acquire additional assets.

So, how does this help with risk management?

As you go up the pyramid, your risk reduces as you reduce and eliminate debt. Now if you encounter a bad situation triggered by a bad economic situation or other events that impact your cash flow with the assets at the base, you have cash flow from the other assets that can be used to continue to meet your debt obligations. The last thing you want is to be forced to sell an asset during an economic crisis. So building other assets with little or no debt a great way to manage this type of risk.

Final Thoughts

The great thing with this idea is that you have the flexibility to customize this plan based on your current situation. If you don’t have a significant amount of cash today required to start at the base of the pyramid, you can start at the top (Step 3) and walk your way down. You can start at Step 2 and move up or down as you accumulate more cash. You can start anywhere.

Action Steps:

  • Consider how you can make modifications to your current plan to incorporate these ideas so you can build more cash flow generating assets and mitigate risk at the same time
  • If you don’t have a plan like this, consider starting one today!

P.S. I am on a mission to arm you with financial education. That’s one reason I wrote the book, “Tax-Efficient Wealth”. This book will help you accelerate your wealth in a tax-efficient way. Grab a copy of the book here, to learn how you can build wealth quickly using strategies that will save you a ton in taxes.

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Tax Planning

10 Mistakes The Do-it-yourself Taxpayers Make When Filing Their Tax Returns

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As we approach the May 2 filing deadline for personal tax returns in Canada, most taxpayers will be filing their tax returns using a do-it-yourself tax software.

Often, these taxpayers assume that using a do-it-yourself tax filing software means they no longer need the support of their accountants.

While most of these personal tax software platforms are mathematically correct, provide “intuitive” guidance based on your responses to tax questions, and allow for ease of filing with the Canada Revenue Agency (CRA), they don’t provide advice when dealing with personal financial matters that may impact the current year’s tax filing.

As a result, you may miss important tax planning tips that may impact your current and future tax filings. Here are 10 of the common mistakes these taxpayers make so you can avoid them as you file your taxes in the coming weeks:

1. Taxpayers tend to put the most favorable interpretation on tax rules and regulations

For example, being self-employed does not usually mean you are entitled to expense everything that comes to mind. Certain expenses such as clothes you wear to work, meals and entertainment, and home office expenses may not qualify as eligible expenses.

Although these expenses could be taken as a deduction when you file your tax return, there are specific rules you must be aware of to determine eligibility.

2. Taxpayers often think they can claim what their friends can claim

You only look at your own situation. Each taxpayer’s circumstances are different. One of the most common tax filing mistakes is the belief that car expenses can be written off merely because you drive your car to work.

Vehicle expenses are only deductible where the vehicle is needed to perform the job, the employer demonstrates that need, and provides a signed and dated Declaration of Conditions of Employment to the CRA if requested.

3. Taxpayers overlook the benefits of carryforwards

Common examples of lost tax reduction opportunities from carryforwards are tuition fees, capital, and non-capital losses, medical expenses, and donations. All these carryforwards, if ignored, will result in a higher future tax expense for the taxpayer.

4. Taxpayers do not keep their tax files long enough

Taxpayers may be aware that as a general rule, CRA requires you to maintain all tax records and documents that support your filed tax returns for a period of six years from the end of the last tax year to which they relate.

Additionally, if you file an income tax return late, you must keep your records for six years from the date you file the return.

Most taxpayers will probably be able to find the original source documents in a box in the basement, but finding electronic copies of tax returns can be problematic as new computers are purchased, PDF files are lost, tax programs are erased or new tax software cannot read old programs.

5. Taxpayers may think CRA will provide them with a positive reassessment

If you fail to file information from a T4, T5, or other documents that are matched with the records of your employer or financial institution, the CRA will notify you, reassess you and undoubtedly charge you interest and, perhaps, even a penalty, for your oversight.

On the other hand, if CRA discovers through the filing process that you have missed inputting property taxes, tuition fees, disability, or any other deductions to which you are entitled, the CRA is under no obligation to notify you and send you a refund.

Photo by Olga DeLawrence on Unsplash

6. Taxpayers may miss opportunities to file corrections

If errors or omissions occur in the filing, taxpayers may not know how to take advantage of the opportunity to correct the error by filing a T1-Adjustment. Thus, the possibility of reducing income tax liability may be lost forever.

7. Taxpayers who are owner-managers of a corporation may fail to record draws and loans from their company as income

Failure to properly record this income may result in additional taxes, interest, and penalties.

8. Taxpayers may miss available deductions

Interest expense on business or investment loans, income splitting, administration fees paid for investment counsel, combined with myriad deductions that may be available to a taxpayer may be missed.

These are just a few examples of deductions that taxpayers miss when they file their tax returns. As a result, they pay more than they should in taxes.

9. Taxpayers may miss available credits

Tax credits directly reduce the amount of taxes due, dollar-for-dollar. Refundable tax credits like working income tax credit and non-refundable tax credits like charitable donations and spouse/common-law partner credits could be missed if care is not taken when filing your tax returns.

10. Taxpayers get upset when dealing with the CRA

If you are nervous and feel generally uncomfortable dealing with your tax matters, you may misinterpret the needs of a CRA officer and inadvertently provide inadequate or incorrect information that may unnecessarily result in an expanded audit process.

Conclusion

Although most taxpayers are able to file their personal tax returns using many of the software platforms available, it is important to seek advice, particularly if you have a complex situation.

As a licensed Chartered Professional Accountant, I am always on your side. The truth is that filing personal taxes is not the hard part. What may be challenging is getting the appropriate insights from your tax returns that will enable you to plan better going forward. So, if you’ve already filed your taxes, can you answer these questions about your personal tax situation…

  • What’s the dollar amount I paid in taxes?
  • What’s my average tax rate?
  • What’s my marginal tax rate?
  • Why did I get a refund? Why did I NOT get a refund?

More importantly, if you have answers to these questions, do you know what to do next to earn more income in 2022 and pay less taxes in 2022 than you did in 2021? As I prepare taxes and look at these numbers daily, I’ve seen Canadians who pay zero taxes, 1% in taxes, 13%, 19% with income ranging from $50,000 to almost $100,000. But it takes planning to achieve results like this. As I’ve said many times when you don’t get insights, you end up paying more in taxes than you’re required to and a dollar lost in taxes today will not only cost you a dollar today, IT WILL COST YOU A MULTIPLE OF THAT DOLLAR OVER TIME! 

If you don’t have answers to these questions or if you don’t have an action plan, then I invite you to learn how my TaxInsights Offer can help you minimize taxes, improve cash flow and get ahead financially. For a limited time and for ONLY $97, I can still provide INSIGHTS with a review of your taxes for a minimal fee. Get the details here.

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