I’ve been feeling a bit blue lately. I am not sure if it’s the winter blue or the crashing stock market or the monotonous grind of daily life. Negative thoughts seem to fill my mind regularly. In general, I am a relatively positive person and I often approach any obstacles facing me with a cup half-full kind of attitude. Somehow, this hasn’t been the case lately.
 

Every day, if you read the newspaper or surfing any news site, more than likely, you’ll be reading about the bad news instead of good news. Why? Because bad news sells and the good news is never interesting to read. This is not really helping my case as everything that I read is pretty much negative. These type of news don’t seem to motivate me (or you) to do better or get ahead in life.
 

Instead of waiting for good news to fall on my lap, I am taking matters into my own hands. I am going to write a positive and motivating post to give myself (and you too if you are also feeling blue) a morale boost. Nothing can boost my little spirit like talking about money. The positive side of money, of course.
 

This begs the question, “do good money problems exist?” Why do I ask this question? Because not all money problems are bad. Or are they? I’ll let you decide if you’d like to have any of these good money problems (or good opportunities if you’re more optimistic).

How To Exhaust A $2M Registered Education Savings Plan (RESP)?

A few years ago, a young couple working at a tech startup decided to invest $10K of their kid’s RESP fund into their own company. Fortuitously, their company grew rapidly and performed very well. Their nominal investment paid off and grew to about $2M in value. Now, they have a money problem, “how do they draw down the $2M without being taxed right and left?”
 

For those who are not familiar with the RESP withdrawal rule, all the gains and government education grants from the RESP account is taxed at the beneficiary’s tax bracket. The caveat, of course, is that the beneficiary has to be enrolled in an eligible post-secondary program. If I have this problem, I’d definitely try the minimize my tax bill when withdrawing from the RESP account. I’d do the following:

• Ensure that I convert the RESP account from an individual plan to a family plan and add any (extended) family member that’s eligible to be a beneficiary.
• Transfer $50K from the RESP account to my Registered Retirement Savings Plan (RRSP), provided that I have the contribution room.
• Keep the RESP account open until the youngest beneficiary turns 36 years of age. This way, the money can be withdrawn slowly through time and at a lower tax rate
• I would not withdraw the money myself because there is a 20% tax penalty added on top of my highest tax bracket. Theoretically, if you’re in the highest income tax bracket, you can pay as much as 73.53% (= 53.53% + 20%) per dollar that you withdrew from the RESP account.

What To Do With A Sizeable Inheritance?

Most of us are not that lucky like this list of people that suddenly inherited millions of dollars. However, it’s possible that some of us may inherit something sizeable that can make a difference in our lives. Something like $100K. It’s not enough to last for the rest of our lives, but it’s significant enough to make an impact.
 

So, if you suddenly inherits $100K, what would you do? Would you spend it all on a new vehicle that you’ve always wanted or go on that luxury vacation that you can only dream of? Or you would upgrade your house and try to buy a bigger and better house? Here’s my priority list if someone loves me enough to leave me a $100K.

• Pay off any debt that does not help me to increase my wealth. Debts like credit card, line of credits, car or personal loans.
• If I have contribution room left in my Registered Retirement Savings Plan (RRSP), I’ll max out my RRSP. This way, I’ll get even more free money in the form of a tax refund
• Max out my kids’ Registered Education Savings Plan (RESP) to get them the free government education savings grant
• Max out my Tax Free Savings Account (TFSA) and let my money grow tax-sheltered in that account
• Hopefully, I will have $10K or so left over to go on a nice vacation. Hey, at least I put 90% of the money to good use didn’t I?

How To Pay Less Income Taxes As A Family

Some of us are fortunate enough to be in a relationship where one spouse’s earning is sufficient to support the whole family. Alternatively, you’re in a two-income family with one spouse earning significantly more than the other spouse. Since your family is paying a pretty hefty tax rate already, so how do you minimize your income taxes?
 

At the current state, there’s not much that you can do if you’re in this situation. However, there’s a lot that you can do to minimize your taxes when it comes to your savings and retirement income. If I am fortunate enough to be in this situation, here’s what I’ll do:

• Have the higher-earning spouse open and contribute to a spousal RRSP account for the lower-earning spouse. This way, the higher earning spouse can divide the RRSP savings evenly between both spouses. The family will pay less taxes at retirement and the higher earning spouse can use the RRSP contribution amount to lower his/her current income.
• Any non-registered investment should be owned in the name of the lower-earning spouse as the income from these investments is being taxed at the lowest tax bracket.
• Any tax-inefficient investments such as interest or rental income should also be owned in the name of the lower-earning spouse. These types of incomes get no preferential tax treatment. Hence, it’s much more tax efficient if it’s taxed in the lower-earning spouse’s tax bracket.

What To Do When All Your Finances Are In Order?

If you’re one of the lucky few to earn a very decent income, maxed out your RRSP, RESP, TFSA, paid off your mortgage and have no debts, what do you do with your extra money? Spend it all. Just kidding. If you’re able to put yourself in this great position, you definitely deserve to enjoy and spend some of your hard-earned money.
 

The question still remains. Can you do better? Of course you can. The focus now is not on you anymore. Since you’re in such a great financial position, you can use it to help others. Here’s what I’d do if all my finances are in order and I have lots of extra money to deploy.

• Donate a portion of it to my favourite charity. Keep in mind that any amount over $20, I can get a percentage back in the form of a tax refund.
• Allocate a small amount of money to teach my kids how to invest. This will give them a head start at a younger age. Not to mention, they’ll have compound interest to help them build wealth for a very long time.
• Focus on diversifying my investment into different asset classes and geographical regions

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How To Minimize Old Age Security Clawback?

For those that are not familiar, the Old Age Security (OAS) pension is a monthly payment available to seniors aged 65 and older who meet the Canadian legal status and residence requirements. The maximum OAS an individual can get is about $586.66/month based on 2017 numbers. There is a catch to this free money. If your annual income of goes over $74,788, each dollar in excess of that amount, you’ll need to pay back $0.15. Hence, you’ll get no OAS if your annual income reaches $121,314.
 

If you’re fortunate enough to have an annual income of $74,788 or more when you are retired, then you’ll need to find different ways to minimize your additional incomes. Alternatively, you can lower your income to $74,788 so that you get the maximum OAS payment. To ensure that I get the maximum OAS, here’s what I’ll do.

• If my spouse earns a lower income, I’ll transfer just enough income-producing assets to her so that her income won’t go above the annual income threshold of $74,788
• Instead of owning investments that pay a regular dividend or distribution, I’ll shift the investments to focus on capital gain that pays no regular income.
• Distribute some of my estates to my heirs early so that they’ll reap the benefits of those assets.

What Do You Do If You Won The Lottery ($10M+)?

Whenever the Lotto Max jackpot reaches $50M, I usually buy at least one ticket. Once I purchased the ticket, I’d start to dream of the possibilities and the things that I can do with such a windfall. With such a large sum of money, it can solve quite a few of my money problems.
 

On the other hand, this type of new found wealth can also destroy people’s lives too. Based on a Fortune article, 44% of lottery winners go broke within five years. Many people’s lives changed for the worst after they had won the lottery. Knowing these potential downfalls, if I ever won the lottery, this is my plan to not only make the money last but to grow it too.

• I’d elect to be anonymous and claim my prize quietly. Other people don’t need to know about the winning. It wouldn’t help me in any way to tell the world that I’ve won the lottery.
• 50% of my winning will be invested and geared towards wealth building and preservation.
• 20% of my winning allocated to support my favourite charity on a long-term basis.
• 20% of my winning will be allocated to help family and friends. However, no freebies. If you give money to one, you have to give it to all that asks. So my policy is not to give out freebies. I prefer to teach people how to fish, not giving them a fish.
• 10% will be for splurging. How often do you get to win the lottery? There’s no point of saving everything. What are you saving it for if you’re not going to spend it?

My Two Cents

Money problems are around us every day. Some of these problems can turn into opportunities and will help us become wealthier. While other money problems can potentially destroy our lives. To be in control of our money is to recognize that money is just a tool. When handled properly, we can convert any money problems into wealth building opportunities to help us achieve our long-term financial goals.
 

So readers, what are your views on these money problems? Do you think you can convert some of these good money problems into opportunities? Are there any other good money problems that you can think of?