Dividend Motivation? Not Early Retirement! | My Opinion

Many dividend blogs on the internet have a similar goal when it comes to dividend reinvesting – quitting the rat race and retiring early. Here’s the thing, early retirement is not motivating enough for me to invest. Why? I’m not even in the rat race! In fact I cannot wait to rejoin the labour market. However, the cost of working currently keeps me from returning to work… if that makes sense?

What motivates me is replacing the Child Benefit subsidy. It is a bit ridiculous the amount the government sends me each month. It is equivalent to working 40 hours a week at $10/hour without taxes. Granted, I have four kids and we are considered “lower income”. To my supposition, the amount the government came up with is based on people having fewer kids (i.e. lower benefit amount), childcare costs and super high living expenses in urban areas where most Canadians live. However, there is a hitch to receiving this money. If I were to join the labour market and pay for daycare in Québec, I would have to earn substantially more income than $10/hour to come out with the same amount in disposable income. “But Québec has $7-a-day daycare Heather?” you ask.

Well… that’s not really the case. The government run daycares or CPEs are on a sliding scale according to income. In rural Québec, there are very few CPEs and even fewer spaces. If I were to send my kids to a private daycare I could apply for a monthly tax return. Once you start working, your family income increases and you would then receive less in the monthly tax return. Last year, I did send two of my kids to daycare while I was pregnant and it cost me around $82 per day. Cheaper than Ontario but it would completely wipe out the child benefit I receive. As well, this does not include before or after school care for my other children which I would require should I go back to work.

The marginal savings of a couple hundred dollars per month are not worth the hassle. So this begs the question, why not just mooch off the government? Well, taxes of course and freedom of choice. First and foremost if income taxes and sales taxes were lower in Québec there would be less need for high child subsidies. People would just have more disposable income in general. Second, freedom of choice. Which may seem weird to some but hear me out. I should be free to have children without government interference. Should I decide to have 10 kids, I do not want that decision to be based off some government financial incentive program.

Therefore, replacing my Child Benefit with my dividends is the goal. If I am able to replace the Child Benefit with my dividends, in particular those from my TFSA, my dividends would render the Child Benefit inconsequential to me. Does this make sense?

Benefits can decrease, disappear and are generally unpredictable with each passing government. Besides, this is not ‘earned’ income but taxpayer money and should be treated with more respect than disposable income.

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Dividends | January 2018

Woohoo!

Just got paid $5.02 for BCE. This is the first time I have ever received a dividend in January. I think I might like monthly dividends…

2018 Dividend Total : $5.02
2018 Dividend Goal : $750.00
2017 Dividend Total : $469.81

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Marginal Tax Rate & Low Income Families | What I’m Reading

Worth the read!

http://business.financialpost.com/personal-finance/taxes/its-time-to-pay-more-attention-to-marginal-effective-tax-rates

This is a great explanation on why I’m a stay-at-home mom. Yes, I love my kids but I would love to work too. Except the cost of working is prohibitive and way more expensive than staying home with my kids.

This article is also a great explanation why I could care less about RRSPs and am focusing on my TFSA. There is almost virtually no benefit to my husband or I contributing to an RRSP. The income I would earn in my TFSA has a greater positive impact on my family’s wellbeing.

Take a look, and share your thoughts.
Heather

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Purchases 2.0 | January 2018

Today was a good day. My two youngest children were out of the house this morning and this mom got some free time. Rare, rare free time. So what did I do? Go grocery shopping sans enfants of course, got my nails done (don’t have a heart attack, it was just $20 bucks… this is the countryside not the GTA) and while sitting at Timmies bought some shares.

I had some cash laying around in a RRSP savings account. I don’t regularly contribute to it because it does not have an impact on our tax return. (We don’t earn much money, so a TFSA is a good fit) However, every year I contribute a small amount to repay the first time homebuyers plan we used to buy our first place.

This year I put that money in my Questrade RRSP, and plan to transfer the remaining amount from my RRSP savings account later on. So today I bought 115 shares of Plaza Retail REIT (PLZ.UN.TO). It came to just over $500, keeping my fees around 1%. Although I’ve never owned a REIT before, their dividend track record is pretty good (15 consecutive dividend increases!). Current dividend yield is 6.26%, and paid monthly at 0.0225 cents per share. I think I’ll add PLZ.UN.TO to my TFSA later this year. If I want to get my nails done every month for $20, I would need to own 889 shares in my TFSA. Not too shabby.

I’m not a big fan of RRSPs… but that’s a whole other story. I couldn’t just let that cash sit there in a savings account not even keeping up with inflation. At least it’s earning some cash. However, I’m not sure I should count these dividends towards my annual dividend income since I can’t use it if need be. I might just have to create a separate dividend tally for my RRSP. We shall see.

Anyways, enjoy the rest of your week!
Heather

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RDSP vs DRIP | My Opinion

When our eldest son was born in 2011, my father generously transferred one share of BMO into our son’s name and we began his first DRIP. A few years later our son qualified for the disability tax credit here in Canada. However, I decided not to start a Registered Disability Savings Plan (RDSP) and instead continue with his DRIP.

It’s not that the RDSP is a bad program. There are just a few hangups I do not wish to deal with. For starters, after a few years you need to re-qualify for the disability tax credit and if you fail to re-qualify it can cause a (excuse my language) shit-storm in the RDSP. Unlike other registered accounts like an RRSP and TFSA, the RDSP is not self-directed. There are few funds to choose from and the management expense ratios tend to be high. As well, in our case we had therapy and other medical expenses that needed to be covered in the short term. It should be noted, the RDSP cannot be used immediately, but is meant to be a long term savings vehicle once your child no longer qualifies for any “under age 21” programs.

The DRIP we started when our son was born was the right fit for us. There were no annual fees since it was managed through a transfer agency (Computershare) and since all the dividends were reinvested I didn’t really care about receiving the added government top-ups. A big plus was that the money could be used at any moment. The DRIP had already grown to a sizeable amount by the time we used a portion of it to pay for therapy.

One aspect I do not see talked about very much, is that some DRIPS are a good savings vehicle for those earning lower incomes. We were able to invest small sums of money into our son’s DRIP. Sometimes, just $10 or $20 dollars at a time and other times nothing at all. We weren’t hit with large inactivity fees or required to invest a substantially high minimum. The small amounts we invested was enough to get the ball rolling.

The flexibility of a DRIP was the winning feature for me. Should our son ever gain enough skills to start a business or go on to post-secondary education, the DRIP is there. It can replace an Registered Education Savings Plan (RESP), a small business loan or the dividends can act a supplement to his income.

DRIP vs RDSP, in the end the DRIP was the right choice for us.

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Purchases | January 2018

Happy New Year!

Today I made my first purchase of the year. Twenty-three shares of Emera (EMA.TO) in my TFSA. The annual dividend is $2.26 per share, with a yield of 4.79%. This will hopefully increase my annual dividends by $51.98. The commission was just over $5 keeping my fee goal well below 2%, and my total monthly purchase was above $1000. So far, this year is off to a good start.

For the most part, I am comfortable with energy stocks. I was also eyeing TransAlta Renewables and Inter Pipelines. TransAlta Renewables have increased their dividend 5 years in a row, however, I need to do more research into them and their parent company.

If I come into more cash this month, I will probably beef up my BCE shares. Next month, I will take a closer look at some of the financial companies.

Is Emera apart of your portfolio? What stocks are you looking to purchase this coming year?

Heather

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