Top 15 Things You Can Do During a Credit Crunch
- Personal Finance 101: When mom told you to save for a rainy day, she was right, and this might be it. If you aren't positioned for six to eight months of "safety cash", now is the time to put that in place.
- Assess Your State: State of emergency or Stable condition? If you don't have a good handle on your financial condition, check it out now. Review your cash flow, personal balance sheet and budget and get on the right side of debt managementómore assets than liabilities.
- Cash is King: If you are sitting on excess cash be ready to do two things (a) pay down bad debtócredit cards, non-deductible debt next (mortgages). Then get ready to invest back into the market at "sale prices" when the time is right
- Get Your Investment Priorities Right: What comes first this year: your RRSP contribution? The new Tax Free Savings Account, Investments in RESPs? Non-registered accounts?
- Need Cash? Look in the right places: the tax system is a good place to start: unfiled tax returns, errors or omissions on prior returns leading to refunds. Don't cash in RRSPs if you can help itówill cause a tax problem.
- Be More Productive: You can get a second job or start a business working out of your homeóa good way to save money on gas and coffee breaksóbut either way cut back on work-related expenses.
- Avoid Overpaying Tax Instalments: Will your income be lower in 2008 than it was last year? Can you avoid making the December 15 instalment payment? Write CRA a letter to do so.
- Take Advantage of Tax Losses: Whether you panicked and locked in losses, or generated them as part of your year end planning strategies check out your cash flow advantages by carrying back losses to offset gains of the previous 3 hot years in the marketplace.
- Reconsider your charitable donations? You can often generate fast cash on your tax return by increasing donations before year end.
- Defer Income. Put off taking income 'til next year, to minimize tax and instalment payments for next year. Problem: seniors and RRIFs. Stop drawing if you have met your minimum withdrawal requirements
- Increase social benefit payments: Reducing your net income with an RRSP contribution, could decrease OAS Clawbacks, increase Child Tax Benefits. In both cases you'll have a monthly cash flow bonus.
- Buy assets? Interest rates are coming downósit tight and see whether there are opportunities to leverage into sale prices on homes, cars, commercial buildings. If you are in business that will increase your write-offs too.
- Manage the credit crunch with deductible interest: Know your options when you are in trouble: deducting interest on assets with diminishing value, CRA garnishees, foreclosures, repossessions. Get professional help
- Stress happensówrite off prescriptions. Getting extra therapeutic massages, taking more prescription drugs? Do you know what medical expenses to write off? Do you have your will up-to-date?
- Year end planning: reconsider education savings: disadvantage in RESPs? Switch to TFSAs for better flexibility?
Evelyn Jacks, President, The Knowledge Bureau: knowledgebureau.com for free information about Breaking Tax and Investment News, self study courses on tax and personal finances, or books on personal finance. Call: 1-800-953-4769.