Ringing In The New Year

New-Years-Eve-Fireworks-at-Nathan-Phillips-Square-Toronto

With 2018 in the rear view mirror it’s time to start looking forward at what the next year may bring. There are already quite a few known changes in Canada to the economic landscape that will affect our personal finances in 2019, so now is a good time to run down through the changes so that we are all prepared before we get deeper into the year.

Carbon Taxes

One of the goals of the Canadian government is to lower carbon emissions. Let’s face it. There’s too many people on this world and we’re slowly going extinct by destroying the world’s resources. Unless we put birth control on everyone, which is not going to happen, we’re all going to have to reduce our carbon footprint. Bring on the taxes!

Though the government says that for most consumers the carbon tax will be neutral, we need to be realistic. Businesses that don’t get the rebate back will be passing on the tax to consumers through increased prices for goods and services across the board. Since the carbon tax is a gradual increase over time, we won’t see the full effects until 2022 when the last carbon tax increases come into effect.

So what will 2019 bring? The biggest impact will happen in April when the taxes finally kick in. Most analysts see an increase of about 4.4 cents per litre at the gas pump. That’s roughly a 3-5% increase for Canadians at the pump. If you’re already spending $300 dollars on gas a month, be prepared to fork over another $10-15 dollars a month. When the final increases end in 2022, expect over a 10 cent inflation in the cost of gas from current levels.

That’s not all. Come next winter the expectation is that the natural gas prices will also go up by roughly 4 cents a cubic meter. Natural gas prices fluctuate all the time and usage is based on weather but expect heating bills to climb as well. When the final tax is implemented Canadians are expected to pay over 10 cents more per cubic meter as well.

All of these price increases mean Canadians should expect to consume less. That means less clothes buying, less money for fancy electronics and more expensive groceries in stores. The end goal is to reduce the amount of stuff people buy. Canadians are already at the forefront of consumerism in the world per capita. That means we buy way more stuff than anyone else in the world.

It’s not to say you should live miserly, but a reduction of consumption will be necessary to keep budgets in check.

Increase CPP

If I didn’t already get your down with carbon taxes, then get ready to pay more towards your Canadian Pension Plan. Yeah, when this program was introduced many years ago, the government didn’t expect the old fogies to live to 90. As more and more baby boomers start collecting against the fund, the money is starting to run dry.

The increase in CPP payments means that there will be less money in your paychecks starting in the new year. Unfortunately, no one can escape this. We all have to pay the increased CPP rate and business will have to fork over more as well. That just means less money in your pocket.

The unfortunate thing about this increase is that none of us will see the money. This was needed to keep the fund in good shape using the current payout ratios. By the time the folks that are paying this increase are retiring we still won’t see an increase in benefits.

Blame this on poor government planning. They should have thought about increasing lifespans but didn’t. For anyone thinking about retiring on the CPP stipend, forget about it. I already mentioned how paltry it is. You better start saving and there’s no better way to start than using the account below.

TFSA Goodness

The doomers and socialists will want to make you believe that the TFSA is for the rich. I’m telling you now they’re wrong. The RRSP is for the rich because it lets them defer taxes to a later date and the rich get more contribution room. The TFSA has a fixed contribution limit that is the same for everyone. That means someone earning $15/hr and someone earning $250/hr each get the same contribution room. Whether you can use the room depends on how much you save not how much you make.

For 2019, the limit for the TFSA has increased to $6000. The Liberal government cut it back from $10,000 to the original contribution limit, but the original limit was always tied to inflation and would increase by $500 when those thresholds were reached. Canadians can now enjoy $6000 of tax free goodness in their TFSA this year.

My advice to every Canadian every New Year is to top out their TFSA as soon as possible. Why waste time and lose out on tax free gains? Remember that time is the only advantage that we have when investing for the long term.

Roller Coaster Markets

stock-market-rollercoaster

If December gave you sleepless nights in 2018, then get ready to become insomniac for 2019. With geopolitical economic events happening all over the world and a polarizing president with a broken government in America we can’t expect to have much stability in the stock markets. Expect more wild swings that will take the stock markets up and down over 1% for many trading days.

If this is something that you can’t emotionally handle with your money, now is the time to assess whether you are holding too much stocks. Most people, and I mean something like 95% of consumer investors, can’t handle a falling market. Very few people can actually stop themselves from hitting the sell button on their investment portfolio.

What makes everything even worse is how investment gains and losses for portfolios are reported. I’ve written how dollar cost averaging messes up all the financial institution’s reporting of gains over time, so don’t be surprised for many people who’ve been up 50% over the last few years to see their portfolios down 25%. This leads to more panic because bank systems do such a poor job with their math.

My advice to those that have anxiety in investing is to go with a conservative balanced portfolio. You might have thought you could handle a 90% stock 10% bond portfolio, but really you’re a 60% stock 40% bond person, or maybe even 50/50. Too many people lie to themselves during rising markets and think they can handle the turbulence. What really was going through their heads was FOMO. “I don’t want to miss out on gains.” It was greed talking. Another nasty emotional behaviour of investing.

If you’re already steadfast in your ways of investing. Then 2019 might be a year where you need to be more active in re-balancing your portfolio a little more than usual. With wild swings could come the need to readjust the weighting of your investment portfolio a bit more than normal. Just be prepared.

Establish A New Budget

Every year brings a new goal. That’s what makes living so special. We have the means to control our own destiny. With a new year on the horizon, it’s time to take the things that we learned from last year and apply it to our new 2019 budget. Here are some things to consider for a 2019 budget:

  • Have I established a “pay myself first” system through automatic bank transfers?
  • Did I account for surprise expenses in 2019 that I found in 2018?
  • Am I saving for a big expenditure or event for this year?
  • Can I increase my savings rate?
  • Will I be getting a larger salary or changing jobs for 2019?
  • How can I get my debt in check? Can I create a debt repayment schedule?

There are many factors that are personal to you that will have an impact on your 2019 budget. These are things that you should sit down and think about and try to tackle it early in 2019. Don’t get caught by surprises.

The goal in personal finance and achieving financial independence is to learn as you go and improve your financial skills. Just remember that none of us our perfect. We all make mistakes along the way. The ones that do better than others are the ones that reflect, improve and then execute. Make that a habit and your finances will improve over time. Good luck for 2019!

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