Growing Your Net Worth: Ask the Right Questions

When we look at the scope of tax assistance available for financial assets—inside and outside of a registered account—as well as non-financial assets like real estate, it helps us to develop a checklist of criteria to look for before making an investment so we can get to a point of evaluation in our investment activities. How well are we doing, year over year?

The object is to increase personal net worth. There are two things to know about this:

• Your personal net worth is your total assets, less total liabilities.
• The sustainability of your net wealth—that is, the purchasing power of your money in the future—is your net worth, adjusted for taxes and inflation.

Making decisions that are tax-effective enhances the performance of your money and increases net worth more quickly. It also makes sure your money has purchasing power when you need it.

Those are the strategic goals. The process used to help you get there involves eight specific priorities in making decisions about your investments. You will want to ask eight questions in making your investment product selections:

1. Avoid Tax: Can I avoid tax now and in the future?
2. Defer Tax: Can I defer tax into the future?
3. Reduce Tax:  How can I earn tax-preferred income—that is income subject to low MTRs?
4. Control Tax: Is it possible to control the taxes I pay on withdrawals from savings?
5. Average Down Tax: Can I blend income and capital for a more tax-efficient cash flow?
6. Preserve Income and Benefits: Can I avoid increasing clawbacks?
7. Shift Income: Can I shift taxable income to lower earners or alternate tax structures?
8. Split Income: Can I use income splitting to minimize tax on capital withdrawals?

Use these question to help you engage in a deeper discussion about your investment choices with your professional advisors.

Excerpted from Essential Tax Facts. © Knowledge Bureau, Inc. All rights reserved.