Evelyn Jacks: In Search of Redundant Income

I have been blogging about how individuals and businesses can work hard to reduce their debt. While reduced consumer spending may add to Canada's sluggish economic outlook in the short term, on a personal level, cutting spending is a very good plan for shoring up your long-term financial stability.

Without aggressive saving, it's possible that your debt, rather than your wealth, will be the legacy of your retirement. Getting your financial house in order sooner rather than later will help you find "redundant income,î that is, money that is available for savings after you have covered your regular expenses. That is income you can save and grow inside tax-efficient plans, including your RRSP or TFSA.

Managing debt will also help you protect your savings from taxes and inflation, the two factors that are bound to erode your future wealth.

You may be aware that governments' biggest source of revenue is taxes on personal income. If governments are to continue spending to stimulate the economy and if ongoing sluggish economic activity further reduces tax revenues, an important recourse for governments is raising taxes to meet the demand for government services.

That scenario makes it even more important to manage your personal finances with tax savvy.To minimize personal income taxes, know your marginal tax rate on every source of income you or your investments generate.You can then tweak your income and cash flow plan with tax efficiency.

It's also important to take a family approach and employ income-splitting techniques whenever you can.When you split and diversify your sources of income, you will pay fewer taxes. Finally don't forget the ideal order of investing which will give optimize your investment dollars by minimizing the tax impact. Decide what should come first: for example, your RRSP, your TFSA or an RESP.

It's your money, your life. It's the tax-savvy steps you can take now that can help you build sustainable wealth. Speak to your tax advisors soon about creating new strategies to "average down your taxesî with income diversification, income splitting and the deferral of taxes on your investing activities.

Evelyn Jacks is President of Knowledge Bureau and has recently been named one of Canada's Top 25 Women of Influence. Knowledge Bureau has just published new courses on debt management, updates to cross-border taxation issues and a new library of personal, corporate and GST tax matters to take recent court cases into account. For more information call 1-866-953-4768