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The Importance of Paying Attention to Financial Statements

This is a column by regular contributor Clark

I’ll relate my experience to underscore the significance of paying attention to your finances – not just the saving and investing parts but also the all-important records of those money transfers/contributions.

I contributed to my TFSA account for 2009 in May of that year and rested in content that I had been prudent in taking advantage of the newly introduced savings vehicle. Since financial institutions do not issue an official contribution receipt for TFSAs like they do for RRSPs, I viewed my monthly statement, verified that the contribution was listed and let it be.

Fast forward to Feb 2010: I filed my income tax return and the tax software (forms) did not have any line about TFSAs. I figured that financial institutions would report to the Canada Revenue Agency (CRA) directly and I had no further part to play. After receiving my Notice of Assessment (NoA) from the CRA, I found that the summary section listed that I had a TFSA contribution room of $10,000 for the year 2010 (the extra $5000 was carried over from the unused room for 2009!). The NoA mentioned that I need to contact my financial institution if there are any errors in the contribution room given on the summary. Despite seeing this, I waited for another couple of weeks thinking that financial institutions may have until April (the tax filing deadline) to report 2009 TFSA contributions. Call it laziness or naivety (or anything else that you find appropriate) but that is what I did!

Sometime in early April, a light bulb went off in my head and I realized that I have to take responsibility for my money. When I contacted my financial institution, they were surprised and said that all contributions had been reported – there went my generosity of giving financial institutions time until April to report TFSA contributions! They asked for a copy of my NoA as proof and promised to do the needful. I learned that my report had been rejected by the CRA the first time around due to some error in the data elements. A few weeks after my intervention, I checked the TFSA section of My Account on the CRA website to see that the contribution had been accepted and showed up correctly.

It is entirely possible that my case was an unusual one and someone from the financial institution may have noticed my rejected report in a few months and corrected the situation. As long as I did not contribute over $5000 for 2010, I would not have been penalized. Nonetheless, I’ll share a few lessons I learned from this experience – some new, some refreshers.

  1. Never Assume. It is possible that TFSA being a new savings vehicle, there were problems, since parties had to get used to the requirements. However, do not assume anything! Be it the time when institutions file their reports or the pace of processing. Contact someone, preferably your financial institution or the CRA.
  2. Watch your Money. Keep track of your monthly expenses and net worth, so that you know where you stand. Alternately, you could try one of the money management software tools – Quicken and Mint spring to mind.
  3. See Where you Stand. If one so desires, they could also get obsessed with net worth tracking and see where they stand among people in their age group, with similar education or years of experience, etc. by browsing profiles on NetWorthIQ.
  4. Be Diligent. Please check your statements when they arrive – bank, discount broker, credit card, mortgage, utility bills, etc. If there is an error, contact the necessary institution as soon as possible. Unless there is a strong reason not to, sign up for the electronic version of your bills and statements, so that you can save them on your computer, back them up easily and preserve some trees along the way.
  5. Be Patient. Once-in-a-while, you might create a fuss over nothing (if it was just slow pace of processing) but most times, it will be worth the effort.
  6. Care about your Finances. No one cares more about your money than you – not even your financial advisor; if he does, then you have a problem, since you’ve become a mere supplier of funds without any knowledge about how (and if) that capital is creating more for you (hopefully, it is!).

Have you had a similar experience? Did you respond swiftly to rectify the error? Or make assumptions like me that the problem will fix itself?

About the Author: Clark is a twenty-something Saskatchewan resident employed in the manufacturing sector. He repaid around $20,000 in student loans and has been working to build his investment portfolio as a DIY investor (not trader) while nurturing plans to retire early. He loves reading (and using the lessons learned) about personal finance, technology and minimalism







13 Comments, Comment or Ping

  1. 1. Rachelle

    I suffer from ostrich syndrome, when things are great I love to look at my accounts and pay attention to them. When my personal finances suck I bury my head in the sand. I don’t want to know how bad it is. Then when I make some dough I unpack all the bills and pay them. Yes, that’s right I don’t even open bills until I have lots of money to pay them. I have highly variable income so I still haven’t figured out how to budget for that as well. I can make $10,000 to $15,000 per month then nothing for the next few. Most budgets work well when you have money coming in every single month.

    Is there a cure for me?

  2. 2. COla

    I think this problem is more wide spread then you may think. I kinda recall seeing this on my personal NoA (I will check when I get home). This made me check with a few others just now and some of them have this issue as well. Strange.

  3. 3. Steve R

    Today is a good example why you need to check your transactions on-line. Last week, my license plate sticker invoice arrived and I had the option to renew it on-line with the Ontario MTO. Great I thought, no need to drive to the place only to wait in line. So I tried using my Mastercard only to have the web site send an error. No problem, I used another credit card and it worked.
    Now today (as I’m calculating my NW for May) I noticed a charge on my Mastercard for the amount of the plate sticker. WTF?! I called the MTO and they said they didn’t charge my card. Whew! But when I called Mastercard, they said the charge went through. Now I need to get it straightened out right away with them.
    Moral of the story…it would have been a shock to see the charge on my monthly bill. Now I have time to have it removed.

  4. 4. Ray

    Isn’t the lesson really that when there’s a bank error in your favor that you shouldn’t mess with it? You could have gotten another $5000 in free contributions to your TFSA if you realized what was going on. Silly man.

  5. 5. Clark

    Thanks for the comments.

    @Rachelle: I’ve never lived on a variable income but I’ve lived on no income (if you exclude money from student loans at that time). If you bring in 12K one month, your monthly exp. are 3K on average and go w/o any income for 3 months, then you should be good for 4 months. Of course, you’d need an emergency fund, more so when on a variable income. If you go longer than 4 months w/o an income, then it boils down to the basics again – cut expenses and/or find a secondary source of income. I’m probably making it too simple; I’m sure you know that already but it’s what I’d do if I’m on a variable income. If I bring in 20K one month, most of it would be saved for the inevitable rainy day, while splurging a little if I want to.

    @COIa: It could be more common as you say. I alternate between extremes when dealing with problems – do nothing or contact the source directly!

    @Steve R: Good going! Promptness does pay!

    @Ray: Ahhh, clever! If I would’ve done that, someone would fix the problem at a later date and penalize me for deliberately over-contributing and maybe, for not reporting the error!

  6. 6. karl

    I agree with Ray. I think the real lesson here is that if you kept your mouth shut you’d have an extra $5,000 worth of contribution room!

    (just kidding, of course)

  7. 7. Shane

    Great post! I recently had a discussion with my father about this same topic.

    Surprisingly the avg person spends 70% of their lives making their money, then, a select few will take the time to budget, but very few actually take the time to understand how to protect their money (i.e. investments).

    Not sure people reading this post truly appreciate how insightful your post is. I am fortunate to represent high net worth investors in the commercial real estate transactions, so I see 1st hand how these successful cats operate.

    Nothing is ever taken for granted and they question everything (regardless of their title).

    Love the posts and I’m certain you’ll hit a M very soon.

    Shane

  8. 8. Chris

    I don’t understand why they don’t just make reporting total TFSA contributions/withdrawls a part of tax return preparation. The bank could issue you a slip showing total contributions and withdrawls similar to an RRSP.

  9. 9. David Jones

    Re: point #4: why are electronic statements preferred?

    I would prefer paper simply because paper statements are non-repudiable – the bank cannot change a statement after its issued without leaving evidence. You have the statement in your hand.

    With E-statements, the bank could change the statement it shows you each time, and you have no way of proving which version is correct. (If it got to court, who would the judge believe: you or the bank?)

    Until online statements are accompanied by RSA digital signatures I’ll stick with paper where I can. But the Royal Bank has recently switched to e-statements for everyone.

  10. 10. Clark

    @David Jones: I hope banks have a policy that they would have to re-send paper statements if “they” find an error and change it on their system (if you did initiate the change, then it is more likely that they will send an updated statement).

    Say, if such a case goes to court – what if they argue that they sent a revised paper statement and I am claiming that I did not receive it to take advantage of the first statement? I’m sure none of the banks use a signature-on-delivery service for paper statements; so, how would that work? Also, if my house gets burned down, where is my proof? I could keep these statements in a safe deposit box or scan each statement, save it on a flash drive and keep it at the workplace (which is the same as the e-statements part of my post).

  11. Believe me, I hate reading the fine print! Not just for financial documents but documents in general and that’s definitely a stupid move on my part. Now more than ever, people are really missing things because they fail to read the fine print.

  12. 12. Clark

    @Shane: You are probably being too kind but I’ll take it nonetheless! :)

  13. 13. touchstonelofts

    Its easier said than done.. but really some fine advice for people in need of this. I like the ebay suggestion there.

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