HOW MUCH MONEY SHOULD YOU BE SAVING?

HOW MUCH MONEY SHOULD YOU BE SAVING?

If you ask yourself that question your answer should have been as much as possible, of course. But with so many debits coming out of your bank account saving up for your future is a daunting task. How can you prioritize your options, without knowing the importance of saving and investing your pay check or any extra cash, as you work towards reaching your financial goals.

As we have discussed in previous articles the answer to the question above is only a simple one if you implement and follow a strategic plan… Here is a look at things you should be doing when you start thinking about saving.

Pay down your credit card and other high-interest debt first

The average Canadian household carries a credit card balance of nearly $8,600 with interest rates that can be as high as 21 percent. Be sure to make minimum payments on all accounts to avoid accumulating more fees. The next step is to work on paying down your consumer debt from the highest-interest accounts to the lowest. Use any extra cash to pay down your credit card balances or any other loans, prioritizing those with high interest rates. Paying down high interest consumer debt will allow you to start saving for the future as the interest on this debt is lost potential.

Employer matching on your RRSP

When it comes to finances, there is nothing worse than leaving free money on the table. That’s why getting the most out of your employer’s RRSP match program is one of the most important “must do” strategies for your financial planning. Many employers will match your contributions up to a certain pre determined percentage of your gross pay dollar-for-dollar. Therefore you should be contributing up to the amount your employer matches because this is easy money and a winning strategy you will never regret.

Did you know that 85% of Canadians do not max their RRSP contribution…

Contribute to your RRSP

We’ve already covered how important it is to make the most of your employer’s RRSP matching program, but it’s also important to max out your tax-deferred RRSP contributions. For the tax year 2020, you can contribute up to $27, 230 in pre-tax dollars which will defer paying taxes on that money until you withdraw funds during retirement. That means you’ll pay less in taxes today, and depending on when you plan to retire, allow the money you invested in yourself this year time to grow. The advantages of paying yourself first have been covered in previous articles.

Contribute to your TFSA

Maxing your TFSA yearly can help save you money from taxation in the future. Your 2021 max limit is now $75,500 the benefits of a TFSA can be substantial: Your contributions grow as they would in an RRSP but the withdrawals you make in the future are tax-free. You have the same flexibility to invest in a range of investments, such as individual stocks or active management. Be careful not become a day trader on the stock market with a TFSA account as the government can change the status of your TFSA if they deem it to be a trading account. This account was set in place to be a buy and hold type of stock account – buy stocks that pay dividends and have the dividends reinvested into your portfolio. That is free money that will help you grow your portfolio.

Build up an emergency fund

2020 was a strange year that no one saw coming years earlier. You never know if or when you’ll experience a job loss, a major medical procedure, a housing emergency or other challenging life event. That’s why you should be establishing a “rainy day” fund to get you through until your next pay check. No amount of money could have been saved for what happened in 2020, but keeping cash for three months’ worth of expenses would go along way if needed.

The most efficient way to meet your long-term financial goals – retirement, university/college for your kids, or emergency fund. – is to take the short-term view of paying yourself first. Automatically funding your financial goals before your other expenses will help you adjust daily and monthly spending habits.

  • Setting up RRSP or TFSA auto deposits
  • Monthly RESP auto deposits
  • Setting up a regular monthly transfer from your checking account, to a high interest savings account

After paying yourself first, you may find that you don’t notice the difference in income, but your investments and nest egg will be steadily growing all the while. All of which means you’ll be saving for the long term, and seeing your financial security become more stable.

A smart approach is to think of your savings plan as consisting of two separate figures: one for things you must have, the other for things it would be nice to have. The first and most important part of financial savings is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital during your retirement years.

So how much should you be saving? As much as you can afford!

WHAT DO YOU HAVE TO DO TO BECOME WEALTHY?

WHAT DO YOU HAVE TO DO TO BECOME WEALTHY?


We often find ourselves lured by the thought that there are shortcuts to living a wealthy lifestyle. We may dream about winning the lottery, investing in the next enormous stock tip, or having that one business idea that becomes the latest hit. If only you had jumped on that stock tip that was guaranteed to make you rich. We have all been given the stock tips that will make us rich – but the only people getting rich on the tips are the people who truly know what they are doing. If getting rich is so easy, why are only 4% of the Canadian population considered rich?


What can you do right to accumulate wealth in Canada?


Wealth is not built overnight and since only one percent of our population’s wealth has been inherited. Most wealthy Canadians have built their wealth one step at a time. One of the key habits of wealthy people is their ability to create a systematic disciplined savings plan. If you want to succeed then develop a plan that pays yourself first. Put a percentage of your paycheck into a savings portfolio before any other expenses or deductions are incurred. Just think if you could save 5% – 10% of your income before expenses how much money would you have saved in a year? Continue that over a few years with the added value of compounding interest you would have created a savings portfolio with incredible growth potential.


Keep debt in check

Ever wonder what a wealthy person looks like. The typical wealthy person might not be the one that drives the nice new Mercedes, lives in the biggest house, or wears the top designer clothes. Rather, the millionaire next door is the person that has lived in the same bungalow they have lived in for the past 20 – 30 years, they may drive a nice car but it is an older well-taken care car with lower mileage. They live within their means.


Know where your money is going

Most wealthy people not only live below their means but also are very conscious of where they spend their money. If you want to become wealthy, you should develop a habit of tracking where you are spending your money every month. Budgeting can be a very intimidating word but the fact remains, it is an essential habit for wealth accumulation.


Avoid debt

Wealthy Canadians make a very conscious effort to avoid, minimize and pay off debts. It is so easy in our society to access debt. But if don’t spend money you don’t have. You will be able to build wealth with the money you do have.

Maximize income

There is a correlation between wealth and income. While this makes sense, it may not always be easy to just go out and increase your income so you can increase your wealth. Building wealth will take some effort and your wealth will be directly correlated to your situation. Wealth has a different value for everyone, for instance, if you earn $50,000 a year and you managed to put $5,000 into your savings portfolio that would be incredible. Now, what if you could earn a 6% return on investment compounding interest per year on that investment (strictly stated for illustration purposes) – that would mean over the next 8 years you would have saved just over one year’s salary. Given the same time frame and math, the same can be said for someone earning double the amount and saving $10,000 a year. It’s all relative when it comes to maximizing your savings.


Own things that appreciate

A majority of wealthy people are on their way to owning their own home. Owning your residence creates a positive net worth on your balance sheet. This intern creates a positive asset that is used when discussing wealth. Besides, having equity in your home, your newly found saving plan is also considered an appreciating asset. The next time you put your money into something, ask yourself if it is an appreciating asset or a depreciating asset.

Get professional advice

Wealthy people typically work with professionals to help them accumulate, manage and protect their wealth. This might include accountants, lawyers, and financial advisors. Although they use professional advisors, they ultimately make the final decisions themselves. If you want to become wealthy, you must seek help but understand that you are always the one to decide on when to move forward on the recommendations given.

DEBT?

DEBT?

Growing up watching my parents navigate their power of spending and living within their means is now a distant thought based on today’s immediate gratification of purchase within our society. Having debt was not something that had meaning to them 50 years ago there was only one thing that they were in debt for – that was our house everything else was paid by cash. If you did not have the money then you saved until you did. My mother would put stuff on “layaway” and make weekly payments until paid in full or if she used the Sears Roebuck credit card it was paid in full at the end of the month. 50 years ago, a mortgage was and still is today considered ‘good debt’, because your home is considered the biggest increasing asset that you own. A car was something of a necessity only and not a want. A Black and White television was the norm and if you could afford a Color Television you would have been considered rich. Fast forward 50 years and you will find the banks and credit card companies are big business empires now, the consumer is now encouraged to use credit cards, lines of credit and, a myriad of financing options because it has become increasingly acceptable and very easy to carry large amounts of consumer debt. The new generation of consumers requires immediate self-gratification and this has helped to shift the public’s perception about carrying debt which has been extremely profitable for lenders. Yes, society has changed drastically in 50 years. The reality is still the same you cannot continue to spend if you do not have the means to afford your need to spend so you can be accepted in society.

Acceptable or not, when talking about finances, people who are carrying large amounts of debt understand their reality but unfortunately without the understanding of basic budgeting this is a cycle that cannot be broken. Until we as a society accept and understand that we need to live within our means if we are to succeed in our future – If not we will continue down a path of certain self-destruction.  

What can you do to reduce your debt?

How much debt do you have?

To pay down your debt and create a plan to reduce or eliminate debt you must first understand how much debt you have. To build a plan to get out of debt you should create a budget plan which lists each of your debts on a spreadsheet this will show you who you owe, what you owe, and your total debt, the minimum payment is the interest rate you’re being charged. You will need to get past the minimum payments to get out of the debt cycle.

Once you can see it on paper you will start to understand the process and value of this exercise. When you have all your debts written down, you’ll know exactly what you’re dealing with. The next part of the exercise and this is the most important step, is to implement change. It’s important to remember the only thing you can change is what happens from this point forward what you have done in the past is in the past it cannot be taken away. There must be a change in spending habits, there is no point putting energy into starting a plan to move forward if you plan on making the same mistakes from your past. Take positive action to better your situation.

How much debt is too much?

If you’re not paying your balances in full then where will you find the additional money to pay down your debt? This is where your budgeting skills start to come into play. You have to determine exactly how much you have coming in and going out each month. The simple math will show you either a positive or negative number. Either way, change has to come if want to remove your debt. There are only two ways to change your balance sheet at the end of the month: either you have to figure out a way to earn more or you have to find a way to spend less. Take a close look at your monthly cash flow; if you can capture money from other expenses and repurpose it to attack your debt, you’ll be able to get out of debts a lot faster. The simple answer for how much is too much? When you can’t pay your monthly bills comfortably, you have hit your threshold and you now need to put a plan in place which allows you to spend less and repurpose funds to pay down your debt. 

Understand how you got here… 

Debt is not a problem. It’s a symptom of a problem. If you focus on fixing the symptom rather than the root cause of your financial situation there’s a good chance that you’ll end up facing the same issues down the road. It’s not uncommon for people to consolidate credit card debt with a loan or line of credit and then to run their credit card balances up again. Effective money management isn’t grounded in strong math skills; it’s grounded in our psychology. Understanding the psychology of money and how spending habits are created will help you create new patterns and new habits that will not only help you get out of bad debt but will also help you stay somewhat debt-free from the credit card companies in the future.

The plan moving forward…

Without a plan, you will never achieve success. Without a budget in place, you will find yourself back where you started in no time. Once you know how much you have each month to pay down your debt, then you can create a plan that will allow you to pay down each debt systematically, starting with the smallest balance of your highest interest debt. Keep your expectations realistic. Once you have successfully started to pay down your debt, removing any temptation to spend which is the cause of that debt in the first place is required. If it’s a credit card try removing the card from use until the debt is gone. One solution is to freeze the card in a zip lock bag full of water. When you want to use that credit card you will have to defrost it first giving you time to decide if you need what you are buying.

Implement your plan…

You have to start somewhere change will not just happen. Change involves stepping out of your comfort zone and into the unknown. Taking the first step to getting out of debt is usually the hardest. Be prepared for the fact that you’ll feel like giving up more than once. Don’t give up if you falter or get off track in the beginning; just remind yourself of what you’re moving away from and all the great things that lie ahead and then make the choice to get back on course. Always revaluate your plan make changes and refine your plan if necessary. Celebrate every step of your progress towards your end goal of being debt-free and by learning the power of self-discipline where spending is concerned.

It’s almost that time again! Taxes will be due soon enough…

It’s almost that time again! Taxes will be due soon enough…

A new year means new limits. Here’s a list of new financial planning data for 2021 (In case you want to compare this to past years, that data is included). Pensions, RRSP, TFSA, CPP, OSA, New Federal Tax Brackets.

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2021 is 18% of the previous year’s earned income or $27,830 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $14,605
  • The limit for Defined Contribution Pensions is $29,210

Remember that contributions made in January and February of 2021 can be used as a tax deduction for the 2020 tax year.

Tax YearIncome fromRRSP Maximum Limit
20212020$27,830
20202019$27,230
20192018$26,500
20182017$26,230
20172016$26,010
20162015$25,370
20152014$24,930
20142013$24,270
20132012$23,820
20122011$22,970
20112010$22,450
20102009$22,000
20092008$21,000

TFSA limits

  • The annual TFSA limit for 2021 is the same at $6,000.
  • The cumulative limit since 2009 is $75,500 (assuming you were over the age of 18 in 2009)

TFSA Limits for past years

YearAnnual LimitCumulative Limit
2021$6000$75,500
2020$6,000$69,500
2019$6,000$63,500
2018$5,500$57,500
2017$5,500$52,000
2016$5,500$46,500
2015$10,000$41,000
2014$5,500$31,000
2013$5,500$25,500
2012$5,000$20,000
2011$5,000$15,000
2010$5,000$10,000
2009$5,000$5,000

Contribution amounts for 2021

  • Employee contribution = 5.45% (up from 5.25% in 2020)
  • Employer contribution = 5.45% (up from 5.25% in 2020)
  • Self employment = 10.9% (up from 10.5% in 2020)
  • The maximum employer and employee contribution to the plan for 2021 will be $3,166.45 each and the maximum self-employed contribution will be $6,332.90. The maximums in 2020 were $2,898.00 and $5,796.00.
  • CPP Benefits
    • Yearly Maximum Pensionable Earning (YMPE) – $61,600
    • Maximum CPP Retirement Benefit – $1203.75 per month
    • Maximum CPP Disability benefit – $1413.66 per month
    • Maximum CPP Survivors Benefit
      • Under age 65 – $650.72
      • Over age 65 – $722.25

Reduction of CPP for early benefit – 0.6% for every month prior to age 65. At age 60, the reduction is 36%.

YearMonthlyAnnual
2021$1203.75$14,445.00
2020$1175.83$14,109.96
2019$1154.58$13,854.96
2018$1134.17$13,610.04
2017$1114.17$13,370.04
2016$1092.50$13,110.00
2015$1065.00$12,780.00
2014$1038.33$12,459.96
2013$1012.50$12,150.00
2012$986.67$11,840.04
2011$960.00$11,520.00
2010$934.17$11,210.04
2009$908.75$10,905.00

Old Age Security (OAS)

  • Maximum OAS – $615.37 per month
  • The OAS Clawback (recovery) starts at $79,845 of income. At $129,075 of income OAS will be fully clawed back.

OAS rates for past years:

YearMaximum Monthly BenefitMaximum Annual Benefit
2021$615.37$7,384.44
2020$613.53$7,362.36
2019$601.45$7,217.40
2018$586.66$7,039.92
2017$578.53$6,942.36
2016$570.52$6,846.24
2015$563.74$6,764.88
2014$551.54$6,618.48
2013$546.07$6,552.84
2012$540.12$6,481.44
2011$524.23$6,290.76

New federal tax brackets

For 2021, the tax rates have changed.

Lower Income limitUpper Income limitMarginal Rate Rate
$0.00$13,808.000.00%
$13,808.00$49,020.0015.00%
$49,020.00$98,040.0020.50%
$98,040.00$151,978.0026.00%
$151,978.00$216,511.0029.00%
$216,511.00

What is a Tax-Free Saving Account (TFSA)?

What is a Tax-Free Saving Account (TFSA)?

The Tax-Free Savings Account (TFSA) was introduced in 2009. The account can let anyone above the age of 18 enjoy tax benefits that can help accumulate significant wealth without paying the Canada Revenue Agency (CRA) a single penny on the income gained in the account.

However, the CRA will keeps a close watch on these accounts to catch you if you make any mistakes. While the TFSA can let you enjoy tax-free wealth growth, it comes with certain rules and regulations you need to comply with to enjoy the tax-free status. Failing to comply will allow the CRA a chance to collect tax, which they will gladly do.

How can they do that you ask ?

  • Over-contributing

Canadians that make the mistake of disregarding the maximum contribution limit in their TFSAs. The government introduced a limit to which you can contribute to your TFSA each year. The government increases the contribution limit annually, and with the 2020 update, the maximum contribution limit for your TFSA is now $69,500. That means if you have never invested in a TFSA since its inception, you can contribute $69,500 in cash or equivalent assets to the account in one lump sum.

Unfortunately, there are some Canadians that have made the mistake of contributing a lot more to their TFSAs than they should. The CRA charges you a penalty of 1% on the excess amount you hold in your TFSA each month. You can effectively lose the tax-free status of your account by making this mistake.

  • Trading too much in the account

Another more common mistake you never want to make with your TFSA is using it as a day-trading account. Yes, you can use the TFSA to hold assets equivalent to $69,500. However, you can’t use the tax-free status of your TFSA to make trades for the short-term gains. If you plan on using the account for day trading, you can expect the CRA to take action as it was never intended as a tax-free way to trading stocks. If considerable money is made by day trading The CRA can consider any account used frequently in trading stocks to have taxable income, and will subsequently consider this a trading account and not a TFSA.

There is no definitive limit to how many trades you can make in your TFSA in a year, but you should not act as a day trader with the account. Ideally, you should use the account to buy and hold long-term investments. If you were to buy a stock which pays an annual divided and keep it in your portfolio for the long term then this is seen as a tax-free investment as you are allowed to investment in the stock market. 

What is the advantage of the TFSA?

Think about this you have $69,500 that you are able to investment in any funds or stock that you would like and under the Umbrella of a TFSA that can grow to a value much greater than your original investment. Let’s assume that this money grows by 6% on average during the next 15 years… plus with the additional moneys the government lets you deposit annually without penalty. You could have in excess of $382,251 of tax-free savings depending on the type of investment you choose. This is tax-free money and can be withdrawn without taxation which would make this another piece of the puzzle to consider in your retirement planning portfolio.

How did we get here?

Start with $69,500

Added.      $90,000 = $6,000/year for 15 years

Total Inv.  $159,500 x 6% (on average over 15 years) 

Total Value $382,251

The numbers are based on a continued estimate of what the government will do moving forward, the government has the ability to raise or lower the TFSA deposits allowed moving forward so we have estimated the present-day value moving forward for 15 years. If we take into account the compounding interested on money invested through deposits over 15 years our simple calculations @ 6% on a yearly average for a moderate investment you could grow this account to $382,251 of Tax-free Savings. 

Note:

We made this very general in the nature of simple math so we could show the effects of compounding interest. There will be years above and below 6% growth on your investment but we chose to look at an average rate of return throughout the 15 years of investment for the simplicity of explanation.

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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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.

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