TFSA

We can help reduce your taxes with the Tax Free Savings Account (TFSA). You are now able to shelter an additional $5000 from taxes.  If you haven’t opened a TFSA yet you now have a total of $20,000 you can invest tax-free. Considering the taxman can take up to 46% in interest income it’s wise to fully take advantage of a TFSA.
If you bank with Scotiabank you can make contributions easily through Scotia On-line.  You have to use the contribution button to register it with the government. Otherwise you can send a cheque made out to ScotiaMcLeod just make sure you put your TFSA account number in the memo section.

RRSP

Your RRSP contribution room for 2011 is found on the bottom half of your notice of assessment or 18% of your annual income.The annual RRSP contribution limits are as follows:   

Year           2009              2010              2011      ­     
Limit       $21,000       $22,000      $22,450

RESP

Most of the time the government is taking money from us so when the government offers to give us money, we should all be lining up to take advantage of it. For those of you with children, don’t forget to take advantage of the Registered Education Savings Plan (RESP).  The government will add 20% of your-annual contribution (up to a maximum of $500 per child annually) towards your child’s post secondary education.  You may also receive the grant from unmade RESP contributions from previous years as well.

Image credit: Ludie Cochrane

It applies to your finances as well. If you were a business, you’d be preparing your year-end financial statements. You’d be cross checking your goals that you set at the beginning of the year and measure them against what you’d achieved. If you fell short, you’d look over your last year’s plan of action to see where things took a turn.

You need to do the same thing with your personal finances as well. Your family and your home are like a small business. You need to set meaningful and realistic financial goals for your personal life. Your family members need to be on the same page in terms of your financial goals. You also need a way to measure your success and celebrate your achievements – just like you would with a business.

This is something everyone at every stage in life should be doing and doing every year.

If you’re a young family, you may be overburdened with the costs of raising young kids and paying for the basics. Your objectives down the line will include staying on budget, reducing debt and possibly saving for a home. The start of a new family is an ideal time to develop a relationship with a financial planner. Your family needs to have financial goals that can be discussed, reviewed and amended (if need be) at the very least, on an annual basis. A financial planner can help with this. It’s a great way for a young family to start healthy financial discussions and set and achieve financial goals from the get-go.

A more mature family may be overextended with soccer, hockey or other extracurricular expenses. As your family grows, debt may be increasing so you might be cutting back and finding ways to bring in more income. Helping the kids with college is also in the near future and so more sacrifices need to take place. Did you put your plans to cut back and save more into action? If not, what went wrong?

How about if you’re one of the many “sandwich generation” families who not only bear the costs of their adult kids still living at home but also are taking care of mom and dad. What financial changes did you want to see happen and did they occur? Was it time to encourage the kids to leave the nest or are they still at home but finally paying rent and pitching in for food and other costs?  Were you able to create a realistic budget for the family including cutting back on some of the more frivolous expenses? How is that going? Are mom and dad able to financially pitch in a bit to at least cover the costs of their care?

An empty nester may need to be seriously planning for their ideal retirement. This could mean setting up an aggressive savings strategy, or focus on getting the last of the mortgage paid down. Planning late in life for retirement will always mean sacrifices, such as thinking about down-sizing in the coming years, working later than you hoped to or retiring on less than you ideally wanted to? It’s all a numbers game and your financial planner can help with this.

An early retiree might need to revisit the budget that they set when their income dropped 30% to 40% after they stopped working. If you’re in this position, are you eating your savings away too  quickly or increasing your debt load at an awfully fast pace? Or have you maybe lived frugally over the years so you could save as much as possible for retirement – but now find yourself hesitant to finally spend and enjoy your nest egg? Are you taking the trips you envisioned you would or learning a new hobby you wanted to learn? At this stage of the game, your financial advisor can help you determine the best way to invest your money and how to pull out an income so as not to deplete the monies too quickly.

If you’re in the ‘elderly’ stage of retirement you may want to seriously look into later in life care options. Do you want to move into a care facility sooner rather than later? Is there somewhere in particular you would like to go? Or is staying in your house as long as possible the priority? Can your budget afford to bear all of the in-home care you might require? When it comes to your will and estate planning – is everything as you wish it to be or have you made some mental changes that need to be put to paper?  Do you want to start gifting some of your estate now and can you afford to be doing this?  Do you feel your adult children are financially responsible enough to receive a large inheritance or should trusts be considered?  Your financial advisor can help guide on this or direct you to the right people to deal with.

No matter what age you are, you should be conducting an end of the year review:

• First and foremost, the three most important elements of your financial health- emergency savings, income protection and your will and estate plan. Do you have at least six months of your monthly costs put away in a savings stash somewhere? Do you have enough insurance in place to protect against the loss of income due to disability or death and do you have a valid Will and powers of attorney/Representation Agreements in place?

• Review your budget (hopefully you have some type of family budget). Where did you overspend and under-spend? Was your budget realistic or too hopeful? Maybe a new budget needs to be created to more accurately reflect your spending patterns or keep to the existing one and cutback?

• What is your networth today (what you own minus what you owe)? What was it 12 months previously? Are you richer or poorer than you were a year ago? Understand why your networth either increased or decreased. Did it go up because you stuck to your budget allowing you to increase your savings or is it just a paper increase (such as the value of your home or stocks going up)?

• Review your financial goals. What are you saving your money for? Do you have a plan in place to achieve your goals? And how are you doing?

As we move towards the end of 2011, I encourage you to take time to review your financial goals, make changes where need be and continue on or set new financial goals for the coming year. By doing this, you’ll be more likely to achieve your long-term financial objectives you will feel more in control of your money, and you’ll enjoy the peace that comes from knowing you have a plan.

Image Credit: k.steudel

(image credit: Dr. Hemmert)

Top Ten Lessons Dave and Colleen Have Learned from Retirement

1- You can retire at the same time.

Many people recommend not retiring at the same time. Dave and Colleen found that being able to support each other and work on their new life together was very valuable.

2- Stress does not go away

Work stress of course goes away, but stress from other areas of life seems to fill in a fair bit of what was removed. The significant thing is that these items are actually important: health, family, and the like. These stressors are not meaningless work-related items but the important parts of life.

3- You should have your hobbies and projects setup and ready

Retirement planning isn’t only about the finances. You should have developed, or be developing, your interests outside of work, so you can start on these as soon as you retire. You do not need to have spent a lot of time on these (who has the time when working), but have identified what you want to spend your time doing. Dave took a woodworking course at night and now spends part of each day working on furniture projects. Colleen enjoyed jewelry design, now sells at the local farmer’s market.

4- Physical space from each other is important

You used to spend 8-10 hours away from each other 5 days a week, now you are together all the time. Develop a plan for some physical space away from each other. Heading to the gym at different times or a workshop is a great idea. Arrange so you have some time apart most days.

5- People at your old job really do not care you are gone.

The day you leave, life goes on at your old job, and it really is as if you were never there. Do not visit too much, they are busy, have made changes, and may not really want to hear how wonderful retirement is.

6- Take time to participate in volunteer work.

If you are already involved in some volunteer work, you can of course spend more time at that. For any new volunteer work, take some time and carefully review what you want to do. There are hundreds of opportunities out there, try a few to pick what you want to do.

7- Have a small nest egg for the first year outside of your budget.

If at all possible, try and have a few thousand saved away so you can start on your projects, go on a trip, or buy some things you have wanted. If this does not effect your first years budgeting, it will be easier.

8- A truly fixed income after years of increasing income takes getting use to

Most professional’s salaries increase over the years, so the idea that your income is now truly fixed can be daunting. Work with your financial advisor on a needs and wants budget. Make sure you can cover the needs and adjust the wants as time and conditions change, but do not be afraid to spend the “wants” if conditions are right. You are retired and you should enjoy it!

9- Take realistic life expectancy into account when planning.

One of them has usually long-lived relatives on all branches of their family tree. The other has some fairly short branches on their tree. While a bus can hit anyone tomorrow, they have planned their cash flow, pension choices and life insurance with these life expectancy issues in mind.

10- Retire as soon as you possibly can.

Retirement is wonderful! The chance to do what you want, when you want is invaluable to your own physical and mental health, as well as the health of your relationship.

Dave and Colleen retired the first day they could draw a pension, and would recommend that people work with their financial advisor to put together a realistic retirement plan, and making do with less is absolutely worth it to be retired.

And a bonus #11

11- Have a great financial advisor like Rhonda, and LISTEN TO WHAT THEY TELL YOU!

Here are a few ideas on how you can help, straight from a financial advisor‘s perspective:

1. Help Generation Y to save for their education.

Young people today are so overly burdened with student loans and lack of job opportunities. If you can help fund some of their educational costs they may have a better opportunity to start their own savings program sooner rather than later. If you are financially able to, direct any child benefits or gifts of money your child receives into a Registered Educational Savings Plan (RESP). Show your kids the power of savings by letting them see their RESP statements and encourage them to put babysitting monies, or other income earned into it. It’s important they contribute somehow to their education costs.

Often aunts, uncles, grandparents & family friends give cash as gifts to young kids and continue the giving cash well into their teens. This money often is wasted on the fun and frivolous things. Why not ask the parents to set up a Registered Educational Savings Plan (RESP) for the child and request any monies you give be put into this education fund. You can even ask for a receipt of purchase. Whatever monies you give annually will also receive the Canadian Government Grant of 20% on the amount deposited up to a maximum of $500 grant annually. In addition, there are other grants the child may qualify for that is based on the family’s household income.

Now the child’s parents will legally be the owners (subscribers) of this RESP. This means they can collapse the plan themselves and take out all the contributions tax free, lose the Government grants and pay a tax penalty on the accrued earnings (if they don’t have room to move into their RRSP).

If you are concerned about how financially responsible the child’s parents are you can also look into setting up your own individual RESP for the child. You just need the social insurance number.

As a financial advisor, I like the idea of one plan for all contributions for simplicity; one RESP statement, one financial institution to deal with and one set of fees. However, if you want to ensure the money is there for when the child needs it, set up an individual RESP. You will then be the subscriber. Remember, if the child doesn’t go to some type of qualified post-secondary school you will have to collapse the RESP yourself and pay a tax penalty on the accrued earnings (if you don’t have RRSP room to move the funds into).

The benefit of an RESP over a regular cash account for savings is that the monies grow tax free until withdrawn and then only the earnings are taxed and in the hands of the presumably low tax bracket student. Secondly, the Government Grants. You can’t beat free money from the Government so take advantage of it as soon as possible.

2. Start early.

Time is a huge factor in building any type of savings. Encourage your young adult kids or grandkids to save and early on. Twenty-five dollars a month directed towards savings may seem like nothing but if you do it consistently month or month and year over year increasing it as your financial situation improves you will have saved ‘something’ and ‘something’ is always better than nothing.

If your kids or grandkids are earning an income working for you and have a social insurance number direct some of those earnings right into an RRSP for them. If they are younger, they will likely spend their earnings frivolously. There may not be a tax advantage by contributing today. However, they can use the contribution at a later date when there earnings are higher but they will get the benefit of tax deferred compound growth right away.

3. Just save!

Don’t focus on encouraging saving for retirement to Gen Y. Just encourage saving!

Thinking about retirement at age twenty is almost ridiculous. Especially for a generation that will have a way different experience of what retirement is or will look like than their parents and grandparents retirement. So don’t discuss saving for retirement with your twenty something year old. Just encourage them to get into a good habit of saving.

Gen Y should build a personal nest egg for whatever financial goals lay ahead. Encourage them to invest as much money as they can into an RRSP each year ‘just’ for the tax rebate. This is free money from the Government to persuade us to save! They can take that rebate and either put it back into the RRSP to get more free money next year and continue to build on their savings or look at paying down some high interest debt.

RRSPs can be much more valuable to Gen Y than just future retirement income. They may help with a down payment on a home (Home Buyers Plan) or fund education for a period of time (Life Long Learning Plan). Both Government plans offer a period of time to pay back the monies into their RRSP’s without incurring tax penalties or you can include the withdrawals as income on your tax return and pay tax at whatever bracket you are in.

Your Gen Y child or grandchild may have a disability at some point in life and have to take a leave from work or decide to stay home to raise kids. If they are in need of a bit of extra income they have their RRSPs to withdraw from. They shouldn’t have much of a tax burden (depending on the amounts they withdraw) and assuming they are in a low tax bracket to begin with. Remember when you take monies out of your RRSP you have to include as income on your tax return and pay tax at your marginal rate. So don’t take money out for frivolous purchases.

When young people start some type of savings strategy early on they seem to continue to build on this habit as they age. Especially as they start to achieve some of their financial goals such as paying off their student loans or buying a home. Savings for retirement tends to be more seriously looked at as we approach our 40s. If you have fostered good savings habits with your Gen Y child or grandchild then it won’t be an impossibility to find money later in life to go towards their retirement goals.

4. Help with the savings. If you can.

If you’re the parent or grandparent of an adult child and want to help build their savings beyond just the RESPs here are a few ideas. If Sally or Jimmy are still living at home in their 20s and possibly 30s and are working, make sure you charge them rent. If you can, afford to put that rental income into an account earmarked for them. When the adult child is ready to move out and possibly buy a place of their own you have helped them to save a down payment already. Don’t let them know you have put that money aside so they have to learn to budget to find the extra monies to put towards their savings goals. What you have saved will just be additional help.

Or you can encourage them to set up an RRSP and direct part of the monthly rent into it (hopefully they are financially responsible enough not to touch the funds as they will own the plan). If grandma and grandpa still give cash gifts or want to give a lump sum gift to help out they can also look at RRSPs for longer term savings or a Tax Free Savings Account (TFSA) for shorter term goals. Both have to be opened in the adult child’s name and have contribution limitations. Your financial advisor can best assist with this.

There are many ways you can help your Generation Y child or grandchild financially. The best thing you can do is teach and mirror good savings and spending habits. Any cash that comes their way encourage them to save some or all of it. Introduce them to your financial advisor. Developing this relationship early on and learning about budgeting and saving for financial goals will help to foster smart financial thinking and actions from the get go.

Image credit: Ned Ragget

This seems to be working perfectly fine and you assume it will continue on even into retirement. You have your pension from your 30 years of service that will cover your entire half of the basic costs. In addition, you aggressively saved over the years. When the mortgage was paid your portion of the payments was redirected right into your RRSP. You did everything right with the help of your road map created many moons ago by your financial advisor. Retirement planning has never been a worry for you.

Then the day comes when you decide it is time to take it easy and either slow down at work or stop working permanently. Your dream was to start traveling with your spouse, taking up hobbies and entertaining more. This ‘retirement’ phase looks to be quite eventful and worry free due to your years of planning and saving.

However, it dawns on you one day that you and hubby have never actually discussed retirement and what possibilities lay ahead for you both. So one day you approach them and are shocked to learn that their version of ‘retirement’ is quite different from yours. What do you do then?

Retirement Planning With Separate Accounts

Your goal was to stay in the family house as long as possible. Maybe even do Reno’s to accommodate future health issues – anything to avoid the care home life. You also assumed costs in retirement will increase as you are no longer working 50 to 70 hours a week and then going home and zoning out in front of the TV. You now have a lot of time on your hands to fill and you plan on spending whatever it takes to make your days interesting.

Unfortunately your spouse has never planned for retirement. This is marriage number two for them. They lost half their assets and half their pension 10 years ago as an aftermath of the divorce. Trying to pay child support and half their current living costs has left very little extra for savings. If anything, they have racked up their line of credit and now have a lot of debt and very little RRSP’s. Retirement has never been on the radar even though they are entering their late fifties now. They just assumed they would continue to work until health issues kicked in and then sell the home, down size and hopefully have a bit of money from the sale for some lifestyle costs.

However, you want to retire at age 57 when your full unreduced pension kicks in. You now find out that your spouse is planning on working until they drop dead. So what do you do?

Open the Retirement Planning Conversation

Well this is where a lot of frank conversation needs to take place and a lot of compromises and sacrifices. A ‘no blame’ open discussion on what your dreams and expectations are is important.

Start by writing down all your fixed retirement costs. Now tally up each of your ‘guaranteed’ pension income. Can you each pay half your costs with your pension income? If you can- GREAT! Technically you can retire. The basics are covered. If one of you can’t pay your share then compromise needs to take place.

• Are you willing to downsize the home freeing up some cash for your partner?
• Are you willing to pay more than half your share of the basic costs if it keeps you in the home?
• What if your partner works part-time? Would that cover his shortfall?

If retiring sooner than later is important to you and making that transition with your partner is equally important then you will need to make some real sacrifices if his pension income and savings doesn’t cover his share of the costs.

Next you both need to tackle your individual bucket lists. What do you want to do in your retirement? What dreams and aspirations do you have? Or how do you want to fill your days. If as a couple you have figured out how to pay the basic costs you then need to discuss the “extras”.

Lifestyle costs can get expensive. They can add anywhere from $5,000 to $50,000 to your budget. If your spouse is challenged just to make their half of the basic or fixed costs then the “extras” might really be unachievable. What then? Do you have the pension income and savings to fund both your activities? Are you willing to pay more than your fair share and again its all about compromise and sacrifices?

If you really resent paying the bulk of your retirement expenses you will have to either except that retirement will be a ‘solo’ journey for you. And you also may have to accept some changes you didn’t want to make such as selling the home, relocating to a more affordable city and having less of the extras.

There is no right or wrong way to live in retirement or decisions how to fund it between spouses. It is whatever agreement each couple has decided works best for them. Often in second marriages people keep their finances separate due to their negative and costly past experiences and because they want to ensure hefty portions of their savings passes on to their children (ensure the Will is properly set up for this). Sometimes couples keep their finances separate because they married late in life and have a hard time compromising or sharing their hard earned monies. Again neither is a right or wrong but you need to discuss your expectations and dreams so when retirement comes you are not completely floored to learn you will be taking the journey on your own.

We are healthier than ever before and this translates into many more years of active productive living. This also means ensuring there is enough income coming in to cover whatever lifestyle we have chosen.

The focus of this ‘new retirement reality’ seems to be on ‘choices.’ For example, you may decide to phase out of your existing career and use your knowledge and skills and go into business for yourself. You may plan on bringing in enough income to keep you afloat while meeting all the other needs that working provides – purpose, structure, belonging, fulfillment, socialization. Or perhaps you may find an easy, stress-free part time job more enjoyable – Wal-Mart is always looking for greeters! If the financial situation is looking good, volunteering or babysitting the grandkids may be more fulfilling. Travel and other active hobbies may be what you are looking for while you are healthy and able to enjoy them.

No matter what your version of the perfect retirement is, you need to do some planning. If you were expecting to stop any type of income producing work at your desired retirement age you need to ensure you have enough pension income and savings to support the next 20 non-earning years. You need to do this while keeping the rising costs of living in mind, especially in the area of services relating to the aging population. Taking a realistic look ahead and planning carefully with a BC financial advisor will help ensure that this next phase of your life will meet your expectations.

I would suggest that you sit down and consider what you see for the next twenty foreseeable years. If you have a spouse, you’ll want to sit down with them as well and share what you both see for the ages 65 and beyond. Consider your current health, your individual interests, your shared passions, and each of your less tangible needs. After all, there are things that employment provides beyond just a pay cheque.

After you consider the options, take a realistic look at what income you have coming in to support your ideal retirement. Look at your CPP, OAS and your company pension. You’ll need to meet any shortfall by your savings or the equity in your home. If not, you’ll need to turn your experience into some type of income generating work. Alternatively, you may consider finding some type of work involving a hobby or a passion you have. This will make working in this phase of life more meaningful and probably more enjoyable.

As you can see, the planning process is essential to feeling fulfilled and being comfortable through retirement. A BC financial advisor can greatly help in with this process. They can do all the number crunching for you and help devise a plan to achieve your ideal retirement.

If we knew for certain that no hardships lay ahead (divorce, death, physical/mental disabilities) then leaving our financial well-being in the hands of our trusted spouse might be ok. Unfortunately, life is rarely that ‘crisis free.’ None of us know what lies ahead or when we may have to take the reins of the family affairs. It is best to be reasonably knowledgeable and up to date on the family finances.

 So do you know the state of your family’s financial health? If your spouse were no longer in the picture would your financial situation deteriorate? If a sudden change in your health made working implausible would you have enough disability insurance and savings to get by? What if you die, would your family be able to financially continue on intact?

Understanding the family’s financial affairs doesn’t mean you need to be an economic expert or a stock market guru. It just means you need to have a good understanding of the big picture of your financial house. These seven keys will help.

• Wills & powers of attorney- You need to understand what they are and ensure they are always up to date and relevant.
• Insurance - It is vital that you have regular insurance ‘check-ups’ to ensure that at all times you are more than adequately covered for any of life’s misfortunes.
• Emergency funds- Do you have any and if you do, do you have access to them? If you don’t have enough savings to cover at least 6 months of your monthly overhead costs then, at the very least, make sure you have access to a line of credit.
• What’s coming in and what’s going out- You need to have a general understanding of what income the household is bringing in and how much is going out each month. If you are constantly in the red then it’s time for a family meeting to discuss necessary cutbacks or ways to make more money.
• What is the family’s networth? What do you own minus what you owe? - Your house, savings, RRSPs minus your mortgage, line of credit and credit card debt = your networth. If in the negative big time then a good financial goal could be to reverse this position so one day you own far more than you owe.
• What are your family’s financial goals and do you have any savings strategies in place to achieve these goals? -As time consuming or uninteresting the annual visits to your financial advisor may be it’s really important to show up and participate. You don’t want to find yourself all of a sudden divorced at 55 or widowed at 60 and in a state of panic because retirement at any age is no longer plausible. Plan as a couple while ensuring your financial health will remain intact should something happen to the union (death/divorce).
• Finally, know where all the above documents are kept-Will, Powers of Attorney, Insurance papers & documents of all your assets and of your debt. You never know when you will need to access them and quickly. It is best to have a safety deposit box for such papers. If you are really organized, scan the documents and store on a USB in a safe location outside the home. Again, a safety deposit box is the best place.

Image Credit: Images_of_Money

Your registered retirement savings plan is a key to making sure you have enough money when you retire. Although this is an essential retirement planning step, many consumers don’t know how to maximize this type of investment. With these tips, you can make sure to make the most of your RRSP and get the benefits that you’re looking for.

Retirement Planning Tips for your RRSP

1. Start early – As soon as you earn an income you can start contributing to an RRSP, all the way up to the age of 71. It pays to start early and benefit from the compound interest you accrue over time. Even if you only contribute a small amount each month, it will add up. Start with a $25 savings per month at the beginning of your career vs. trying to catch up at age 40. The sooner you start with retirement planning, the better.

2. Contribute the maximum if possible – You can contribute up to 18% of your earned income up to the maximum (in 2011, the maximum is $22,450). Try to get as close to that maximum as possible. Look at your “Notice Assessment” from the Canada Revenue Agency (CRA) to see how much you can contribute. Make monthly contributions to the RRSP, make a lump sum contribution or consider taking out an RRSP loan to contribute. These loans often are available at prime or prime plus one. Once you take out the loan, you can pay it off with your tax rebate.

3. Catch up on the maximum if you haven’t contributed it – If you haven’t contributed the maximum to your RRSP in past years, it carries over into the future. You can use an RRSP loan to catch up with retirement planning.

4. Invest wisely – It is essential to get investment advice from a professional financial advisor. Depending on where you are in life, your financial advisor can help you find the right combination of stocks, bonds and cash. The right asset allocation is the key to achieving your required rate of return.

5. Use a spousal RRSP – With a spousal RRSP, you can take advantage of late in life income splitting. You can split 50% of your ‘eligible pension income’ between yourself and your spouse, which will lower the income tax you’d otherwise owe.

6. Use your RRSP for other life events – Although an RRSP is meant for supplementing your retirement income, you can also use it for other life events like lifelong learning or a home buyer’s plan.

7. Don’t use it for debt or lifestyle changes – There’s a difference between funding your learning and going on an all expenses paid cruise! Don’t use your RRSP funds to pay down debt or to pay for lifestyle costs. Only take out in emergencies or during years where you have lower income.

8. Know the tax facts – Your RRSP income is not taxed unless you make a withdrawal, so hold your highest taxed investments in your RRSP and your tax preferred investments outside your RRSP.

9. Withdraw from your RRSP conservatively – Be very cautious about what you draw from your RRSP as it gets added to your overall income for the year. If your new marginal tax rate exceeds the tax you have paid you will owe Revenue Canada more.

10. Claim your deductions – RRSPs come with a deduction each. Be sure you’re taking advantage of this tax benefit! You can always defer your deduction to a year when your income is higher in order to garner better tax savings.

11. Name a beneficiary –and update it if the circumstances warrant it (such as a death or divorce).

With this retirement planning advice, you can be sure to make the most out of your RRSP and be able to rely on it after you retire.

Are you part of a sandwich generation?

If you’re feeling the strain of caring for your aging parents while trying to raise a family of your own, you’re not alone. Being part of a “Sandwich Generation” is something that hundreds of thousands of other people are going through as well. Facing the challenges of offering financial and emotional support to your parents while you’re trying to be there for your children is a lot to have on your plate. When you add work related concerns and your own financial planning matters, the situation becomes even more complicated.

However, if you’re part of the sandwich generation, there’s hope from financial advise. With the right planning and strategies you can ensure that you survive this demanding time in your life.

1. Get clear on your financial picture.

Before you can consider commitments to your parents and children, you need to understand your financial picture. Working with a financial advisor who specializes in mid-life transitions can help you assess where you are now and make safe and secure plans for the years to come. If you know your current situation you’ll be more capable of making the right decisions to prepare for college tuition, your own retirement and any support you may need to offer your parents.

2. Have a frank talk with your parents about their finances.

In order to avoid surprises you need to know how your parents are doing financially. Sitting down with them and discussing their plans if they become ill or unable to care for themselves can help you better prepare for the future and understand your responsibilities. If you find that it’s an uncomfortable conversation to have, consider sitting in a neutral environment with an experienced financial advisor to go over the facts together.

3. Get all of the necessary legal documents in place well ahead of time.

Taking care of your aging parents may mean making decisions in their names, and this requires durable power of attorney. You may also need to have additional legal documents to ensure stability for you, your parents and your growing children. It’s a smart move to get financial advise and get these in order before they are needed. This way you won’t have to scramble around during a crisis and you can make sure you understand the details of the paperwork.

4. Hold family meetings to discuss your expectations.

This is especially important if you need to live in a multi-generational household. Communicating can help you avoid misunderstanding and can make sure that all members of your family, young and old, feel cared for and appreciated. During the family meetings make sure everyone has the chance to talk and express their needs.

5. Get the personal support that you need.

When you’re in the sandwich generation, your pressures are more than just financial. Expect to have a few emotional ups and downs as you’re working through the issues around your increased responsibilities. Be sure to get personal support so you can handle your increased stress. You can find help from a support group, a counselor or just spending time talking with a trusted friend.

As depressing as tackling issues related to our own mortality is, it’s a given and it’s better to deal with these issues sooner rather than later. But long before your family members will be dealing with your mortality, you’ll be dealing with your parents’ final arrangements. The reality is, your aging parents will need assistance with their personal and financial planning affairs.

Talking with your parents about mortality and money is never easy but it’s important to do. If you find it difficult to discuss these issues, you can start by discussing your own will and final wishes. Getting their input on your decisions can help you understand the choices that they have made. Hopefully this will open the door to discuss theirs.

Things that you need to discuss:

What they owe, where and with whom – Understanding their level and type of debt is essential. This can include investment properties and investment accounts, as well as lines of credit, credit cards, auto loans and home loans. Although you may not discuss this during your first conversation about their financial planning status, it’s important that you understand exactly what is owed and where those accounts were held.

Their will – Although it may seem grim, you need to know what to expect when your parent passes. Be sure to discuss the pertinent details of the will and know who the executor of the will is. This discussion should also include their living will.

Power of attorneys or representation agreements – These are essential in a health crisis and it’s important for you and your parents to have these established well ahead of time. It’s far better to have these documents in place long before they are needed.

Care scenarios – Do you and your parents have plans for what will happen if they become ill or invalid? This may be the most difficult of all conversations, so you may want to handle this separately from the other financial issues. Be sure to cover whether they’ll downsize and move in with you or go into care facilities.

Final arrangements – Burial arrangements and other final arrangements are important to cover with your parents as well. If you understand what your parents’ final wishes are, it will make it easier for you to follow through with them.

You need to talk early and often with your parents about finances. As they grow older, they’ll become more in need of your assistance with their day to day lives. Whether this comes in the form of financial assistance, shared living space or medical care, it’s important to understand exactly what you’ll be facing when that time comes. Don’t try to talk about all of these issues at once. Make it a point to talk with them regularly so you can keep the lines of communication open.

Quiz

1. I earn enough money each month to pay all my bills? Yes/No

2. I have enough money saved to pay for emergency or unexpected costs? Yes/No

3. I have written financial goals? Yes/No

4. I have a written savings and spending strategy that I follow? Yes/No

5. I know my net worth (what I own minus what I owe)? Yes/No

6. I know where ALL my important financial documents are located? Yes/No

7. I have a Will and Powers of Attorney in place? Yes/No

8. I know where and how my money is invested and I meet with my advisor at least annually to review? Yes/No

9. I have had my insurance needs reviewed within the last 2 years? Yes/No

10. My mortgage and loan payments are less than 30% of my overall income? Yes/No

Please give yourself one point for every yes answer and then add up all your points to see how you did.

If you want to manage your money better and didn’t fare so well on the quiz, don’t get discouraged. This is the time to make a new start. Changing even a few of those ‘no’s’ to ’yes’s’ can make a real difference in your overall financial well-being. Here are a few simple tips to get you started:

· Educate yourself. There are many great websites and books available where you can find useful information depending on your needs.

· Find a qualified financial adviser/coach. If you wanted to lose weight, you might hire a trainer or join a weight loss program. Well if you want to lose your debt or build up your savings, get a good financial advisor/money coach who can create a plan and support you along the way.

· Stick to a plan. Why do diets fail? Because we do not stick with them. Make sure your financial goals/strategies are realistic and attainable. Most importantly, renew your commitment daily and follow through.

Don’t worry if at first you find it a challenge to make sense of your financial health. Like anything, it takes time. The most important thing is to just get started. Set some financial goals, follow a budget and save and you’ll be ahead of most.

]]> http://www.rhondasherwood.com/blog/are-you-in-shape-take-the-summer-shape-up-quiz/feed/ 0 http://www.rhondasherwood.com/blog/3-financial-must-dos-for-2011/ http://www.rhondasherwood.com/blog/3-financial-must-dos-for-2011/#comments Tue, 25 Jan 2011 01:36:59 +0000 Rhonda Sherwood http://www.rhondasherwood.com/blog/?p=271 If getting in better financial health is a goal for the coming year, start with ensuring these ‘3 essentials’ are in place

1.   Have an up to date Will.

It is important that everyone have a Will and one that is properly drafted by a professional.  This is especially important if you have young children. If you do not have a Will and should pass away, the Government will decide how to distribute your assets and to whom. And most importantly, they will decide who will be the guardians of your children according to the law. This may not be who you wish it to be.

If you have a Will already, remember to review it any time a life change occurs- marriage, birth of a child or grandchild, divorce or a passing of a loved one.  And don’t forget to change your Will if you should separate from your spouse or your assets could pass along to them should you die.

Finally, name someone you trust and who will be around to handle the settling of your estate- an ‘Executor’. This often is an adult child, sibling or close family friend.

I would also suggest setting up a Power of Attorney/Representation Agreement at the same time you are meeting with a professional to draft your Will. So if you are ever incapacitated, someone you trust can act on your behalf.

2. Make sure you are sufficiently insured.

Just as you would protect your car or home from misfortune, you need to also protect your family should you pass away while they are still financially dependant upon you. How much insurance will vary according to each person’s unique situation. Do you have dependants, are you the main ‘bread winner’, are there future costs, such as education or a spouses’ retirement, you want to ensure are taken care of if you were not around? Generally, you need to have enough insurance to pay down the mortgage, any debts or outstanding bills and burial costs. It is then recommended that you have enough funds remaining to provide income for your family for the number of years you deem necessary.

In addition to life insurance, consider having adequate disability insurance in place.  It is advised to have enough coverage to provide 60 to 70 per cent of your household’s income.

3. Have an emergency fund.

As they say, “life happens when you’re busy making other plans” and life tends to cost money. Having enough money put aside for such unexpected events can be the difference between staying afloat or sinking financially. One of the most important elements of your financial health is to ensure an emergency fund is in place – and sooner rather than later.

The general rule of thumb is to have 3 to 6 months of your current living expenses set aside for emergency situations. However, this depends on many factors specific to each person’s situation such as, how employable you are, whether or not you carry substantial debt, if you have adequate insurance, if you are a dual income household and/or if you have children.

A Will, insurance and an emergency fund should be seriously considered by everyone.  If you find it a bit daunting to get the ball rolling, find a trusted financial advisor who can help guide you in the process.  An advisor should not only be able to provide guidance and recommendations unique to your individual situation but they should also have trusted sources to refer you with regards to your Will and putting Powers of Attorneys’ into place.

Start 2011 right, by protecting your loved one’s from hardship when and if, tough times come. And best to do it sooner than later, as we don’t always know nor have warning when things derail us from our intended plan.

Having said that, each situation is unique and so to give or not to give really depends upon the relationship between the parent and the adult child.  If you are contemplating such a request, consider the following factors before making a decision; your child’s financial history, the other siblings in the family, whether your gifting or lending the money and most importantly, if you can afford it.

Your adult child’s financial history

Before you hand out any money, you might want to ensure that you’re actually helping your adult child and not enabling them. Otherwise you’re just throwing good money, after bad. So ask what the money is for and what sacrifices or life changes they have already made themselves prior to asking for financial help? Get a clear picture of their current financial situation to see if they are living beyond their means. Is borrowing a chronic condition and your adult child needs help once again because they are not managing their money responsibly? Or is this a one-time situation in which they need temporary financial assistance?

Other siblings in the family

Giving money to one child and not another will often lead to resentment. So if you cannot afford to dish out equal amounts to all your children then either ensure to provide the financing by way of a loan so it is paid back, or make provisions in your Will to account for the money given.  If it is a large sum of money, you might start off as a loan and then evolve it into a gift as part of the child’s inheritance. Again, ensure to put this in writing to prevent family squabbles when you are long gone.

Gifting or lending

Be very clear, is it a gift or a loan? If it is a loan, set clear expectations. Specify whether there will there be interest charged, the terms of repayment, and put it in writing. Setting terms in writing allows everyone to know from the get-go where they stand and what their future responsibilities are.

Can you afford it?

Before dishing out the money, ask yourself earnestly ‘can I afford to’? Any money you give or lend should be beyond what you need to cover your day-to-day expenses without touching your emergency savings, credit cards/line of credit and your retirement savings. If giving your child money puts a financial strain on you today or in retirement the answer without question should be no.

Responsible money management is part of being an adult as is the consequences for poor management. You are better off helping your adult child improve their financial skills then by bailing them out. Saying no is never easy but it’s better to endure a little discomfort now then a major fallout later. Whatever you decide, just be sure that you think through the ramifications beforehand and seek out the advice of a financial advisor. Maybe the best way to help your adult child is with a little guidance, direction and some time with a financial planner.

 The following quiz can help provide some insight into you and your spouse’s financial compatibility

1.       Do you have some sort of realistic budget or a spending plan in place that you are both accountable to?

2.       Are you comfortable with your spouse’s spending habits?

3.       Do you argue over monthly bills?

4.       Do you and your spouse discuss major financial decisions before they are made?

5.       Do you and your spouse have a plan of attack in case one of you should lose your job? (I.E. Currently live off of only one income and bank the other)

6.       Do you and your spouse share in the responsibility of managing your financial affairs?

7.       Do you and your spouse regularly discuss your finances including your short and long term financial goals?

8.       Do you and your spouse share the same views towards debt and savings?

9.       Are you and your spouse both actively saving for retirement?

10.   Do you and your spouse send the same message about money to your children?

Ideally, the answers to all the above questions should be yes. 

To achieve complete financial unity may not be a realistic goal for many couples but to achieve greater financial compatibility is. However, this does require a lot of work.  Here are a few tips to help improve your financial compatibility:

·         Devote more time to financial discussions and to goal planning.

·         Define what each of your financial responsibilities is.

·         Start making joint decisions about how your money is to be spent.

If you are finding it a challenge to have these important money discussions you may want to seek the advice of an experienced financial planner. A financial planner can help you identify differences you may have and how you can work towards finding a happy medium, which is valuable and meaningful to you both. When there is mutual understanding about financial goals, couples most often will work together to achieve them resulting in fewer money confrontations. You can then redirect such valuable energy towards building a more positive and prosperous future together. 

Whether you know it or not, you are teaching your kids every day about the value of money by how you spend it, save it, invest it or waste it. Qualified or not, you are their money coach and they will learn by watching and listening to your every move.

If this concerns you, not to worry as all is not lost… yet. If you want to raise financially healthy kids it’s better to start late then never at all and an allowance is a great way to start. Among other things, it teaches your kids how to manage their ‘own’ money. Even though it should be up to them to decide how to spend the money, it’s a great opportunity for you to teach some practical skills. I suggest starting with 5 simple money principles: earning, spending, saving, borrowing & giving.

Earning:

An allowance is your child’s ‘pay-day’. Establish the amount based on their age and the family finances. Be consistent and pay on time. The purpose of an allowance is really to teach your kids firsthand about money management. Don’t tie it to chores. If you are a member of the family then you are responsible to share in the household chores. This is not something you or anyone else should get paid for. However, give your child the opportunity to be able to earn extra money for taking on additional chores or responsibilities. Also, don’t pay or reward for your kids getting good grades. That is a personal accomplishment and should not be tied to a financial benefit.

Spending:

Have a discussion with your child about what exactly they are expected to pay for using their allowance. This is the start of them learning to live within their means. Something many adults don’t even know how to do successfully. Teach your kids age appropriate budgeting. For example, you have $5 to last one week and you are responsible to pay for any treats when we go to the grocery store. As your child gets older, their allowance increases as does the expenditures they are expected to use it for.

Savings:

Just as financial gurus advise you to save 10% of your income, so should you advise your kids. Teach them to pay themselves first by encouraging them to take 10% of their allowance and put it towards savings. If your child earns $2 a week, then suggest they take .20cents and put it into their piggy bank. If they earn $10 a week, again suggest $2 go towards savings. I often recommend creating ‘savings jars’ and act as the Bank of Mom. Open a ‘real’ savings account for each child and when the jars get full have the kids take the money to the bank to deposit. There will be nothing more exciting and encouraging for them, then to see their own money grow. Remember, it’s not the amount their saving that matters as much as the lessons and habits they are learning.

Borrowing:

You may think this is one aspect of money management you don’t want your kids to learn too early, if at all, but your child needs to be taught from an early age that ‘borrowed’ money is not free money. So teach your kids ‘age appropriate’ lessons on borrowing. If your child wants $10 to buy something and they have already spent their allowance, you now have a perfect opportunity to teach some valuable money management lessons.

You have the option to take a hard line, no money, no purchase. You can teach your child how to start a savings plan to build enough money to make this purchase – delayed gratification. Or you can lend them the money from the Bank of Mom. I suggest creating an ‘IOU’ jar and have your child sign an IOU. You may want to add interest on the borrowed amount to teach an authentic lesson on how the real world works. When allowance day comes, be sure you take the agreed upon amount off the top as payment for the loan.  When your child realizes they have little cash flow and nothing going towards their savings, they may think twice about the next item they so desperately need.

Giving:

Last but definitely not least, teach your child the importance of giving back. Whatever charities or causes the family supports encourage your child to take a portion of their allowance and ‘give back’ If they happen to love animals, your child can buy a can of cat or dog food and take it to the local shelter. Or buy a toy for a child who is not so fortunate. There are also many non-monetary ways to give back; donate unused clothes or toys or volunteer your time, just to name a few. It’s not about what or how much, just that you are giving back.

It’s never too late to teach your kids about money. Just remember 3 key points, lead by example, start young and let them learn by doing. Although making mistakes is a part of life when it comes to money, it’s better to make them early while the ante is still small.