Here we are, all ready for the third instalment of Derek Foster’s book “Stop Working, Here’s How You Can!”. So how do the last 7 chapters shape up? Does he reveal any secrets? And what about that chapter on RRSPs? Isn’t it un-Canadian not to support them? Tomorrow, I’ll give my opinions.
15. The Tax Man Cometh, My Money Goeth!
Derek intends this chapter to provide a basic overview of Canadian personal income taxes (with a little CPP and EI thrown in). He recommends “Jacks on Tax” for a more in-depth look at taxation in Canada but also throws out a few Tax Facts.
Employment income is the highest taxed form of income.
Interest income is the highest taxed investment income source.
Income from dividends or capital gains attracts a much lower rate of tax than employment or interest income.
Investment trust income usually attracts a low rate of tax. [This is changing.]
Deferring taxes is a great way to accumulate wealth.
Split income with other family members wherever possible.
He has a bunch of examples but the bottom line regarding #3 is that a person in the lowest tax bracket, living in Ontario, who gets $100 in income from various sources will keep $70.50 of earned income, $77.95 of interest income and $95.54 of dividend income!
16. Home is Where They Send My Bills
Derek offers the following Housing Tips:
Never pay the posted mortgage rates at your bank. Negotiate!
Try to save as much as possible on the fees levied when buying a house.
Paying off your mortgage is one of the best investments you can make.
Focus on home-ownership as a means to lower your living costs.
17. I Owe. I Owe. There’s Lots of Work to Go!
This chapter contains the following Debt Rules:
If you have a credit card, never carry a balance.
Pay cash for your car and then make the payments (to yourself).
Tax-deductible debt is the best kind of debt to have.
If you’re a student, minimize the amount of debt you take on.
18. RRSPs? No Thank You
Derek talks about what an RRSP is and how it works. Then, he gives some tips (but you knew that was coming, right?).
It may be better not to contribute if your income is below $32,000.
Although contributing to your RRSP can be a great move, so is paying off your mortgage early.
Borrowing money from a paid off home and investing it can be a better strategy than buying RRSPs.
RRSPs can be used to split income between spouses to lower the overall taxes a family has to pay.
As the chapter title indicates, Derek runs counter to everybody else’s views and doesn’t like RRSPs. In fact, he doesn’t have one.
19. How Much Do You Really Need?
Isn’t this what everybody always wants to know? Derek thinks the final figure is less than your bank or financial advisor would like you to believe. His formula:
Total current income minus work related expenses minus all interest expenses plus new lower tax expenses plus costs for new hobbies equals the total amount of income you’ll need.
20. An Example Portfolio
When I first read this chapter, I understood it to be Derek’s portfolio, but it doesn’t seem to be exactly. However, it contains several of the stocks he owns and talks about the cost to acquire them both now and over the past several years, using what he paid for them as an example.
21. Your Journey Begins
Derek closes with a story of a salesman and passes the ball into the readers’ court.
Tomorrow I’m going to give my opinions on the book and Derek’s strategy for early retirement. I’ll agree with some things and disagree with others (can you guess which ones?). What will I say? What will my final judgement be?