Today, I'm joined by Aravind Sithamparapillai to discuss financial planning for people with variable incomes including sales professionals.
Aravind has a wealth of personal experience in this area as a former medical device salesperson so he brings a unique perspective and very practical advice.
Connect with Aravind
**Aravind is an Associate at Ironwood Wealth Management however, he inadvertently used the formal title of "Advisor" later in the episode.
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TAX CHANGES: Budget 2024
XEQT vs VEQT. Which ETF is better?
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Today, I'm joined by Aravind Sithamparapillai to discuss financial planning for people with variable incomes including sales professionals.
Aravind has a wealth of personal experience in this area as a former medical device salesperson so he brings a unique perspective and very practical advice.
Connect with Aravind
**Aravind is an Associate at Ironwood Wealth Management however, he inadvertently used the formal title of "Advisor" later in the episode.
--
TAX CHANGES: Budget 2024
XEQT vs VEQT. Which ETF is better?
Add some STRESS to your retirement plan
Connect With Evan
Joining me today on the Canadian Money Roadmap is Erevin to Scytham Parpele, and he is an associate at Ironwood Wealth Management in Ontario and he is an expert at working with people who have variable incomes because he himself used to be a sales rep for a medical device company and so he shares a lot of great experience that he's had personally, but also with his clients. So I hope you enjoy this conversation about financial planning for people with variable incomes and, specifically, sales reps, with Erevin Scytham Parpele. All right, erevin, thanks so much for joining me today.
Speaker 2:Thanks for having me.
Speaker 1:Yeah, absolutely so. Today we're going to be talking about variable incomes and, specifically, financial planning for people with variable incomes. How did you become an expert in this?
Speaker 2:I mean, I lived it so in a prior job before I ended up taking the role as an associate at Ironwood. I worked for a medical device company, so I've done marketing, which is a little bit more your typical stable salary plus bonus type role. But then I moved into the role of being a sales rep and a very large component of my income was commission based. We had salary plus commission. There are some divisions of that company that are pure commission but you know, through that and through chatting with other fellow sales colleagues and sharing little bits and pieces about what I was doing to manage my income or even how I was thinking of things like deducting my car expenses, you know it became very apparent that this was not something many people think about. And so even as I took my role as associated at Ironwood, I did have people from my past life reaching out for questions, help etc, gotcha so like who else would be besides like commission sales reps?
Speaker 1:What other jobs are variable incomes Like? I'm trying to think like sales reps on commission, obviously, but what about people with like a side hustle or something like that? Do you consider that like a variable income or do you primarily, when you think about this kind of thing, is it just more? So their primary income is kind of maybe great one month, maybe not so great the next month, kind of thing. So it really depends.
Speaker 2:So I was aside from commission because we often think of commission sales reps as, like you know, I sell in whatever industry. I sell a widget, I get a certain amount of money. That is one example. But if you think about the world of technology sales, and if you think about, you know, people who sell large pieces of equipment, you might also have a base salary, but the sizeable bulk of your income comes from these big deals that you're making, whether in the form of a massive bonus or whether in the form of a large commission. And so I would put those while sales. They're not what people often think about as commit, what the regular person thinks about as commission, but I would put them in that variable compensation as well. And then, from a side hustle perspective I would say that perspective I would say it really depends on what percentage of your total income that's making up. If that side hustle is inconsistent because you're selling services, you get someone month, some the next, and it's making up, you know, 30 to 50% of your total income then you very well fall into that bucket where you need to think about how to plan for your variable income. If it's 5%, it's not really substantial Then I would consider that you know, much more akin to that year end bonus that you try not to plan for but expect or hope that you'll make. And the other one I would say is many self-employed individuals will fall into that bucket of variable compensation. So if you think about therapists getting their business, their private practice, started, or many people have now moved into the online area as an adjacent to their work, so if you have lumpy income or if you get sponsorship deals and those are one-off payments, you know they would fall into that category as well.
Speaker 1:That's a good point. Like the average white collar, professionally, you don't think of them as maybe being, you know, variable income or anything like that. It's like, well, it totally is right, because the business doesn't always make the same amount of sales right when, if you're an? Employee if you're showing up for a certain number of hours you can pay the same amount and it's predictable and whatever. But if you're kind of carrying the day on the risk on the business owner's side of things, it's like, yeah, you've got variable income, so okay. So what are some of the challenges that come along with for some of these people?
Speaker 2:The first one is budgeting is really difficult. I mean in general, right, we can riff on. I mean you talked about it Most people, right, I don't know many people that are like my ideal day is to sit down with and Replot some numbers. Even the people that Modestly enjoy doing it will probably admit that there are like five other things that they would enjoy More. But the point that I then I go towards making there is, by the time people end up in those types of roles, financial literacy, save more, spend less, all of those pieces we kind of know but we're never really taught. And now we're taught. Or in the role of variable compensation, variable income. Not only do you have to try to figure all that out, but you have to try to figure it out when you might make Triple your monthly average one month and you might make half your monthly average the next month. And so the first thing is how do you manage some of that income expense when the reality is your monthly Income doesn't quite line up with how the world gives you monthly expenses rent, mortgage, car payments, etc. Right?
Speaker 1:I Would probably fall under that bucket too, like if I was just given an extra $20,000 in my bank account. I promise you that some of that is getting spent on things I wouldn't normally spend it on, right, and so it's because that's not my typical life, right? But how do you plan for that? So how do you budget? Do I recommend people set up different bank accounts or things like that? I've got some systems that I recommend for everyday people, but what's been your experience there for For figuring that kind of thing out? For for budgeting even though people hate budgeting, like what's an easy thing that people can do?
Speaker 2:So for variable income or variable compensation first, I'll start with what happens if you have a base salary, right and and if Commission or the bonus is sizable but it doesn't really make up the the massive amount of your income. If you have a base salary, most reps will tell themselves and it's conservative, but I love it. Most reps will tell themselves just learn to live off the base, right. So if you've got a base salary of a hundred or a hundred and twenty thousand and there aren't many places where the Sales component or that bonus or commission can be, you know, as much as one to one and a half times your base salary they learn or they train themselves to live off the base. Manage your monthly payments, manage your expenses with that base and then if the bonus comes in, then we can I hit my bonus. How does this change what I need to do? And then all of the extra surpluses will come from that extra savings top-ups. You know, lump some payments onto the mortgage. Should we buy a new car? Should we take a trip? Those all come from those, those year-end or those, those bigger bonuses. So I would say, if you have a base and you can do it, that's a very conservative way to do it and not not bad by any stretch of the imagination.
Speaker 1:Is it now any for people with with a base salary? So I'm cutting you off. I don't go for I don't know too many people in like typical Sales roles like that. Like, is it common to have a Base salary that is like a livable wage, or is it much more common to what you're about to explain here, where the base is maybe low and then the bonus is huge? Maybe 70% of the compass is Sales based?
Speaker 2:it really depends on the industry and the sales. So yeah, what I mean by the sales is like how they've structured compensation Right. So, as an example, in the world of medical devices, if you're selling large capital equipment, you usually have a decently livable base because the deals are gonna be often not always, but the deals are gonna be six month deals, one-year deals. You might get a big purchase order for a six-figure amount and so you need to have or for many people they find having that livable base allows them to then focus a lot more on the deal and the sale. Then it is like how do I make ends meet if you're in a division when you're selling the equivalent of, like a disposable saw blade for bone saw? Those tend to be a lot more pure commission only. But again, and the nomenclature is you know they call it run rate materials. Again, those are so somewhat known because it's not like a hospital is gonna use, you know, a million dollars worth of buzz saws in one month and then zero the next right there, I don't know ongoing surgeries etc.
Speaker 1:I don't want to know what's going on in that city, if that's happening.
Speaker 2:So I would think even in those scenarios where it's pure commission, there's a little bit of stability. But to your point about livable base, I know a lot of employees, or a lot of sales employees in the world of tech sales, where they will receive, you know, as I was willing, 80, 90, 100 K base, but then they also have that one to one and a half times their salary, as that bone is, if they hit certain metrics. So in that context it depends on what you think is livable, but it's not, it's not. Nothing is what I would say. And then the only other thing I would say is that's, that's the one side. Can you live on your base? If you can't, then typically what we do is we look at averages. What is your monthly average income? Or what is your yearly average income? Right, what do you expect to make? And then we'll say, hey, you know well, we'll take that average and and we'll start with you know, this is how much per month you can expect reasonably. Now, let's live on that. And so in the year or in the months where you have more, where you've received two or three times because you've Got a big top up, we're gonna have you take that money and set it aside. Set it aside into savings because you're gonna have to pull from that In the months where things are a little bit lower. And so we go through that you know, operational process with them.
Speaker 1:So you talk about putting money into savings. How do you see the concept of emergency funds for people with variable incomes? Do you calculate it differently for how much someone would need, based on the likelihood that their income might be there one month and might not be there the next month? It's like what's an emergency in that case? Or, you know, I was going to ask about income smoothing. So I guess this is maybe part and parcel together with that concept too.
Speaker 2:So it depends on how you look at the concept of emergency funds. When I look at emergency funds, or when I'm typically discussing emergency funds with clients, what I'm talking about is like we should have three to six months of income set aside. Again, it depends on how good you are at your job, how long you've been there. You know how much savings can you expect to receive. But this is set aside for if you lose your job, if your car breaks down, if a tree falls on your house like having that slush set aside. When I look at income smoothing for individuals that require a little bit more finesse, that is somewhat separate and we are looking and saying, hey, over a year, think of it as like a buffer account on top of your day-to-day checking account. So if you let's use an example if your you know total compensation after taxes, what you're truly spending in hand is roughly $10,000 a month, but that variable compensation means you could receive anywhere from $5,000 one month to $20,000 the next month. We're trying to figure out a separate savings account, different from emergency funds, where that surplus money is going into that you can then pull out when you have those lower income months. So if you have $20,000 that one month. Well, you're going to take $10,000 and you're going to move it over to that separate savings account and then, in the years where you have $5,000, you're going to pull $5,000 from that savings account to top up so that you have your average monthly spend of 10.
Speaker 1:Got you. Okay, that's cool. I, when I talk to people about emergency funds, I often say you got to make a list of the things that are emergencies, or else then going to Mexico in February becomes an emergency right and so on the emergency side of things, that makes sense. But then on the you know for, in your example here, the interim account, you need to have your monthly income target pretty well dialed in, or it's just like 15 this month seems pretty good.
Speaker 2:You know yeah.
Speaker 1:How do you deal with discipline in that in that way?
Speaker 2:I mean, first of all, I think the personality as well. That leads many of us into a solo premier or sales style jobs also makes it a little bit more of a challenge. Yeah, you tend to be a sales people, tend to be a little bit more risk seeking not always, but they tend to be a little bit more risk seeking. That that thrill of chasing a bigger deal often does apply and I would say, first and foremost, it's a moving target every year because in any type of organization, the industry, the economy and what your territory looks like also dictates what you think you're going to do this year. Every rep, you know, in every company that I've spoken to so far, they get a new quota every year. Whether that quota is hit a ball or not, different people will have opinions, but as an example, many reps in many divisions in hospital sales blew the lights out in 2020. That wasn't the case for other industries, but hospitals had a ton of funding for COVID. There was more beds that needed to be used, there were more patients. So in that context, many reps in that division had a lights out year. And you might have other industries, like reps that sell to small businesses, if all the small businesses are shut down, well, they can't really make sales, and so what I would say is it's a moving target every year based on many of those factors. So, while we don't look at macroeconomic forecasts or market conditions or interest rates, when it comes to, you know, the prototypical investment conversations that people think about, it has a much more real, direct effect to the rep, based on their business, based on who they're selling to and things like that, and so we're having conversations with them every year to say what's your quota looking like? Do you think you're going to hit that? If so, what is the income potentially going to look like? And then we're trying to readjust some of those expectations around save, spend, pay down, invest. In that context, Gotcha.
Speaker 1:Expectation management is pretty much everything like the war I learned about, you know, happiness and money and so many things just like. Even in practical senses, like this, expectation management is massive.
Speaker 2:I agree 100%, and I think that not think. I know that. The challenge, having had a prior life in this experience and chatting with many people is companies and reps are often conditioned to have high expectations, right, because no one wants a sandbag or everybody wants a rep who's going to go out there and crush it. And so companies will kind of condition your expectations hey, if you hit this quota, you're going to make this amount of money, right, think about that. Or here's your bonus if you hit. Here's what you know. If you sell the right mix of products, here's what you could expect to make. And so the expectation conditioning pushes people a lot more higher. Now the danger is when you start to let your lifestyle adjust to that expectation, and so that's where I would say ratcheting back those expectations, setting conservative, personal, you know, assumptions goes a long way. And the other piece that I would say is I think it's counterintuitive for many reps. But you know, having a little bit of that base and that piece of mind really allows you to spend a lot more of your time and focused on what did I get right and what did I get wrong in that sales call, versus leaving the sales call and wondering oh, I got to go home and pay the bills today. How am I going to take care of that?
Speaker 1:Right. Okay, so you're getting to a different point here, but like a little bit of planning here takes a bit of not only the financial stress off but like the professional and emotional stress off of your life too. So just having these things kind of dialed in in advance can really help with more than just having all the dollars and all the right accounts, right.
Speaker 2:I think and this is where I would say, everybody is truly different. Different people are motivated differently. You know there's many anecdotes of well, you know, driving a nice car and you know, having some of those extra payments or extra bills might motivate you to actually sell more. And there's many people who have, you know, podcasts and interviews and they talk about that type of motivation. But you know, I personally and other people I've spoken to are also motivated by well, if I don't have to waste headspace thinking about those things, then I can take more of my brain to actually getting better at the job. Or more time reading a new book, more time reading my product materials, you know, more time understanding the specs of the industry, things like that, and so that's where I would say it really depends on the person. But I truly do believe that if this is one less thing for you to do and many of us right you and myself, evan, we're in the job of sales, we're selling financial peace of mind, in a matter of speaking, and so wouldn't it help if you had less time quote unquote wasted on things that are what you are good at, so that you could go do the thing you're good at, and isn't that what you're selling your customers many times?
Speaker 1:Yeah, absolutely, it's finding your. What is it? The, the, the sphere of genius, or something like that, and the genius is always such a weird word for me to use. It seems a little extreme, but yeah it's just staying in your lane of the things that you're good at, but, but we always have to take care of the things that we aren't good at intentionally to, I think. Right, so okay. So you mentioned debt and having like bigger payments as a motivator. I've heard that before too, and people in our industry as well. It's like, well, I got this big, big house and now I got to pay for it and like, oh man, I feel like that's a bit of a carp before the horse type of thing that's. So that's me personally. But like, how have you had conversations with people about debt management? I'm having variable incomes, like credit cards. That's kind of like the no brainer. But, like you know, there's rules of thumb around mortgage size and car payments and those kind of things. But you know, how do you recommend people navigate that? Like, if they have extra money, should more of it go to debt first than someone who has a bit more of a stable income?
Speaker 2:or how do you see that? So two pieces to that One, interest deductibility becomes a big component because not all debts, especially if you're a sales or self employed professional, are considered equal. So if, as an example, you are not allowed to deduct costs of a home office and for sales reps who are employees, they actually can't deduct a mortgage interest, so you have this falls in that category then your mortgage at let's call it current market interest rates of five to 6% has a different cost than an auto loan at 7%. That is 80% deductible because they're using it 80% of the time for work. And so what really matters? There is this interesting mix of well, let me look at my personal non deductible debts and what their after tax interest rate is. Let me look at my professional deductible debts and what their after tax interest rate is. And then let me look at all of my registered accounts and if I'm a sales professional or if I'm making, you know, high six figure variable income in the top marginal tax bracket, contributing to an RSP might actually make sense when we consider all of those after tax implications. And so, as much as I would love to give a clean cut answer, truly the answer in those cases is. It depends. But I will say one thing that I think is really important here as well is I've been on the receiving end of walking into, say, a car dealership or something like that, and once you know I they know that I'm self employed, or in the past, when they knew that I was a sales professional, you know the ability to upsell a car based on pure deductibility of a lease payment or, well you know, you can write off a chunk of it becomes a very appealing decision when you're looking at base model versus adding on Bell's whistles, extra features. And again, I would say to that point, you know, to some degree putting the car before the horse. Debt management is one piece, but figuring out what the actual debt payment, what the actual after tax impact is before signing on the dotted line for that vehicle, can be a really big change. Fun story I was driving a beat up Corolla in my marketing role and then, when I got the sales role, there was a handful of my senior managers who wink, wink, nudge, nudge, and this might be the time where you need to think about getting a new vehicle Right, and so that was a not so indirect push to upgrade my vehicle.
Speaker 1:Interesting. I mean that happens Well. So do you say this, I guess as a word of caution of, like other people that are trying to sell you stuff know that there is a bit of a tax advantage here. Careful not to go too far down that road of like overthinking the benefits maybe, but it also is an advantage, right, like it is it is. You know you can't get a nicer car for less if it is deductible, right.
Speaker 2:Yeah, and I think that's where it comes down to what motivates you. So before walking into the dealership you got to maybe stop and think about, like what, what actually puts energy in your body? So, as an example that used Corolla, I did need to upgrade my vehicle because it was a 2001,. The windows didn't really work anymore, ac didn't work Like it was a. I'm going to drive it and one day I'm going to get picked up and leave it on the side of the highway type vehicle, and so you know it's not a reliable car. When you're making high impact sales visits, right, you don't want to miss potential meeting because your car broke down on the side of the road. So I'm not saying that this, this is a cue to just drive a beater all the time. But think about what matters to you. Reliability mattered, so I wanted a brand. You know that would last me a lot longer. I'm not so keen on performance, at least at this point in my life, so being upgraded to a car with a little bit more zip didn't really matter to me. But I also don't know how to drive manual, so I knew I was going to pay the upgrade for automatic, right. So being able to think about those things in advance. Or the flip side. Maybe you are, maybe that is something that you really enjoy and you're not driving in the GTA, but you're driving like my territory was the golden horseshoe in Northern or like North of the GTA. So I didn't spend a ton of time in track, spent a ton of time, you know, sometimes driving down side roads or, you know, during the summer, driving down a nice windy road. So if that's your go to, when you know you're going to enjoy that and you know the car is going to have impact for you and the territory that you're driving, maybe that is a reason to buy a nicer vehicle. But again, consult your accountant, consult your financial advisor, your financial planner and sort of do the numbers on. Well, how much is this going to actually save me in tax? How much do I make? How much I have to pony up every single month to help you figure that out?
Speaker 1:Yeah, this comes down to a lot of the personalization of personal finance and how my frustration with seeing a lot of things online or just generic advice online is like, well, you can't spend on this if you have a new car, you're a loser If you're buying coffee at Starbucks. Everything is situational. Everything is situational. So I think you're really hitting that here. So many things depend on one's personal circumstances, so things that might depend less on personal circumstances might be things like taxes. So taxes kind of affect everybody. Yes, it is individual as well, but what are some of the tax implications that people should be thinking of? Having variable incomes, setting aside money for quarterly payments or anything like that, or do, typically, commissions still run through the typical withholding tax system?
Speaker 2:So I think typically they do, and bonuses definitely do. So actually I would say you fall into one of two different categories for the most part. If you're self-employed, then you have to set money aside for taxes, and this is one thing. As an example, I work with midwives Local compensation, although their birth schedule tends to be quasi-regular, so they have an idea of how much they'll make per month. But setting aside money for paying your taxes is crucial, especially if you think about the fact that you don't want to get used to spending your gross income and then all of a sudden you have to find 30% of that income at the end of the year. So setting aside money is super important. For sales employees less so because typically, commissions, bonuses and salary are all subject to withholding tax, and so what we typically see is many sales professionals do often end up with a refund at the end of the year because bonuses payroll doesn't typically account for bonuses very well, so it usually ends up withholding a little bit too much. And second is things like if you are able to and this is something that every rep needs to chat with their accountant about but the T-2200 is a form that the employer provides, saying things like they do have to work from home, they don't come into the office regularly, they drive around, here's their geography, and that T-2200 is what allows reps to deduct things like the cost of a home office or the cost of their vehicle. If that's the case, then not only do you have withholding tax, but you have these extra deductions that aren't even RRSP contributions, that further reduce what your net income is going to be. And so many sales reps can and will end up in a position where they have a sizeable refund, and to some degree that refund is expected because they're not having their employer withhold less at source, and so they end up in that refund situation, gotcha.
Speaker 1:Okay, so deductions are great little bits of tax planning. So, yeah, take a look. For those of you who are listening or watching, take a look and see what kind of things might be deductible in your case. But there are many situations that people think things are deductible but there may be not. I'm trying to think of one off the top of my head and I'm drawing a blank here. But do you run into situations like that where people think like, oh yeah, I'm just going to do this because it's a write-off or it's deductible or whatever, and it's not? Or it's not as much of a deal as one might think it might be?
Speaker 2:Yeah, so to that really come to mind. We get common misconceptions about mortgage interest. You can only deduct mortgage interest, and again as a rise. Please everyone talk to your accountant. I have some firsthand experience but I am not an accountant, so before you go out filling boxes around this but mortgage interest if you're an employee you usually cannot. You're self-employed and you have a home office, you can deduct mortgage interest. But the other one is the car because yes, you can deduct expenses related to a car, but the CRA has certain classes of vehicles, like is the car electric and how much can you deduct If you, you know people think this automatically means they can go and buy the most expensive vehicle, but the CRA also has certain classes around the cap of the amount related to capital cost allowance. So I mean, I haven't had this experience yet, but if you think you're going to go out and buy a Maybach and the full thing, you might be in for a rude awakening. So just keep that in mind.
Speaker 1:Yeah, another thing that I bump into online is that you'll end up seeing a lot of stuff for Americans that are relevant to the US only and not to Canada. So things like the weight of a vehicle being making it a certain deductibility, like, oh, now it's classified as a truck because it's whatever, I don't think we have that here. I've never seen that one before.
Speaker 2:Truly that one falls now outside of my zone of knowledge, but I believe you're right. Again, I would say, usually the class refers to like I know electric vehicles have a different class and then cost of vehicle also has a class. But again, this is where I would say, like my job when it comes to the planning side of things and the way I break this down for clients is look, my job is your account is always going to vet this information and then my job is to be able to say, well, okay, I know your tax situation, I know your quota, I know this year or let's use 2023. I know 2023. You shot the lights out and so your marginal tax rate is, in Ontario, that 53.53% bracket. Here's what the cost of that interest is going to look like. But your account is going to be the one to tell you yep, it's deductible, it's deductible to this amount. That's what we're going to put in the box and my job is to figure out how that relates to. Well, what is the implication as a deduction, for how much should we put into an RSP because you brought your income down a certain amount? Or what does that monthly payment going to look like? What should you do with the refund because of your car payments, et cetera.
Speaker 1:Okay, I'm going to change gears here a little bit, but in terms of benefits for sales reps or people with variable incomes is probably too broad for the question here. It may be outside of your expertise, but as far as workplace benefits go for, say, employed sales reps, how does like disability insurance and things like that is usually baked into a very common workplace disability or a benefits plan. Is that common for sales reps, or do people have to find their own disability policies? And how do you quantify that if income is big one year and not as much the next?
Speaker 2:So a couple of things. One is there usually is disability insurance baked in, but the disability insurance will have calculations, and that's what's really important for you to consider. So your disability insurance may be the average of the last two years, in which case that'll be all inclusive for your commission or your bonuses as well, but it may also be subject to a cap, and so that's where it starts to become really important to consider. Is there something that you're potentially leaving on the table? Employers, employers will have no cap for sales professionals because they understand that, but that's where you have to actually do the math, do the work to understand what you're covered for, and then decide if your job is driving around being in person selling to hospitals or driving around selling to small businesses, and you require the ability to drive and use a car and things like that and is it worth getting a top up wrap around disability insurance policy? That's going to be part of the plan. The other piece that I will highlight here too, evan, is it doesn't really fall under emergency funds, but sales reps do often change jobs. I know there are some lifers, but sometimes you've done really well in one industry, but that industry is in decline and there's another industry, like people moving from one industry into tech sales, as an example. This is where understanding not just how much am I going to make on salary and commissions, but are the benefits the same? Are there certain things that I'm giving up? Is there a workplace match? All of those pieces are important. When you consider that for reps, some of those benefits, like insurance coverages, become very important.
Speaker 1:Yeah, people really forget about the, the benefits side of things. Like maybe this is just an aside here, but I found a lot of my largest clients who are employees or were employees. The bulk of their savings came through workplace savings plans. It's like matching is huge, the lack of discipline required to make the, the investment is huge. And so changing jobs? It's like well, it's closer to home. It's like, yeah, but you miss out on 8% match. Like well, okay, you might have to do a bit of a trade off here. So, yeah, it sounds like that might be relevant to, as far as insurance coverage is and all those other things, your comprehensive benefits package.
Speaker 2:Well, an 8% of gross income is going to look real interesting if you have a pretty hefty component of commission income too, right, yeah, right. And that commission income gets taxed at a higher rate. So what you see in hand doesn't necessarily look the same, and so 8% off the top of that can be a real compelling savings plan Absolutely.
Speaker 1:So getting into the specifics of one's own situation, everybody's so different and the difference is like it's classic devils in the details, right, like the only thing that really matters is like the intricacies, in some ways. And so at what point should someone with variable income seek professional financial advice, like I would say, maybe like from an accountant or from a financial planner?
Speaker 2:I would say early on, right, if this isn't an area that you see yourself loving and digging into the details, right. You know, many accountants in this space are still fairly cost effective and they've got some knowledge and they're going to offload a lot of peace of mind for you. So you know, is it worth hundreds of dollars for the right accountant, maybe a thousand, maybe a little bit more, depending on how complex your situation is? Is it worth it? Probably, but if you consider that, you know what is 1% peace of mind, what is 5% peace of mind from a time standpoint and an investment stand on yourself From an advisor, same thing, I think, if you can find the right person working with you early on to help you navigate and make those decisions. You know, sooner is better than later and I have seen too many situations where people come to me later and now they've bitten off more than they can chew from a debt management perspective. Or, you know, things have been kind of set up suboptimally and they're trying to figure out how to navigate one or two years of lower income. But money's all tied up in the wrong places.
Speaker 1:Yeah, it's pretty tough for an accountant or financial advisor to come in and solve problems after they've already become problems. Yeah Right, you know, if you've got too much debt and you have to sell the boat in the car at a loss, whatever it's like, well, you're still out the money. Like I can tell you what's a good thing to do, maybe, but you're still out the money, right, whereas working with someone before the problems happen, it's tougher to quantify that benefit. It's like I had one of my colleagues on the podcast last year. We talked about some of the unseen benefits of working with a financial professional. It's like you know, avoid those problems perhaps in the first place. You know we're not in your pocket making, helping you buy every single thing, but, like, when these big things come around and you ask we might know some of these pitfalls that you could potentially avoid, right, Well, I think the big example is debt management.
Speaker 2:right, let's say you've got the car loan at a 7 or 7.5% and you've got the mortgage at 6,. Right On the surface, it looks like the 7% loan makes way more sense to pay off. So you receive a massive bonus. You've got $30K in hand and now you're thinking, well, I'm just going to pay off this car loan and boom, we're done, and that might have inadvertently, due to the deductibility of interest, cost you thousands of dollars net tax. Obviously, there's a piece of my perspective, and so what I tell clients is my job is to give you the numbers. My job is to lay this out and tell you hey, you want to know which one puts more dollars in your pocket. It's the personal mortgage that you can't deduct. If there's a piece of my element, that's cool, we can talk about that, but it starts with understanding those decisions, and so, before making any big decisions like that, having someone you know fact check those numbers can go a long way.
Speaker 1:For sure, and just so there's no confusion for people listening, the average person who has a typical T4 income job often cannot deduct their car loan, right? We're talking about very specific situations where that is a critical part of your job, where that is something that's applicable to you, right? So Erevan makes the great point here that for someone, a decision might seem obvious, but someone else's personal finance situation might be the opposite Right, and so getting good advice from qualified professionals, as opposed to just finding a tweet here, a TikTok video there or something like that even listening to this podcast, I'm working with someone who knows your situation. It is really valuable.
Speaker 2:And I would say that that is another mark in favor of. Do you have someone that kind of understands these pieces Right Again, just because you are? I know many sales professionals who do not get a T2,200 from work because they don't drive around enough for their work in CRA to deem it a core part of their job, and so if you're predominantly making phone calls from home, you still may not qualify to write off the expense of a car. So having someone who understands the nuances, who stops to ask the questions before giving the recommendation and who's willing to have that discussion with the accountant to make sure everybody's on the same page is absolutely crucial, whether you're a sales employee or whether you're self-employed and have a little bit more expanded bandwidth in terms of what may or may not be a deduction.
Speaker 1:Awesome, Irvin. This has been a great conversation here. Do you have anything else? You want to leave people with Final thoughts, common misconceptions, any little nuggets that you're thinking that you wanted to chat about as we wrap up here?
Speaker 2:No, I think we've covered it Again. I would say start early, make sure you're informed and make sure you're working with people that truly understand the nuances of your situation, because you never know when that little tidbit of information can go a long way in saving you a lot of money.
Speaker 1:Cool. How do people find you, irvin, if you're?
Speaker 2:on.
Speaker 1:Twitter. You can't miss them. You're probably one of the most engaged people in the financial planning community online that I found. That's how I found you. Or Twitter if through LinkedIn or X, I guess, whatever, it's cool. How do people find you?
Speaker 2:You can look me up full name, I'm on Twitter, I'm on LinkedIn, I also am on Instagram as well. I usually try to cross share whatever information you're writing about or making a video about across all platforms, I would say many of my sales professionals. So if you're listening to this and you're fascinated, you probably are indirectly especially in Ontario connected to me on LinkedIn. Again, feel free to look me up on any of those platforms.
Speaker 1:Thanks so much, man. Hopefully we'll have you on the podcast again. For those of you that are listening or watching now, this is our second attempt, as I had some technical snafus. Anyway, we've recorded two podcasts, but this is the only one that's seen the light of day here. Anyways, I hope we'll have you on the podcast again sometime soon.
Speaker 2:Appreciate it, thank you.