Kerr Financial turns 45 years old! Over the years we have worked with many successful Canadian families, helping them maximize their personal finances. To celebrate this momentous milestone we would like to share 45 Financial Planning Tips to help you maximize your personal wealth.
Download a PDF of the 45 Financial Planning Tips here.
45 Financial Planning Tips!
Cash Flow
1. Manage your cash flow so that you don’t spend more than you earn. This may mean you will need to develop a budget and work to stick to it.
2. Incorporate 50/30/20 rule as a starting point – spend 50% of your after-tax income on obligations; 20% on savings and debt repayment and 30% on other wants.
3. Savings should be directed to the vehicle that best suits your needs. You have a choice of directing your savings to a non-registered account, or tax-deferred accounts: TFSA, RRSP, FHSA.
4. If you have non-deductible debt, work to pay it off first. Start with debt with the highest interest rate and work your way down.
5. Have an emergency fund (cash or near Liquid cash) readily available if needed. It should be about 3-6 months of expenses.
6. Save for your children’s needs based on eligibility. Education: by contributing to an RESP to take advantage of the government grant on the first $2,500 contributed annually and tax-deferred growth. Keep an eye on the account and transition the account to lower volatility holdings as your child gets closer to drawing on the assets. If they are eligible for the Disability Tax Credit, you can open an RDSP for them and contribute so they can benefit from government grants and tax deferred growth.
Estate
7. Ensure you have Wills and Powers of Attorney prepared for anyone over 18 years of age in the family. Review Wills and Powers of Attorney every 3-5 years to ensure no changes are needed and all your decisions are up to date.
8. Keep your important documents such as Wills, Insurance policies, birth certificates etc. in a safe location and inform your Executors / Attorneys should they need to find them.
9. Consider planning to reduce or manage probate costs in Ontario. For example, using a Secondary Will if you own shares in a private company or holding assets in joint name if applicable.
10. If you hold property outside of Canada, consider having a Will prepared in that jurisdiction to address that property alone. Be careful with wording so that your original Will is not nullified.
11. Are there special considerations with your beneficiaries? If so, consider including specific language in your wills to offer protection. For example, for a mental disability impairment perhaps a Henson trust or is there difficulty with someone managing money? Then a trust to help specifically with that would be helpful.
12. Check beneficiary designations and ensure they are all up to date and in line with current planning. For example, your RRSPs, TFSAs, Pension plans, Life insurance.
Insurance
13. Confirm your Life, Long Term Disability, Critical Illness and Long-Term Care insurance coverage is adequate. Work with someone to identify your needs and discuss options of obtaining coverage. Look for ways to reduce your premiums for example, paying insurance annually vs monthly, obtaining group discounts if you are part of a professional association, increase deductible, to name a few.
14. If you do not have health coverage with an employer, investigate the benefit of obtaining private health and catastrophic coverage.
15. Travel Insurance. Provincial plans may not cover everything. Some employer/retiree plans or credit cards offer out of country insurance, but don’t assume that you are adequately covered, as some plans may only cover shorter stays such as up to 15 days. Check the fine print before you travel outside of Canada.
16. With climate change hitting the bottom line of many insurance companies, some are choosing not to provide sewer or water backup coverage to homes. Check your policy to see if it is currently covered and needed in your area. Contact your insurance company for a quote and shop around to compare coverage.
17. Consider umbrella coverage to provide additional personal liability coverage based on your personal circumstances.
Tax
18. Ensure you file your taxes on time every year to build a good reporting history with CRA should you ask for leniency on any penalty or interest in the future.
19. Work with a tax preparer to ensure you take advantage of all available deductions and credits. Consider your family members and work with your tax preparer to ensure all applicable credits are being used. For example, disability tax credit and the caregiver credit and if applicable enhance childcare expenses.
20. Take advantage of income splitting opportunities if there are any available such as establishing a Family Trust which will tax income in the hands of lower income beneficiaries or spousal loans. Even spousal RRSPs can provide you with this benefit.
21. If charitable donations are important, consider tax effective ways to donate such as donating shares to save on capital gains tax. If applicable, you could also look to establish a family foundation. This would provide you with a lump sum donation to offset a high tax year and a structure to help with financial literacy for your children and the family.
22. If you are a dual citizen, ensure you are up to date with filing requirements in the applicable countries. For example, the US requires annual filing/reporting depending on assets held.
23. Ensure you are making best use of tax deferred savings vehicles. RRSPs, TFSAs, RESPs, FHSAs and RDSPs and life insurance policies. If any of these apply, there is a benefit to tax deferred growth over time. Track contributions annually to ensure you don’t overcontribute. Penalties and interest can add up over time.
24. If you own a family cottage, consider the future of this holding. If a long-term hold, work with someone to manage the tax implications in the future. Discuss with your family what their interests are to ensure you are making decisions based on actual desires and not assumptions.
Retirement
25. Work with someone to understand what your financial targets are. The earlier the better, this will allow you to take advantage of the power of compounding.
26. Be specific with your goals for the future so you can more accurately identify your savings target.
27. Once your savings targets are identified, pay yourself first and ensure you stay on track.
28. Check in on your progress regularly to ensure that your savings and portfolio returns are on track to meet your financial objectives. This will ensure you don’t stray too far off course.
29. Take advantage of any employer matching programs available. This is free income being offered, although it is taxable and usually withheld at source.
30. Based on your situation, determine the optimal time to access CPP/QPP. If taken earlier than 65, there is a reduction to the benefit and if later than 65 an enhancement. You are also able to draw down on the benefit and continue contributing based on earned income.
31. Maximize amount received from OAS. If you anticipate having income that is too high, defer drawing down on the benefit past age 65 which will enhance the benefit for being deferred up to age 70.
32. If you don’t need the income, consider basing the age of RRIF withdrawals on your younger spouse’s age.
33. For greater flexibility of future withdrawals, consider unlocking up to the maximum amount available from your LIRA.
Investments
34. Partner with an advisor that you trust to develop an overall strategy taking into account your full investment picture.
35. Monitor your capital gains and adjust accordingly over time. Keep in mind the inclusion rate may change over time.
36. Keep adequate foreign exchange on hand if you take regular trips to avoid being exposed to exchange rate fluctuations.
Risk Management
37. Keep an eye on activity in your accounts and/or your credit report for fraudulent activity.
Other
38. If you have a life change such as death, divorce, or newborn to name a few, review all your planning – Estate, Tax, Retirement, Insurance etc. and make necessary changes.
39. Establish a co-habitation agreement or premarital agreement to protect your assets and full earnings potential.
40. Introduce your kids to finances and work with them to teach them age-appropriate financial literacy skills.
Business Owners
41. Ensure that you have a shareholder agreement in place and that it is up to date in case of death, disability, or conflicts between shareholders.
42. Verify the adequacy of insurance in case of the death or disability of a shareholder.
43. In case of a planned sale of a business, obtain professional advice to ensure that the proper structures are in place to maximize after-tax proceeds. This should be done 3-5 years in advance of the planned sale date.
44. Review the optimal salary/dividend mix on an annual basis.
45. Consider setting up an individual pension plan (IPP) to increase funding for retirement in excess of the limits for an RRSP.
