Raptors won last night at Game 5 and I’m in a great mood today.
When everyone expected them to lose, they came out with a win in an away game at Milwaukee. It’s almost as if we broke the curse.
They didn’t start off the series right. They lost their winnable Game 1 and then went on to lose BIG in Game 2.
One thing that I admired the most about these professional athletes is that they reflect on their performance in real time. Marc Gasol, after the Game 2 loss, admitted that he didn’t play well. He took ownership and step up in Game 3.
No one is perfect. Reflecting on your own performance, taking ownership and admitting that you didn’t perform as well as you could require some courage. Making adjustments immediately in the next game made all the difference to Raptors win.
I met many real estate investors and real estate agents at various events. Many of them expressed the frustration that they have over their accountants and bookkeepers for lack of advice.
Sometimes, when I question why the financials were prepared in a certain format, they would turn to me with a blank stare, not knowing what I was asking.
Reflection and taking ownership is key. The financial education guru, Robert Kiyosaki, author of Rich Dad Poor Dad, said that everyone should learn some accounting. You need to know some degree of accounting to get you ahead in the quest to financial freedom.
Taking ownership: recognizing that you’re ultimately the one that’s signing off
“I don’t know what my accountants did, they did whatever they need. I just paid.” This is one of the most common comment I heard from many new clients.
More often than not, that’s a true statement. These real estate investors and real estate agent really don’t know what happens to their returns or financial statements.
Unfortunately, this statement usually isn’t sufficient to stand in court.
This is not even sufficient as a defence when CRA does reassessments and imposes interest and penalties.
Guess who’s responsible to pay for the interest and penalties if there’s any? You.
Understanding that you are ultimately the one that’s signing off your return and agreeing with all the numbers and information presented. This is the first step to take ownership of your financial return.
Learn to know your numbers
You don’t need to know everything, but you need to know to ask questions.
Review your tax returns and review your financial statements.
When in doubt, ask why and ask how.
One of my clients was questioning why her refund was so low in this past year. She contributed maximum RRSP allowed and she even got her kid’s tuition tax credit transferred.
But she’s not getting a refund reflecting these tax deduction and tax credit.
Very valid question.
We dug deep into the situation and concluded that her employer did not withhold the taxes on her RRSP contribution when she directed her employer to deduct off the RRSP contribution off her bi-weekly payroll.
If something does not look right, trust your instinct, sometimes you just need clarification.
Understand what you can deduct and cannot deduct
Well, we, as accountants, can do as much from our end to educate our clients what can be deducted and what cannot be deducted.
But we are not 24/7 with you.
Learn what you are allowed to deduct, what you are not, get a better understanding of what records you need to keep will go a long way to help you maximize your tax deductions and keep more money in your pockets.
Keep the receipt when you’re in doubt. Jot down everything that you’re in doubt.
Ask your advisors and professionals at year-end.
Record keeping is required for CRA, you may as well use these reports to your advantage
You’re doing bookkeeping for tax filing anyway. You may as well use these reports to your advantage.
I look at my financial statements regularly.
From the rental income, my accounting business income, to payroll expenses and all the software subscription cost, I review them on a monthly basis.
Sometimes, I would even make a comparison between last year and the current year to spot any anomaly.
You can spot trends and outliers, you can then dig deeper to find out why.
Maybe some expenses can be cut, maybe you’re letting things slide on certain area of business.
Review your financial statements regularly
Accountants prepare financial statement based on historical data. You can prepare the same set of financial statements, using most up to date figure – it is called networth statement.
Prepare and review your networth statement on a regular basis.
The fair market value of your investment properties is an asset.
The current value of your debt is liabilities.
Difference between the two is your networth.
Simple as that.
Be cautious though.
The fair market value of your car may be less than the debt you owe on this car. 😉 That’s why people say cars are depreciating assets.
Reviewing your financial statements/net worth statement regularly and make comparison with what you want to get out of can put you back in the right track to achieve your financial goal.
Financial freedom takes time and planning to achieve. The first step is to recognize that you’re the one responsible. From daily record keeping to long-term financial planning, everything starts from you.
Stay tuned for future courses available to take your first step to take ownership of your financial future.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
P.S. Just in case you’re interested, Kawhi Leonard, our Raptors’ superstar, said that if he isn’t playing basketball, he would likely be buying houses. 😉 Even our superstar knows the value of real estate investing. https://www.youtube.com/watch?v=-ze37NCz5oI
PPS. Go Raptors Go!