Four-point financial wellness checkup

09-18-2020
Four-point financial wellness checkup

Under stress? How a planner can help

 

The Covid-19 pandemic and lockdowns have created plenty of financial stress for individuals and families. Temporary or even permanent income loss has been only partially mitigated by relief programs, such as the Canada Emergency Relief Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS). In any case, these programs are not permanent and will be wound down eventually. Feeling stressed? This is a good time to take stock of your situation with a financial wellness check in four key areas.

Debt. Latest statistics from Statistics Canada show that in the second quarter of the year, Canadians owed $1.58 in household credit market debt for every dollar of disposable income. That’s down from $1.77 in the first quarter, but it’s still huge. 

So as the first move on your financial wellness checkup, total up how much you owe in consumer debt. This would include, first and foremost, credit cards, which carry the highest interest rate. Don’t forget consumer loans, such as car loans, and lines of credit. If you owe way more than you make – and a sign of this is if you’re using most of your disposable income to pay off loans – then it’s time to take some action. This should include everything from debt consolidation to cash flow management strategies.

Spending. This is typically closely tied in with debt. An unmanageable debt level usually implies a problem with personal spending patterns. Do you have a good fix on how much you spend each month? Surprisingly, many people have absolutely no idea, simply spending everything they make, using plastic for purchases, and hoping for the best at the end of the month. If you’re in this trap, the solution is a simple one: make a budget. First, track your income and outflow scrupulously. Use an app, a spreadsheet, or simply a notebook and a pen. Then find places to cut back, economize, or re-set spending, so that at a minimum you’ll target your monthly income to exceed your monthly spending.

Saving. Do you have anything at all left over at the end of the month? (See “Spending” above.) If you do, that’s your “saving.” A rule of thumb is that you should strive to save 10% of your monthly income. For many, that’s a highly optimistic target. That means if your monthly income is, say, $5,000, you should be saving $500. The reason? Over the long-term (and a large part of the saving exercise is for the long-term), that saving can grow considerably. That $500 per month will grow to about $600,000 in 30 years, at an annual rate of 7%, with annual compounding. If you can’t set aside 10%, start with whatever you can and raise it 10% as your financial situation improves.

Investing. How is your portfolio performing? Those with investments have seen a great deal of volatility this year. If you are a do-it-yourself investor using online trading resources, put the trading window on pause and have a look at your statements. Check your asset allocation and trading patterns. Are you too heavily weighted in one type of asset (say, stocks), and are you spending too much on trading commissions as you try to “beat the market” in all of its moods and gyrations. Are you ahead of the game or behind the eight-ball? If you don’t know, don’t have any benchmarks, and can’t assess your asset allocation, it’s time to step back and make a plan.

And if all that seems overwhelming, it might be time to consider the services of a qualified fee-for-service financial planner. The big question here is, “What value exactly will I get for those fees I pay?”

The role of financial planner

A competent planner should as a start, gather all your necessary information to get a clear picture of your current financial situation. They will ask you about goals, needs and priorities, identify and evaluate strategies, submit recommendations, agree on action, responsibilities and time frames, monitor and evaluate ongoing implementation.

A financial planner will help you develop a workable budget and cash management strategy to control spending and manage personal debt. More than this, a planner will integrate this with a savings strategy integrating your investment accounts, RRSPs, TFSAs, employer pension plans, RESPs, non-registered plans, to meet your financial goals and match your risk-tolerance level.

Financial planners and wealth advisors are highly trained specialists in financial planning, portfolio planning, investing, and money management. Look for accredations from reputable industry organizations, including Certified Financial Planner (CFP), Chartered Investment Manager (CIM), and Fellow of the Canadian Securities Institute (FCSI). You may be able to find a financial planner through a referral from a friend, relative, or colleague. Or consult the search tool on the FP Canada website.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.