Paul Gimblett B.Sc CFP CDFASenior Financial Advisor
Here is a list of 10 financial planning strategies that will not only better educate you, but will give you some examples of common mistakes people make when handling their finances.
1) Income Tax Review
After completing and filing your income tax return, take the time, either on your own or with your financial advisor, to review your tax return and assess whether or not there are any opportunities to minimize future tax payments. You can also formulate a strategy to keep track of expenses that may be tax deductible or provide you with a tax credit for next year’s return.
2) Portfolio Review
Meeting with your financial advisor on a regular basis, minimum of twice a year, to do a portfolio review is essential. Tracking your returns, transactions and market volatility on a consistent basis will ensure you are on the right track towards your financial goals.
3) Pay down Bad Debt
Keep a close eye on the outstanding debt on any credit cards and lines of credit. These are examples of bad debt that can quickly become a nightmare and erode your hard earned income and net worth. Make a point to pay off your bad debt whenever possible and make a habit to stay away from it once it's gone.
4) RRSP Top up – Registered Retirement Savings Plans
Review your RRSP accounts early in the year and try to avoid the mistake of waiting until the last month or week of the RRSP season to contribute. The earlier you contribute to your plan, the more your investments will benefit from tax-deferred compounding. If you have yet to start an RRSP, educate yourself or consult a qualified financial advisor to go through the several advantages and capabilities of these plans.
5) TFSA – Tax Free Savings Accounts
Possibly one of the most misunderstood government sponsored investment plans is the TFSA. You are allowed to contribute $5,500.00 to these plans each year, if you are over the age of 18, and watch the money grow tax free. The flexibility of these plans makes then attractive to nearly every kind of investor which is why people need to learn the basics of these plans. As of 2014 you can contribute a maximum of $31,000.00 to your TFSA.
6) Risk Factor
Consider reassessing your investment risk tolerance. As your portfolio grows and your life changes, your investments may become exposed to a risk level not suitable to your objectives or time horizon. Be sure to discuss this with your financial professional on an annual basis.
7) Pay yourself first!
A classic personal finance theory, originating from the book "The Wealth Barber" by David Chilton, is 'paying yourself first'. The key to building wealth is saving your money on a regular and consistent basis, and letting time do it's thing. You need to treat yourself as the number one priority when it comes to paying bills. This means that before any bills are paid, a certain portion of your pay cheque - 10% is a great starting point - needs to go into a savings. Whether it goes into an RRSP, TFSA, savings account etc. isn't really the point, the point is that you are starting a savings habit on a consistent and regular basis.
TIP: Set up weekly, biweekly, bi-monthly or monthly PAC’s that are withdrawn the same day you receive your paycheque.
8) RESP – Registered Education Savings Plan
An RESP offers a great opportunity to save for your children’s education and gives you peace of mind while thinking about their future. The money invested under the plan grows tax sheltered until it is withdrawn for educational purposes. Withdrawals are taxed at the beneficiary’s marginal tax rate which will almost certainly be much lower than the contributor’s. The federal government also offers 20% grants for every RESP that further reduces your taxes paid on the plans investment income.
9) Your Will
Ensure you have an updated Will for your estate. Thousands of dollars are lost annually from several tax payers for the simple reason of not having an updated Will listing the executors and beneficiaries of the estate. This will also simplify and reduce the stress on your loved during the estate settlement process.
10) Life Insurance
Insurance needs will change over the years as your net worth grows. The capital needed for your survivors will not adjust unless the insurance policy is adjusted. Consider arranging a meeting with a qualified financial advisor to ensure you have the proper coverage for any unfortunate circumstances.
For any questions or advice give me a call, I am always open to a conversation on how our services can be of any benefit. There is no better feeling then a satisfied client.
A combination of good advice and applying these investment suggestions will make 2014 a successful and rewarding financial year.
All the best!
Paul Gimblett B.Sc CFP CDFA