Turning a new leaf on personal finances

Tips on money management, investing, taxes

The New Year is the natural time to turn a new leaf with finances. Last time I suggested six key planning resolutions for 2021. However, best intentions are typically forgotten within a few weeks of the New Year, along with the slide back into old bad habits. To avoid this fairly typical fate, take stock of your entire financial situation now, review what’s important, and prioritize items to act on. To help you get started, here’s my list of the key areas to look at to help keep those resolutions on track.:

Financial planning

Revisit life goals, values, investment goals, and financial objectives. To ensure your financial plan meets your financial objectives, at a minimum it needs to contain the following information in detail:

The amount of money that you need to save each year.
The asset allocation that would give you the highest probability of maximizing your return with the least amount of risk.
Tax planning strategies to minimize your overall tax.
Judicious use of credit.
Plans for a pre-retirement lifestyle that allows you to have achieve the financial goals to fund the retirement lifestyle that you want.

Budget

I can almost hear the sighs and see the eyes rolling now. But budgeting isn’t difficult.

Simply deduct what you spend from what you earn every month. If you come up with a negative number, you’re “over budget,” and you have a problem. If you have money left over, you’re on the right track. Budgeting may be a dirty word for many. But it’s essential to get a fix on what funds you have and what expenses and costs you need to pay.

First on the list is to find out whether your current income, savings, and government benefits cover your expenses for the next four to six months. If they don’t, look for ways to cut those costs, especially discretionary expenses. Eliminate recurring “ghost” expenses you might have forgotten about, like automatic withdrawals or credit card charges for fitness classes.

Reduce fixed costs if you can, like mortgage of rent payments. And take advantage of every cost reduction available, some insurers are offering temporary reductions in auto and health insurance premiums.

Pay off your credit cards

We live in an instant-gratification, consumer-driven culture. People want to “get it now” and can do so with the tap of a credit card or smartphone. But it means you’re deferring payment. Remember, the key word in the term “credit card” is “credit” and not “card.” Pay off that credit card debt first. And do it now! Here are some pointers:

Curtail the use of your cards. Ideally, use only one card. Put a low limit on monthly usage, and stick to it. In extreme cases, make your card inaccessible (e.g., freeze it in block of ice in your freezer).
Make the minimum monthly payment. If you can’t pay the entire balance, make the minimum monthly payment on each card. Add an additional amount beyond the minimum to at least one card with the highest interest rate.
The zero-interest balance transfer promo. To give you some breathing room, consider transferring a high card balance to one of the zero-interest transfer promotions that start appearing in your mailbox at this time of the year.
Switch to a premium card. Talk to your credit card company to see whether you are eligible for a premium card. You’ll pay an annual fee, but the interest rate charged on these cards can be less than half that charged on no-fee cards.
Line of credit. Rates are much lower than credit cards, so you’d be reducing the overall interest rate hit.
Loan consolidation. Consider taking out a personal loan at a lower interest rate to pay off other higher-interest credit-card loans.

Investments

If you have an investment portfolio, mutual fund, GICs or savings bonds, you’ll want to evaluate it in light of your financial goals.

Do you have an investment strategy?
Are you allocating assets according to your risk tolerance?
Do you invest or set aside savings every month?
If you have set out longer-term life objectives, you will need a plan to achieve them.

Protecting what’s important

Insurance is a critical part of your overall financial plan. To get optimal coverage (life insurance to protect your family, extended health care, disability and critical care), analyze your current protection, including all employment coverage and benefits, and assess your true needs. You’ll quickly see if you have too much (a fairly common situation for clients who first come to me) or too little coverage.

Tax planning – keeping what’s yours

You are legally entitled to arrange your affairs to pay the least amount of tax. In fact, you’d be foolish to do otherwise. Tax planning is complicated, and usually requires expert help. Here are a number of deductions and credits to consider. Some of these can get complicated, so talk to your advisor and get the paperwork and slips sorted out early. Some items to start thinking about now include:

RRSP deduction. Don’t forget to deduct your RRSP contributions made for 2020. You have until March 1 this year to make a contribution eligible for a 2020 deduction.
Employment expenses. This is especially important for employees who have been required to work remotely from home as a result of Covid-19 lockdowns. You may be able to claim certain home office expenses (work-space-in-the-home expenses, office supplies, and certain phone expenses).
Other credits and deductions to ask your advisor about include the Home Buyers’ Tax Credit, medical expense deductions, Canada Caregiver Credit, and childcare expenses.

Education planning

A basic four-year undergraduate university education currently runs about $64,000 including all expenses. A cornerstone of family financial planning is to start saving for your kids’ post-secondary education with tax-efficient plans like Registered Education Savings Plans (with its government grant feature, which increases your saving even more) and Tax-Free Savings Accounts.

Estate planning

Most people associate estate planning with a will. But making wills is only one part of an estate plan. Other key items could include trusts, registered accounts (which designate beneficiaries directly), and insurance policies. All of these elements, and more, go into creating an estate plan that provides for your family and determines how your assets are transferred to the next generation.

Here are a few key items to consider when thinking about an estate plan.

Getting help

Once you’ve done a preliminary review, you may decide you need to get expert financial planning advice and help. Your best is typically with a Certified Financial Planner, who does this for a living. Get a referral from a trusted family member, friend, or colleague. In addition, FP Canada, a national professional body for financial planners, has a search tool for finding a planner on its 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

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.