Financial Security, What is it?

Financial Security, What is it?

Financial security refers to the peace of mind you feel when you aren’t worried about your income being enough to cover your expenses. It also means that you have enough money saved to cover emergencies and your future financial goals. When you are financially secure, your stress levels goes down, leaving you free to focus on other issues.

Budgeting for Success

Feeling financially secure requires knowing what your assets and liabilities are, as well as how your income compares to your expenses. If you aren’t tracking these, you might not know you’re struggling, but that’s like an ostrich sticking its head in the sand and hoping for the best. For true financial security, create a budget that addresses both your current needs, like food, clothing and shelter, and your long-term goals, like paying down debt and saving. You should also include insurance to cover the what-ifs in life.

Prioritizing Long-Term Goals

Pay yourself first, when it comes to making your budget. No, that doesn’t mean take the first fruits of your paycheck and go out to eat. Instead, it means make sure you’re setting aside money for long-range goals, like an education fund for your kids, a down payment for a future home or a retirement account for your golden years. If you’re struggling to find enough remaining money to pay down debt, look for discretionary expenses that you can cut.

Building an Emergency Fund

Whether you call it an emergency account, your safe money or a rainy day fund, setting aside several months worth of living expenses is critical for your financial security. That way, when something unexpected like a job loss, refrigerator breaking down, or a child having to go to the hospital pops up, you have the funds to deal with it rather than having to go into debt, especially high interest debt like a payday loan or a balance on your credit card.

Tracking Long-Term Goals

You can’t just set it and forget it when it comes to your budget. Instead, your budget requires maintenance and fine tuning over time to make sure you’re adhering to your goals. For example, if you haven’t been tracking your spending in the past, you might think you’re only spending $100 a month eating out, but could be spending two or three times that amount if you’re not tracking it. If you need help staying on top of your money, contact us at info@henleyfinancial.ca for your free budgeting template. Let us help you achieve your financial goals.

Get started on your Estate Planning

Get started on your Estate Planning

 

By Henley Financial and Wealth Management

As we journey through the various stages of life, we spend considerable time building relationships and accumulating assets. Passing on a legacy to family and friends and avoiding unnecessary taxes and administrative delays takes good planning. Your estate plan is as individual as you are, and taking the time to complete your arrangements now will give you control over how you provide for those closest to you.

We would like to send you a free booklet on Estate Planning including a step by step checklist.  Please contact us at info@henleyfinancial.ca for your copy.

Estate planning

Estate planning is about life – in the present and in the future. Most importantly, estate planning is about the life of your family and loved ones – and the peace of mind you get from helping to preserve their financial security. By its very nature, estate planning is a difficult subject to discuss – even more so to plan for because it forces us to come to terms with our own mortality. Yet it’s something you need to talk about openly with your loved ones today because you can’t do so after you’re gone – or after they’re gone.

Each person will approach estate planning differently, with personal motivations and expectations. No estate plan will be exactly like another. Estate planning should be reflection of your personal priorities and choices.

Estate planning is generally guided by three rational motivations

  1. Provide adequately for family members and/or other loved ones
  2. Ensure that your estate is distributed in the timeliest manner possible after your death
  3. Minimize taxes – during your lifetime and, equally important, for the beneficiaries of your estate

…and three emotional motivations

  1. Gain comfort from knowing your loved ones are well looked after
  2. Feel secure knowing that settling your affairs will not add more stress to those grieving for you
  3. Rest assured that your estate will be distributed the way you wish

Why you need an estate plan and the Benefits of estate planning

  • Distributes your assets as you intended; provides funds to cover funeral expenses, as well as immediate and/or long-term family living costs
  • Keeps more of your money in the hands of your heirs
  • Minimizes income tax and probate fees (no probate fees in Quebec); designates charitable gifts; declares your personal care preferences, including terminal medical treatment and organ donation intentions
  • Provides for the tax advantages of income splitting
  • Ensures business continuity for business owners
  • Identifies the people chosen to carry out your last wishes and care for your children

Taking action now 

Too often, advisors and estate planning professionals hear, “I wish I’d known about this sooner” from distressed family members. Whatever your status – male, female, married, widowed, divorced, single, young, old, middle class or wealthy – everyone can benefit from estate planning. Unfortunately, too few people follow this advice. Planning your estate and communicating your wishes as appropriate can protect your estate and, as importantly, allow your heirs the opportunity to prepare themselves for their changed circumstances. The “do nothing” option is not in the best interests of your family, your business or other relationships. As the world we live in becomes increasingly characterized by legal action and government intervention, estate planning is something everyone should do.

Creating your estate plan – step by step 

Step 1: Consult and retain appropriate professionals. The complexity of your situation will determine the assistance you will require from professionals to create your estate plan. Your team should include an advisor, lawyer and tax planner

Step 2: Draw up a household balance sheet. A household balance sheet is a summary of your financial situation that ultimately determines your overall net worth. Your net worth is the value of your assets (what you own) minus your liabilities (what you owe). If you don’t already have one, work with your advisor to develop your household balance sheet.

Step 3: Understand your life insurance needs. It’s important to work with your advisor or insurance expert to match your long-term financial objectives with your insurance needs.

Step 4: Draw up your Will.

Contact us at Henley Financial and Wealth Management  if you would like us to provide you with a Will Kit.

Step 5: Establish power of attorney for property. At some point in the future you may be unable to make your own financial or personal care decisions. But you can prearrange for someone to make these decisions according to your wishes by having a lawyer draft a separate power of attorney for property and personal care.

Step 6: Establish power of personal care. Medical and lifestyle decisions must often be made quickly when someone is seriously ill; hence, one or more family members are often granted this power of attorney to make decisions for you.

Step 7: Minimize taxes and administration fees. Your estate may encounter certain obligations for income tax and probate taxes on your death, which may reduce the proceeds intended for the beneficiaries of your estate. If any part of your estate must go through probate to validate the Will before transferring ownership of assets, the entire estate value may be subject to probate taxes.

Step 8: Keep track of accounts and important information. One of the most difficult roles for an executor and family members is gathering the information required to settle the estate. Eliminate this concern by centralizing all household information from birth certificates, passports and other legal documents, to bank accounts and insurance policy numbers, to phone company and hydro account details. Once you have documented your important information, store a copy in a safe place and let someone close to you know where it is.

Step 9: Let someone know.  After you have gone through all the steps of developing an estate plan, the final piece of the puzzle is communication. It’s really important to communicate your plans to a family member or close friend whom you can trust, and who is capable of working with your advisor to execute your estate plan. There’s nothing more disturbing than for someone to have to deal with incomplete information or requests. As such, not only is it important to share your plans with someone, but it can also be very helpful to document your plans to help eliminate any potential misunderstandings. As difficult as it may be, making sure that those affected by your plans know what is expected of them and where critical information is kept is essential to the smooth execution of your estate plan.

Step 10: Review and update regularly. Review and, if necessary, update all information at least once a year. By updating your estate plan, you’ll get a snap shot of where you are on an annual basis.

 

 

 

 

 

 

 

 

 

What is Wealth Management?

What is Wealth Management?

Wealth management can be more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to integrate pieces of advice and various products from different managers the client benefits from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future financial needs.

The concept of a wealth manager is based on the theory that he or she can provide services in any aspect of the financial field, while many mangers choose to specialize in particular areas. This would be based on the expertise of the wealth manager in question, or the primary focus of the business within which the wealth manager operates.

A wealth management advisor will coordinate input from outside financial experts such as the client’s own lawyers and, accountants, to create the best strategy to benefit the client. Some wealth managers also provide banking services or advice on philanthropic activities.

So, in short wealth management is an investment advisory service that combines other financial services to address the needs of a person’s financial life. Clients benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future needs. This service is usually appropriate for individuals with an array of diverse needs.

Wealth managers may work as part of a small-scale business or as part of a larger firm, one generally associated with the finance industry. Depending on the business, wealth managers may function under different titles, like financial adviser. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.

The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on that individual’s financial situation, goals and comfort level of risk. After the plan is developed, the manager meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.

This brings us to financial security planning within Wealth Management

A sound financial security plan should protect you against uncontrollable events such as disabilities or death, while helping you plan for controllable events such as buying a new home and retiring comfortably. To do this, Henley Financial & Wealth Management planning process is based on four areas of financial security planning:

  • Financial security at death
  • Retirement
  • Liquidity
  • Disability and critical illness

Financial security at death

 All financial security plans start here because death is inevitable and an uncontrollable event. As part of the financial security planning process, we’ll discuss:

  • How much income will your family need if you die?
  • How will inflation affect this income?
  • How to preserve your estate for your family when you die

Retirement

 When we discuss retirement planning, we consider:

  • What kind of lifestyle do you see for yourself in retirement?
  • How much money will you need to retire comfortably?
  • What impact will inflation have on your income?
  • Would you like to have the freedom to slow down or retire early?

Time and planning are two factors that influence whether or not you accomplish your retirement goals. Therefore, you must work towards your retirement goals over time.

Liquidity

Liquidity is your ability to access cash or assets that are easily convertible to cash. Liquidity can be a short-term savings option that can regenerate over time and need your constant hard work.

Disability and critical illness

Mitigating your risk against uncontrollable events such as disability or critical illness is key to your financial security. When building your financial security plan, we’ll consider:

  • Will your income be reduced in the event of disability or critical illness?
  • If your income is reduced, will it be difficult for you to maintain your lifestyle and retirement savings?
  • How much disability or critical illness insurance coverage is enough?
  • What impact will inflation have on your income if you’re unable to work for a long time?
  • Do you know if your group benefits provide a provision to allow you to continue your retirement savings if you become disabled or suffer a critical condition or illness?

 

 

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What types of insurance are available?

What types of insurance are available?

Life insurance in the beginning was the benefit which was realized at the death of the policy holder. It was really “death insurance” which in today’s world would be a hard idea to sell. Today, the world of insurance has expanded to different types of insurance where you don’t have to die to win. While also providing benefits to the policy holders who are alive – a living benefit. Living benefit plans are insurance policies that provide financial benefits to survivors who face issues due to aging, illness, accidents and dependency.

Disability insurance

Disability insurance (sometimes referred to as DI) is an insurance policy that pays out a stream of monthly income in case you get disabled and cannot work. The injury or disability does not have to have happened at work but it must severe enough to prevent you from working and earning an income. Many people have both short-term disability and long-term disability coverage through work but you can buy personal disability policies if there is not coverage like in the case of some self-employed individuals.

 Health and dental coverage

Health and dental plans are often covered through group benefits. These plans are designed to help with the unexpected cost of healthcare needs when you need it. There is a growing concern that governments will have significant cut backs in the health care industry and as a result, the financial burden of prescription drugs, visits to the dentist, eye exams, and paramedical services may increase in the future. Individual Health and Dental insurance policies can also be purchased through insurance companies.

Travel insurance

Travel insurance is something you can buy when you travel outside of Canada in case you get sick or have an accident while you are away. Travel insurance can cover the cost of your medical emergencies. Travel insurance may or may not include trip cancellation coverage. Most travel agencies will offer travel insurance coverage. However, you can also choose to purchase from a third party. If you’re planning your trip online or on your own, you’ll have to research which insurance companies are best for your needs.

Critical illness insurance

Critical illness insurance is a type of insurance that helps you if you become critically ill. There are many different conditions that might be covered under a critical illness policy but the most common are heart attacks, strokes, and cancer. Typically, critical illness insurance provides a lump sum payment when a specific condition is diagnosed. The money can then be used for any purpose. Some examples include finding alternative medical treatments anywhere in the world, hiring a caregiver, paying debts, covering expenses that are not covered under government health care, paying for private nursing homes, or providing income support.

 Long term care insurance

Long-term care insurance is another coverage that is rapidly growing in popularity. It pays a daily or monthly benefit for medical or custodial care received in a nursing facility, in a hospital, or at home if you are unable to carry out some of the common activities of daily living (ADLs). Some examples include:
· Bathing
· Dressing and undressing
· Eating
· Transferring from bed to chair, and back
· Voluntarily controlling urinary and fecal discharge
· Using the toilet
· Walking (not bedridden)

Few people plan to get injured or ill. Getting insurance of any kind is a form of risk management . . . preparing for unfortunate circumstances in life. Be sure to include a review of living benefits when you review other types of insurance.

 

 

Why should I buy life insurance?

Why should I buy life insurance?

If this is a question you have been asking consider the following:

Life insurance can offer peace of mind, creating a payout that would cover your debts and or your family members financially in the event of you should die.

Would my death create a financial crisis for anyone?

Life insurance is an important consideration for anyone concerned about how their death might financially impact loved ones. Once you have a significant other, you should have life insurance coverage in place. If you have significant financial obligations such as a mortgage, car loan, and credit debt. Your surviving dependant can use life insurance to ensure that the debt is covered.

Parents benefit greatly from having life insurance so that if they die while their children are still dependents, the children are left with funds to live off, pay off debts, and post-secondary education financial needs. Life insurance can be used to ensure that all debt is covered and a post-secondary education can still be obtained without financial burden placed on your children.

The amount of coverage that is needed is determined by using either a Present Needs, or Future Needs process.

What does Present Needs mean?

The present needs process is a way of determining the appropriate amount of life insurance coverage an individual should purchase. This approach is based on the creation of a budget of expenses that will be incurred upon death, including funeral expenses, estate settlement costs, and replacement of a portion of future income to sustain the spouse or dependants.

What does Future Needs mean?

The future needs process contrasts with the present needs as the future needs process calculates the amount of life insurance a family will need. Based on the financial loss the family would incur if the insured person were to pass away today. The future needs usually take into account factors such as the insured individual’s age, gender, planned retirement age, occupation, annual wage, and employment benefits, as well as the personal and financial information of the spouse and any dependent children.

When calculating any expenses, it is best to overestimate all needs a little. For instance, consider any outstanding debts and obligations that should be covered, such as a mortgage or car payments. Also recognize that the need for income replacement may gradually decline as children living at home move away.

What is Term Insurance?

Term insurance is pure insurance protection that pays a predetermined sum if the insured dies during a specified period of time. On the death of the insured person, term insurance pays the face value of the policy to the named beneficiary. All premiums paid are used to cover the cost of insurance protection.

The term may be 10, or 20 years. But unless it’s renewed, the insurance coverage ends when the term of the policy expires. Since this is temporary insurance coverage, it is the least expensive type to acquire.

Here are the main characteristics of term insurance:

  • Temporary insurance protection
  • Low cost
  • No cash value
  • Usually renewable
  • Sometimes convertible to permanent life insurance

 

Term insurance pays a set amount if the insured passes away during a specific time period, and is considered to be “temporary” insurance, while permanent life insurance guarantees insurance for life, provided the premiums continue to be paid on time.

What is Permanent Life Insurance?

Permanent life insurance provides life time insurance protection (does not expire). Most permanent policies offer a savings or investment component combined with the insurance coverage. This component, in turn, causes premiums to be higher than those of term insurance. This savings portion of the policy allows the policy owner to build cash value within the policy which can be borrowed or distributed at some time in the future.

Here are the main characteristics of permanent life insurance:

  • Permanent insurance protection
  • More expensive to own
  • Builds cash value
  • Loans are permitted against the policy
  • Favorable tax treatment of policy earnings
  • Level premiums

The two most common are whole life and universal life. Whole life insurance provides lifetime protection—for which you pay a predetermined premium. Cash values usually have a minimum guaranteed rate of interest, the death benefit continues to grow allowing the cash value within the policy to grow tax exempt in the future.

Universal life insurance separates the investment and the death benefit portions. The investment choices available usually include some type of equity investments, which may make your cash value accumulate quicker but at the same time you are now more vulnerable against the markets in which you invest (because as the market fluctuate the value of cash fluctuates which is volatile risk). Over time, you can usually change your premiums and death benefits to suit your current budget.

Age, health, and whether or not the person seeking life insurance smokes all factor into the price of a policy.

 

 

 

 

 

Market volatility does not mean the sky is falling

Market volatility does not mean the sky is falling

Rudyard Kipling’s famous poem “If” starts with “If you can keep your head when all about you are losing theirs…” That is good advice for all of us, but especially investors.

The Covid19 pandemic has mixed health concerns with financial concerns. Unprecedented market drops, continued volatility, stimulus packages, layoffs and the fear of recession or depression is weighing on most people’s minds. The human and health toll is substantial and not one that anyone can, or should, dismiss lightly.

From an investment perspective, redemption activity is picking up pace and will likely continue. Globally, equity funds saw record outflows of $43 billion in the first 2 weeks of March 2020, according to the Financial Times. Flight from equities is typical in these situations. However, investors fleeing investment-grade corporate debt and sovereign bond funds underscores the fear-inducing sell-off in the market. According to market data provided by EPFR Global, mutual funds and ETFs that invest in bonds had $109 billion in outflows for the week ending Wednesday, March 18th. This rush towards cash has exacerbated already volatile markets – and there is no indication that this will change any time soon.

 

When Q1 statements arrive at investor homes in a few weeks, there will be a rush by many to redeem some or all of their investments. Before investors decide to do so, they should keep a few things in mind:

  1. The sky is not falling: investment legend Peter Lynch once observed that most investors sit in excess cash or redeem investments because they fear a doomsday scenario. Lynch argued that the end of the world has been predicted for thousands of years and that the sun has still risen every morning. He also argued that in a doomsday scenario, people will be focused on food and shelter. So, whether you hold stocks or cash is not likely to matter. His advice? Act like the sun will rise tomorrow and invest accordingly.
  2. People will still buy stuff: when we get to the other side of the Covid19 crisis – and we will – people will still need food, clothing, shelter, services, etc. As Warren Buffett said in 2012, “Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.” He also said “In the future, the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.” So, businesses will continue to exist, continue to produce, continue to employ, and continue to reward investors.
  3. Market corrections are natural: in Europe and North America, prescribed burning has been used for over a hundred years to rid a forest of dead leaves, tree limbs, and other debris. This can help prevent a much more destructive wildfire. It also enables the hardier trees to receive more nutrients, water, and sunlight so that they may thrive. Joseph Schumpeter, the Austrian economist, coined the term “creative destruction” whereby more nimble, innovative practices displace more complacent ones. After the longest bull market in history, there was bound to be a market correction – of course, it is deeper and faster than anyone anticipated. A dispassionate investor would view the current economic turmoil as shaking out some of the less nimble public companies, reducing over-valuations and directing capital and resources to the best-positioned businesses.
  4. Don’t try and time the market: even the most successful professional investors don’t believe in their ability to time the market. Peter Lynch said “When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30. You just don’t know when you can find the bottom.”
  5. Don’t forget your long-term goals: most stock market investors originally invested with a time horizon of 5, 10 or more years. Most would have known that stock markets can and will correct, and sometimes violently, and so they should have invested only those monies that they did not need in the short-term. When the rebound comes, it will come quickly and those who are out of the market, and miss it, will have to dramatically revise their long-term goals.

Yes, the Covid19 crisis is a new crisis – but Canadians, the Canadian economy and Canadian portfolios have experienced and survived world wars, depressions, and pandemics before. There is little reason to believe that this time will be any different. Investors would do well to keep that in mind.

The uncertainty of self isolation… leads to dealing with uncertainty!

The uncertainty of self isolation… leads to dealing with uncertainty!

The most unsettling thing about this time in our lives is not the prospect of self-isolation or social distancing. We seem to be fine with doing what we have to do to win this race for humanity. I’m sure people are happy to wash their hands a skill that was honed in youth ingrained by our parents who knew there would be a time in life we would need this basic skill set in life to survive.

What’s unsettling about this whole crisis, is not knowing when this will end or the uncertainty of time. It would seem many are fine with an infinite time line because that’s how it has to be.

Normally we would just to trust in the experts. Although in this case every day you can read an expert’s article that is opposite of what was published yesterday because this is an unknown.

We have absolutely no way of telling which experts are right. Many have provided different information because there are so many theories or timelines regarding this virus. Because of this our testing protocol may be different by region, province and even countries. The reporting remains a mystery as to or even if it has been reported correctly. We can have no opinion on this because this has been decided for us. There are conflicting numbers, results and treatments. There is also a lack of trust in some that are giving the orders. That in itself, for us, is deeply unnerving. We have always had an opinion regarding politics, sports, music, restaurants, and just about everything in life as this is our freedom. How do we know who’s right and who’s wrong, that’s the part that feels not just weird, but unsettling? The freedom to think for ourselves seems to have been put on hold at least for now. This comfort has abruptly been taken away as we struggle to find factual ways to inform ourselves.

That aside only thing I am sure about: Is that many can work from home and they will be fine, this will become the new normal.  The front-line workers who are there to provide for those in need will be exhausted when this is over.  Unfortunately, they will have to carry on providing this essential service to many that are and have been sick but not from Covid-19. There will be no break for them this will not end with a month or two of self-isolation or so we hope.  Deemed essential businesses will continue to forge ahead… But those owners and employees who cannot work because of circumstances beyond their control are the ones we should worry about.  There is no prospect or timeline to return to work. How will they survive this economic downturn and be able to carry on business as usual? It’s easy to say stay home flatten the curve, but even if these businesses made rent or the mortgage payment this month. What happens next month or the month after?  We as a society cannot flood the market after business returns to normal as most will have their own financial issues to sort through. With no timeline in site the future of these businesses looks dim and jobs will be lost creating a secondary strain moving forward. Unfortunately, for every action taken there will be a consequence and that is the unsettling part.

Keep calm, but don’t carry on

The Spanish flu of 1918-20 – which infected a third of the global population, and, if estimates are correct, killed more people than the two world wars combined. It was of course a different disease, and a different time. But there are many lessons to draw from what happened. For example: “Keep calm and carry on” isn’t always good advice. Hence the reason we have stopped life as we know it. Now we understand panic is dangerous and on the other hand, complacency is also dangerous.

The fear for us right now is not knowing when the end is in sight. We realize there will be an end because we are taking the right steps to ensure the outcome trying to save lives and stop this virus in its tracks.  The uncertainty is more of a time line… Will it be 20 more days, 30 days, 60 days or 90 days? Because all of these time lines have different consequences to each and every individual moving forward regardless of his and her circumstances.  What would your economic situation look like if this continued till June? Some have the means to survive till then others do not.

What choices do we have? We have lost that freedom for now, at least some of us have because we abide by the rules. We know that this will end, but will we change moving forward or chase the dream again… Only time will tell.

I guess the one good thing to come out of this is the return of the family unit as the core of our existence. We have returned again to our roots ingrained by our parents – family first! Something we may as a society been too busy for in the past or took for granted.  Let’s hope that we don’t turn our backs on the family unit again. On the other hand, some children have been expelled from homeschooling already so yes, an adjustment period is required. The future is in our hands (literally… wash our hands!) we have a choice it would be unsettling to know that we have come this far to not win!

I guess the ending is simple we must stay the course even though we have no defined time line in sight. As unsettling as this may be to some, we must Stay Calm Relax and this too shall pass.

Writing this just seemed to make things more acceptable because like many I’m sure, I have not trained for a race of this distance. The finish line seems too far to complete but I shall not let the team down and will find a way to finish.

 

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