Fire up the juicer and slap on the spandex – it’s resolution time, everybody! But don’t forget to take care of your financial health as well. Here’s a short list of recommendations from the financial planning experts at T.E. Wealth, to help keep you fiscally fit this year.
1. Update your will and powers of attorney (Property & Personal Care*)
If your estate plan is three or more years old, it’s time to have a talk with your financial planner. T.E. Wealth’s in-house estate planning expert Emerita Mercado says that you should be updating your plan whenever there’s a milestone life change, but chances are you’ll need to tweak a thing or two every few years even if nothing major has happened.
Some life changes that could impact your will or powers of attorney are:
• Moving to another province or country
Estate and tax laws vary from region to region, so it’s important to understand what those laws are. Failing to update your will accordingly could invalidate it.
• Acquiring property in another region
Speak to your planner about which property should be your principal residence to optimize tax savings. You should also determine whether you need to designate a power of attorney for that region should you become unable to make decisions while there.
• Change in family members
In the case of birth or marriage, you may need to include new members, or remove others as in the case of death, divorce or estrangement. This can help mitigate the risk of family members contesting your will.
• Change in charitable affiliations
Have you become involved in a new charitable organization or learned that one you previously supported may not be totally on side? Maybe you’ve decided to put more money aside for charity due to an increase in your income – or less, due to an increase in your family size.
• Change in estate value
Has the value of your property gone up, or down, significantly since you last drafted your will? If so, this could affect how the property is divided between your heirs.
• Change in plan beneficiaries
The beneficiary of your company retirement or share purchase plan is determined by the beneficiary designation form on file with the plan, not your will or trust. So, you need to review these plans regularly and make sure the beneficiaries correspond with what’s in your will. This is especially important if the value of your account has increased substantially.
* Under provincial legislation, this document is known by different names depending on the province. In British Columbia, it is called a Representation Agreement, in Alberta, Nova Scotia, and the Northwest Territories it is called a Personal Directive, in New Brunswick, Ontario and Saskatchewan it is called a Power of Attorney for Personal Care, and under Quebec’s Civil Code, it is called a Mandate. Source: https://www.legalline.ca/legal-answers/what-is-a-power-of-attorney-for-personal-care/
2. Review your annual expenses
Karen Hall, Vice President, Financial Education & Employer Services of T.E. Wealth, Calgary says the key to staying on top of your annual expenses is to track your spending and make a budget.
Track your spending
“Tracking your expenses is probably the most important step to take for good financial planning. Maybe you’re thinking: I’m not very good at knowing how much I’m spending. Is there an easy way to track my expenses?”
If you’re not the spreadsheet type, she offers another solution, “You can use an app or an online program to track expenses, income and payments you’ve made. Or, paper and pen still works.”
Whatever method, Karen believes that the longer you put off updating your records the more overwhelmed you’ll be. “Picture yourself surrounded by a real or virtual stack of bills and assorted ATM receipts. If you can update your records on a weekly or at least monthly basis, you’ll be able to manage the job. It may help to break your expenses into different categories, as outlined in the table below.”
Another option Karen suggests is to try working backwards. “Review two or three months of past expenses to see where your money is going. Your objective is to find the “stupid money,” – the money you’re spending on things you don’t care about.”
1. Find the stupid money.
2. Stop that foolishness!
3. Redirect “stupid money” to where it matters.
4. Congratulate yourself – you’re getting smarter about money matters.
Make a budget
“A budget is a personal spending plan that should assist you in controlling your spending and directing more money into savings to allow you to reach your goals. Only you can take the necessary steps to ensure you meet your financial goals,” says Karen.
She recommends that you use a few cash flow management tips to help you implement these ideas. “Choose one or two to implement immediately. Once you’re in the swing of things, you can start doing more. You’ll be able to achieve your savings goals and reduce the worry and stress surrounding cash management.”
3. Implement a charitable giving strategy
It’s easy to take a reactionary approach to charitable giving when you’re inundated daily with requests through social media, street canvassers and retailers. While it’s great to support many of these causes, a few dollars here and $20 there can add up pretty quickly over the course of the year. And smaller donations like these don’t give you the benefit of a tax receipt.
Marie Machado, a financial consultant in our Oakville office, explains that the tax credit on the first $200 of donations is much lower than the tax savings on the balance, so you want to make sure you gather all your receipts to get past the lower threshold.
She suggests you should take some time to figure out which charities you’d like to contribute to over the year, and what amounts are manageable for each. An easy way to manage this is to set up automatic monthly donations. You still want to leave some donation room, however, to support family, friends, colleagues – or yourself – with sponsorships that might arise during the year for charitable fund-raising activities. Supporting someone who’s participating in a run or build trip can mean a lot.
If you do make one-time lump sum donations and you have investments, then one strategy may be to donate a stock or mutual fund. By donating the investment directly instead of cash, any gain on the deemed disposition of your investment is exempt from tax.
4. Review your insurance coverage
Make sure that your insurance coverage is still enough, whether it’s life insurance or disability insurance,” says T.E. Toronto Consultant Marcy Ages. ”They should be changed periodically in response to changes in your needs and life circumstances.” It’s a good idea to meet with your financial planner and review your home, auto, disability and life insurance policies to help ensure you have the coverage you need without paying more than you have to. If you’re nearing your twilight years, you may want to also consider purchasing Long Term Care Insurance to help you with out-of-pocket care expenses.
Life events that could affect your policies may include:
• Change of address
• Acquiring an additional vehicle or adding a driver (failing to update your policies could result in nonrenewal or a claim not being covered)
• Buying a new home
• Renovating an existing home (this can affect the value of your home and the coverage you need)
• Increase in the value of your home (even without renovations or upgrades)
• Marriage, divorce or the birth of a child
In addition to ensuring you have adequate coverage, reviewing your insurance policies annually is worth doing to make sure you benefit from any available discounts. For example, you may qualify for a discount on your homeowners insurance if you’ve installed a security system. A review could also make you aware of any new products and services that your insurer is offering. For example, if you drive your car less than 9,000 km a year, you could benefit from CAA’s new MyPace auto insurance program. This could save you money in the long run.
Last, a policy review could alert you to an increase in your insurance rates. If your insurance premiums are automatically deducted from your bank account, you may not notice the increase.
5. Invest some time in your financial literacy
If you’re still reading this article, good for you – you’re doing this right now! Whether you have a financial planner or not, it’s important to achieve at least a basic level of financial literacy so you can fully understand why some choices might be better for you than others.
Many of us struggle with managing our finances, which is probably why some tend to avoid making decisions altogether. The good news is that it’s easier than you think. T.E. Wealth’s financial education expert Roland Chiwetelu suggests a few ways to help gradually increase your confidence and ability to make sound financial decisions:
• Visit the federal government’s personal finance website to learn about basic financial planning principles, and how you may be affected by tax and policy issues in your region
• Check out finance-related websites or podcasts, such as moneysense.ca
• Take advantage of employee-sponsored financial education programs if your company offers this benefit
Given that worrying about your finances is one of the leading causes of stress today, a little financial know-how could do more than improve your finances – it could also improve your relationships and emotional well-being.
A national survey conducted by Canadian market research company Léger on behalf of the Financial Planning Standards Council (FPSC) had this to say:
• 42% of Canadians rank money as their greatest source of stress
• 87% of Canadians have regrets about previous financial decisions
• Canadians with comprehensive financial plans reported higher levels of financial well-being (85%), emotional well-being (62%) and overall contentment (45%) than those without plans
“If you’re one of the many Canadians without a comprehensive financial plan, don’t fret, don’t panic and most importantly – don’t procrastinate,” says Roland. “You can take small actions today to help improve your financial literacy and get you on your way towards a better financial future.”
While the items in this resolution checklist are relevant to most people, it’s good to meet with your financial planner once a year to make sure you haven’t overlooked anything. Especially when it comes to reviewing wills and contracts.
Lucy Conte, T.E. Wealth