Friday, May 28, 2010

Summer job money - how to help your kids manage their first income

Your teen has a summer job for the first time -- and that probably means he or she is also enjoying an income for the first time. Along with the new job, your teen is also learning other important ‘real life’ lessons like time management. Maybe you should help put money management on that list of lessons learned – because this is an ideal time to pass along some good information that’ll keep his or her financial future on track. Here are some tips to get you started.

Start early - The way your teen handles money as an adult will depend largely on the habits he or she learned from you growing up. Motivate your teen to become a regular saver and investor, and set a good example for your teen to follow.

Money management pays off - Relentless advertising and peer pressure make it easy for teens to overspend. Explain that effective income management begins with the cardinal rule of always controlling expenses so they don't exceed income. Help your teen create a realistic budget with goals that are measurable and attainable.

Start filing a tax return right away - If the summer job results in a T4 (a Statement of Remuneration Paid information slip issued by an employer) your teen should file an income tax return. Your teen's income may be below taxable levels but he or she will still start accumulating RSP contribution room, which can be carried forward indefinitely. When your teen reaches age 19, he or she should also apply for the GST/HST credit on each year's tax return. Based on net income, your teen will likely be eligible to receive quarterly GST/HST credit cheques.

Save today for a richer tomorrow - Encourage your teen to develop the habit of saving at least 10% of their take-home pay because early savings take full advantage of the miracle of compound interest. Here's a dramatic example you can use: Invest $1 a day for 40 years at an interest rate of 5% and you'll have about $44,000!

Teaching your teen about the value of money and money management will help ensure a comfortable financial future. Sometimes, with a teenager, an external informed opinion can help - so why not give your professional advisor a call for some additional help?

Tuesday, May 25, 2010

How does your advisor get paid?

Some people may think that it's not appropriate to ask someone how they get paid, but when it comes to your advisor, it's not just appropriate ... it's imperative.

While an advisor's compensation structure is in no way the only measure of the type of service you will receive, it is a very important question to ask when looking for an advisor.

An advisor may earn a salary, commissions, trailer fees, an hourly consultancy fee or any combination of the above, and while there is no right or wrong pay structure, the way they are paid certainly can help determine how comfortable you will be when dealing with that advisor should you decide to work with them.

Ted Rechtshaffen recently submitted a story concerning this very topic to Globe Investor, and raises some interesting points. Follow the link below and give his story a read ... then go ahead and ask your advisor how they get paid, it's worth your peace-of-mind.

Source: Globe Investor

Tuesday, May 18, 2010

Busy? Ten ways (plus one) to keep your financial life simple and sweet

In the rush of everyday life it is often the details that get missed. But the success of your financial life depends on getting the details right. To help you stay on track in a busy world, here are ten ways (plus one) to keep your financial life simple and sweet:
  1. Set a budget and stick to it. Take a critical look at your income and expenses and establish a realistic monthly budget that includes an amount for savings.
  2. Get debt under control and keep it there. Develop good spending habits and use debt wisely. Pay off credit cards and other high-cost, non-tax deductible debt first.
  3. Maximize your Registered Retirement Savings Plan (RRSP) contributions. Take full advantage of this tax-deferred savings builder by starting early and making maximum contributions.
  4. Develop an education savings plan for your children. Use the tax-deferred compound growth available under a Registered Education Savings Plan (RESP) to offset the rapidly rising cost of a post-secondary education.
  5. Be a prudent money manager. Carefully consider where each dollar is going. Set enough aside on a regular basis to achieve your goals with a Pre-Authorized Contribution (PAC) program that automatically invests a specified amount in securities held in your RRSP or non-registered portfolio.
  6. Check and revise your insurance coverage to match your changing needs. As your life evolves (career, marriage, family) your need for income protection and estate planning changes.
  7. Make "tax-efficient" investment decisions. Dividends and capital gains are taxed more favourably than interest. So it's usually a tax-wise decision to hold investments that earn interest inside your tax-deferred RRSP and those that earn dividends and capital gains outside your RRSP.
  8. Establish an asset allocation plan that complements your financial planning needs. Your investment portfolio should include assets from the three asset categories: cash, fixed income investments, and equities. Peaks in one category tend to cancel out valleys in another and the overall result should be steadier long-term growth.
  9. Consolidate and simplify. If you have a bewildering array of investments, simplify your portfolio so it's more easily managed and restructure it periodically to align it with your evolving personal goals
  10. Minimize your taxes. Take advantage of all of the tax deductions and tax credits available to you. Examples are moving expenses, child-care expenses, tuition fees, medical expenses, charitable donations, and safety deposit box charges.
  11. Develop a financial plan and stick to it. A professional advisor can help you 'simplify' the financial steps required to realize your life goals.

Friday, May 14, 2010

TFSAs still not used to the fullest

Talbot Boggs of the Canadian Press has reported that there is a lot of misinformation regarding Tax-Free Savings Accounts (TFSAs) and the majority of Canadians (68%) have yet to take advantage of them.  No real surprise there ... the name is a bit of a misnomer and they have been marketed as just another bank account.  I prefer to refer to them as Tax-Free Investment Accounts ... it seems to me to be a more fitting description.

Do you think there has been enough information about these accounts in the media to make an informed decision about opening one, or has the lack of information kept you from taking advantage of "one of the best financial savings instruments to come along in decades"?

Let me know what you think.


Thursday, May 13, 2010

Rethinking retirement – maybe it’s just a phase?

Years ago, you looked into the future and established a date for your ‘official’ first day of retirement. But recent economic events, perhaps accompanied by a downturn in your investment portfolio, could have you seriously considering drawing a big ‘X’ through that planned retirement date.

But cancelling your retirement is not your only option – and, in fact, that may not be the best option for you. Why not phase into retirement instead? Phased retirement is beneficial because it lets you ease into retirement while maintaining a higher income than you might otherwise receive in retirement. You could choose to stay with your current employer in a more flexible role (if your current employer’s retirement policies allow that), move to a new employer who will allow you to pursue phased retirement, or even start your own business in a field you enjoy.

People are living longer, healthier lives these days so you can reasonably expect to enjoy many active ‘mature’ years. Phased retirement can be a great way to maintain and enhance social connections, get more satisfaction out of life, and ensure you will not outlive your retirement income.

And speaking of your retirement income – while you’re rethinking the type of retirement you want, it’s a good idea to also reconsider your income requirements. Your retirement income will come from many sources – your scaled-back employment income (should you choose to phase into retirement) your investments and personal savings, government benefits, and employer-sponsored pension programs.
These are the keys to assuring sufficient retirement funds:
  • Know your expenses and manage them.
  • Use effective tax reduction strategies.
  • Maintain a balanced, diversified selection of investments. The shrinking real estate market has proven that it’s a flawed strategy to rely solely on home equity to fund a retirement. A more prudent investment strategy is to maintain a portfolio distributed among the three classes of investments: Cash or cash equivalents (government savings bonds, T-bills and money market funds); fixed income securities (GICs and fixed-income mutual funds); and equity investments (Canadian and international stocks and equity mutual funds).
Of course, the investments you choose should match your tolerance for risk – and remember that investments that are Registered Retirement Savings Plan (RRSP) eligible is the best tax-deferred, income-building investment available to most Canadians. In addition, investments held within the new Tax-Free Savings Account (TFSA) allows you to generate tax-free income for your retirement years.

You should be able to make your retirement decisions based on your retirement lifestyle goals and not because you’ve run out of options. Your professional advisor can help you have a plan for retirement that keeps on working for you.

Monday, May 10, 2010

What is a financial plan and how do I get one?

Financial Planning is a general term used by most professional advisors – but not all financial plans are created equal … and they shouldn’t be. Your financial plan should be a perfect fit for your life as it is today, easily and quickly adaptable to the constant changes life throws at you, and always focused on achieving your longer term life goals. That’s a big – and important – deal.

So, the first question you must ask yourself is, Do I need a financial plan? The simple answer is yes – if you have an income, a family (or the hopes of one), dreams of a comfortable retirement, and any of the dozens of other financially-rooted reasons that are unique to you.

The next question is, What are the elements of a sound financial plan? There are two answers to that question: the general and the specific.

In general, every financial plan should include: investment planning, cash flow planning, education planning, estate planning, insurance planning, retirement planning, and income tax planning.

The key to a successful financial plan is making sure that each of those elements is made specific to you and your needs – and to do that, a competent professional advisor will take you through this six step planning process:

1. Goal setting – to determine and prioritize your goals and concerns.

2. Data gathering – assembling the relevant financial information to understand your current financial situation.

3. Financial analysis
– using your current and projected financial situation to identify and answer questions like: “How much tax must I pay?” How can my taxes be reduced?” Will I have enough income to cover my expenses during retirement?” “How can I better meet my income needs?” “How can I protect my family and income if I should become disabled or die unexpectedly?”

4. Plan formulation and recommendations
– discussing, reviewing and deciding on various alternatives and solutions for achieving your financial goals and improving your overall financial life.

5. Plan implementation
– providing you with a written report summarizing the steps you need to take to make your plan work.

6. Monitoring and plan review
– financial planning is not a one-time event. You should review your plan at least annually or when major life events occur.

Comprehensive financial planning is complex and necessary. To be sure you get exactly the right one for your situation, it’s a good idea to put a professional advisor on your financial team – an advisor with the qualifications, tools and track record you can count on to develop a personalized
financial plan that will the job for you – today and tomorrow.