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

It is time to get serious about ensuring you have some type of income stream coming in should you decided to slow down or stop working all together- whether by choice or by circumstance. Boomers may be working into their late 60s and early 70s, but only if health permits. It’s important to start planning for changes in your health that may prevent you from earning an income. If you have not done any real planning up until now, it’s time to stop procrastinating and start facing the reality of the situation.

To begin, gather all of your financial papers. This includes insurance policies, company pension statements and group life and disability insurance information, bank and investment statements, Will and Powers of Attorneys and finally, your government pension statements (CPP and OAS). The first step in taking hold of your financial house is to ensure you actually have taken care of all of the above and that know where such important papers are kept.

Next, get a realistic picture of what your expenses are today and how these will change in the coming years? I would first look at costs that you must pay such as your mortgage, utilities, taxes, insurance, medical/dental and food. All the basics that you would have to remain in some type of employment to cover if you have insufficient pension or investment income coming in when you ideally would like to stop working.  Now what is your net or after-tax income today? Ideally at this stage in life there should be a good spread between what’s coming in and what must go out. Making savings not overly challenging, and a priority. If not, you will need to find a way to either be bringing in more income today to go towards savings or you might have to take a hard look at your life and see where you can start cutting back or scaling down. However, if you do have excess money after paying the monthly bills ensure that you’re challenging yourself to save the absolute maximum you’re capable of.  Especially, if your behind with your retirement planning and savings.

Basically, just write down all your ‘must pay’ or fixed expenses.  Cross off all the costs that should be gone by retirement. Add on any new expenses you might have such as medical and dental costs that may no longer be covered by your company. Now take that amount and add approximately 3% to account for the cost of living. Continue to add 3% to the figure for every year that is in between now and your ideal retirement date. The end figure is the amount you will need to be coming in in your first year of retirement.  Keep in mind that this will continue to increase to keep with inflation.

Now, look at what income you know will be coming in. If you don’t have your Canadian Pension statement, you can go on-line to see what amounts will be paid to you at 65 – http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml

Do you have a company pension? If so, do you know when you can start taking it and how much you will receive? All this information can be obtained through your pension department. Also double check if it has a cost of living increase tied to it. This is common for Government pension, but isn’t always a given with company pensions.

Image credit: epSos

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

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.

Things to know about the new Tax Free Savings

• Starting January 1, 2009, the Tax Free Savings Accounts are available for Canadian residents who are at least 18 years of age.

• You can contribute up to a maximum of $5000 a year. Any unused contribution room gets carried over to the following year. 

• Withdrawals from your Tax Free Savings Account will not affect your ability to qualify for Federal income tested benefits like the Child Tax Benefit or the Guaranteed Income Supplement.

• You can have more than one Tax-Free Savings Account with different institutions but you cannot exceed your allowable contribution limit.

• You can open a Tax Free Savings Account and invests in GICs, mutual funds and other investments and not be taxed on any of the growth or earnings. 

Tips

• Don’t replace your RRSP for a TFSA just yet. If you are in a high tax bracket contributing to your RRSP may be the preferred route to take. Then use your tax rebate as your annual contribution to your TFSA.

• RESP are still an ideal vehicle to use to save for your children’s education. Like a TFSA, all growth is tax free. Unlike a TFSA, the RESP comes with the Canadian Educational Savings Grant of at least 20% but the grant and all the growth within the RESP is taxed upon withdrawal.

For More Information, check out the Government’s Tax-Free Savings Account information page.

Rhonda Sherwood, CFP, FMA

Wealth Advisor

http://www.rhondasherwood.com

http://www.itsHERmoney.com

 Although many of us probably have some idea of what we want our life to look like, few actually take the time to clearly define our goals, create an action plan and then follow through. Without setting goals, the direction of our life can change with every event or circumstance that comes our way. Wanting to be skinnier is very different than making a specific goal to lose 10 pounds in 3 months through diet and exercise. A sheer way to achieve success is to set goals and follow through.

Benefits of goal setting

•  Provide direction and purpose to your life
• Helps you to make decisions that will positively affect your future
• Allows you to focus your energies on what’s most important to you
• Will enhance the overall quality of your life, and will provide peace of mind            

Goal setting is also crucial to financial planning; as you will need the financial means to support the life you envision having. Without knowing what you want in life, you may be misdirecting or wasting away your resources. For this reason, the first step to undertake in the ‘savings room’ of your financial house is to determine what your short and long-term goals are. Your goals should be designed around your most important values.

 Take some time to think ahead. What do you want your life to look like in the coming years?  What is important to you? What would you like to have more of and less of? Without knowing the answer to these questions, goal setting will be a difficult challenge.  I often advise clients to follow the SMART system when devising their goals; goals should be Specific, Measurable, Attainable, Realistic and Timely.

• What are your short-term goals (under five years) and what are the financial resources you will need to achieve them (costs)?
  For example, New kitchen to be built by October 2009 at a maximum cost of $25,000
•  What are your longer-term goals (five plus years) and what are the financial resources you will need to achieve them (costs)?
  For example: Reduce work hours by half by age 55. Need extra $20,000 a year from investments to supplement part-time income.
               

People tend to have more goals than the money to support them, therefore, when doing financial planning often just two or three goals are taken into consideration. That is why it is very important when goal setting to prioritize, to be realistic and to set attainable goals.  You may want to retire when you are 50 but is this really within your financial capabilities? Maybe not, but perhaps with the proper planning, commitment and discipline retiring at 55 is within reach.

 However one thing is for sure, to achieve your goals you must start now. Only you can put your plan into action. Additionally, you must reevaluate your goals on a regular basis as they may change or evolve over time. So be prepared to make any necessary adjustments to your plan along the way.You have the power to create your own destiny, so take the time to invest in the future you want.

If a man knows not what harbor he seeks, any wind is the right wind.
-Seneca

Rhonda Sherwood, CFP, FMA
Wealth Advisor
http://www.rhondasherwood.com
http://www.itsHERmoney.com

When thinking about your retirement, it is important to look beyond just the financial aspects and take some time to think about the kind of life you envisioned having. What makes you happy and brings enjoyment to your life? What would you like to spend more time doing and less time fretting about? How will you replace the benefits you currently get from your work environment- friendships, validation, purpose and structure?

Retirement lifestyle planning looks at all the facets of the life you wish to have including your finances, health, relationships, career and personal growth needs. Ask yourself:

•  What are my personal goals?
•  What activities will I do to continue growing as a person?
• What activities will I do to have purpose in my life? 
• How will I continue to stimulate and grow my mind?
• How will I support my current relationships and develop new ones?  

It is important to know what will bring you fulfillment and happiness in your retirement years. You can then start the planning process to ensure you have the financial means to make it all happen. Here are three steps you can do today to get the process started:

1.  Write down what you envision for your retirement years. Ensure you include all aspects such as your health, relationships, activities and career.
2. Make an appointment with a financial planner. Together you can determine the future cost of your retirement dreams and can develop a plan to work towards achieving them.
3. Commit to the plan and start saving.

 In the wise words of Harry Emerson Fosdick, “Don’t simply retire from something; have something to retire to.”

Rhonda Sherwood, CFP. FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com