Categories
Personal Finance

Pay off debt, then start saving and investing

I took the plunge this weekend and expunged my debts to the depths of the hell from whence they came. It was a tough move for some reason, even for a cold, calculating accountant. Subconsciously, I held on to the debt in order to keep my asset balances high. Artificially high.

This is a bad move, and you don’t need to be a bean-counter to follow the logic. I had credit card debt at 18%, a personal line of credit at prime + 3%, savings earning me 3.5%, and a chequing account costing me the monthly plan fee less a paltry amount of interest. In summary, a net cost to me.

I had enough cash in the savings and chequing to pay off the debts, but for some reason I had held off on doing so for months, all the time allowing the interest costs to pile on. I felt more secure maintaining the artificially high cash/savings balances. Why is that?

It wasn’t until I started tracking my expenses using the so very Web 2.0 tool expensr.com about two weeks ago that I realized the time had come to man up and pay the debt off. Only then could I save with a clean conscience, knowing I had no interest expense completely wiping out the interest I would earn on savings.

Note: I plan to write a post soon about expensr.com. It has really helped me get a hold of my expenditures and features a mobile version I can access on my cell phone to capture cash outlays as I make them.

So now you all know my dirty little secret. I’m an accountant and auditor, I find other people’s mistakes and control weaknesses, and until this weekend I wasn’t even managing my own finances like a pro!

Categories
Taxation

Keep the income tax cuts, ditch the GST cut

I read in the Star yesterday that the income tax cuts enacted by the Liberals before their fall from power and effective January 1, 2006 may be kept by the Conservative government, which has all along threatened to reinstate them to make room for their GST cut.

I have always been in favor of income tax cuts before consumption tax cuts. Income tax cuts encourage saving and investment, and put more of our earnings in our pockets (at least initially). The only way I save money from the GST cut is by spending money, which is a weird way to think about saving. With an income tax cut, the saving is built right in.

The Liberals love telling you the Conservative GST cut will help the rich more than the poor, where their income tax cuts help the poorest first. This is just wrong.

The very poorest members of our society already pay no income tax due to the basic personal exemption. Cutting the rate on the lowest bracket has no effect on them, and they pay the 7% GST just like the rest of us. The GST cut reduces taxes for everyone, including those who make so little they aren’t paying income tax, and the GST is the more regressive tax so cutting it makes the system theoretically more progressive.