Start this New Year by making some financial resolutions. Think about what is important to you and then spend some time deciding ways to advance your financial circumstances.
The following resolutions are my top four recommendations to consider for 2017.
All good financial plans include a savings target. Large purchases made in the future will require the discipline of ongoing saving.
Contributing to a Registered Retirement Savings Plan (RRSP) can be extremely beneficial especially if you have a relatively high income, and therefore pay a high amount of income tax.
Contributions to your RRSP can be used to reduce your taxable income, so this type of investment starts with an immediate tax savings.
Tax-Free Savings Accounts (TFSA) have the advantage that all earnings made within that account are tax-free. In a country like Canada with high tax rates, tax-free investment earnings are an attractive benefit.
Two. Reduce debt.
Many Canadians have been on a consumption binge over the last decade, and household debt has reached a historic high.
Low interest rates have encouraged many of us to accumulate too much debt, and the biggest risk for many is when interest rates increase it will become impossible to service that debt.
Most people’s goal is to be financially independent and that requires the ability to generate an income and decades of hard work.
I recommend you take time to consider what happens if you lose that income as a result of declining health, disability, or death. What are the financial consequences of your income stopping or being greatly reduced?
A conversation with someone who has knowledge of insurance options is a good start.
What are your risks of a lost income?
What are the costs and benefits to insure against those risks?
Insurable risks are magnified when you have children. Family income is critical whether it comes from earnings or insurance purchased to protect your family’s cash flow.
Four. Estate planning.
I encourage everybody to have both a will and two separate powers of attorney completed.
A will outlines your wishes on how your assets are distributed after your life has ended.
Most people avoid the topic of death, however, having a will can be a selfless act of kindness to your loved ones.
During your lifetime, if you lose your mental capacity as a result of illness, accident, or the natural aging process, you will need someone to make decisions on your behalf.
There are two different types of powers of attorney.
A power of attorney for personal care gives someone you trust the legal ability to make health and medical decisions on your behalf.
The other, the power of attorney for property, gives the person you choose the right to make financial decisions on your behalf.
Wills and powers of attorney can be complicated and I recommend seeking the advice of a lawyer.
I encourage everyone to take the opportunity of a new year to decide what financial priorities are most important. Hopefully this top-four list was of benefit.