Understanding the Financial Industry
3 minutes read
Unless you've been living under a rock within the last week, or have completely shut yourself out from the outside world, you've probably heard that a majority of the services, restaurants, schools, and a majority of Canada, has seen a drastic shift due to COVID19.
So - what does this mean for your finances? A lot. No need to panic, but it's very important that you grab this bull by the horns and understand how this shut-down will affect the economy.
I'm hoping though, with a little bit more information and education through this blog post, that I'll be able to give you a few tips and exercises that I urge you to do NOW to ensure you can stretch your dollars as far as possible.
1. Figure out your Net Worth: the best thing to do right now is to sit down and organize all of your finances. What are the values of the assets that you have? Where are they? How easy are they to liquidate? Now, take a look at your liabilities. What do you owe? What are the interest rates?
2. Once you've gotten pretty organized with what you own (assets), and what you owe (liabilities), it's time to look at your cash flow. I suggest (now that we all have some extra time at home), that you print out the last 3-6 months of your credit card and debit transactions, and get real with your spending in as much detail as possible. I want you to figure out what you spend on housing, services, interest rates on outstanding debts, transportation, etc. When you add it all up, what do you spend on a monthly basis?
3. Time to cut back. There are always ways to cut back in your spending, and there's no better time to do it than now. Restaurants are closed, your favourite coffee shop is cutting back on tables and chairs to socialize at, and we're being told to stay at home. Listen to this advice. It will not only keep you healthy, but it will keep your wallet healthy as well. Take this opportunity to only spend money on the absolute essentials; your mortgage/rent, groceries, monthly services such as internet and cell phone, insurance premiums etc. Nobody knows what the future holds, but it's important that we understand our cash flow as best as we can now so that we can understand how long our savings and assets can sustain us.
I really wish I had a crystal ball and could tell you when this will all be over. Unfortunately, I can't. But what I can do is urge you to take action with your finances now. Nobody knows what will happen next week, next month, or next year, but let this be a wake-up call for all of us. Make sure that you're always saving for a rainy day, putting money into your emergency fund, and spending less than what you make. Your finances are always evolving and will continue to do so throughout your lifetime. What you do with those finances, at the end of the day, is really what matters.
Be smart. And stay healthy.
A Tax-Free Savings Account (TFSA) is a Registered Investment Account that has a whack-load of financial benefits. Want to know why I bolded and underlined the word investment? Because this account will benefit you the most when you hold investments in it, and not use it as a day-to-day savings account.
Here are some of the main benefits of the TFSA and why you should open one (and use it) right now.
Any income that you make from investments within this account is tax-free (hence the name). This means that you don't have to claim any income you've made from your investments on your tax return at the end of the year. I'm talking about free investment income here people.
Let's take an example - shall we?: Mary Lou Cannary contributed $10,000 into her TFSA on January 1, 2019, and invested it into the S&P500 ETF (VFV). In all of 2019, VFV made a whopping 25.13% return. WEO. What does this mean for Mary Lou Cannary at the end of the year? Well, her investment of $10,000 now has a current market value of $12,513 as of December 31, 2019. Now, because she invested this money within her TFSA, she could withdraw her investment income of $2,513 without paying a gosh-darn penny of income tax. Pretty neat huh?
You can contribute to your TFSA from the age of 18 and do not need a job to open one (unlike the RRSP). The contribution limits change every year, based on inflation (mostly). As of January 1, 2020 you can contribute up to $69,500. If you're unsure of what your contribution room is, you can sign onto your CRA My Account for Individuals and find out.
If you don't have a CRA My Account for Individuals, you should get one. Sign up here.
The money that you contribute to your TFSA is used with after-tax dollars so there are no taxes to be paid when you with withdraw the funds, making the TFSA a relatively liquid investment account (depending on the investment holdings within the account itself). This is a great account to use if you're needing money on a short or long-term basis; travelling, getting married, downpayment on a house, sending the little ones off to school, beefing up retirement income, etc.
It is NOT a type of investment (contrary to some peoples' belief). You cannot purchase a TFSA. It is an account that is registered with the CRA which has tax benefits to it. Don't just put money into your account and have it sitting there. The whole point is to have your money working for you by investing it in either stocks, bonds, mutual funds, ETF's, Reits etc.
It should not be used as an everyday bank account. Although you can deposit and withdraw into your account when you want, there are some rules surrounding this so make sure you understand them. The CRA really breaks that down here.
When I first started investing in my TFSA, I made the mistake of not understanding the rules (because I was an 18year old and nobody was there to teach me). Unfortunately, I was taxed by the CRA and had to pay a big chunk of money ($300 buckaroos!). I don't want this happening to you so make sure you know your limits, and play within it. (See what I did there?)
At a financial institution of your choice. Your financial advisor will be able to open up a TFSA for you where they actively manage it (just be aware of the fees that you may be incurring as these can sometimes be hidden).
With a Robo-Advisor. This is a great option for those who are trying to get away from the bigger financial institutions, want lower fees, and are big believers in ETFs.
You can Self-Direct it. I do this. And I love it. Low fees, freedom to choose the investments I want, and the money that I make within my TFSA are completely made due to my efforts.
If you've already opened a TFSA and have investments sitting within your account, you're doing good things (so long as your investments are making money). If you have a TFSA, have money sitting in one of those "high-interest savings accounts", and you're not needing that money any time soon, you may want to rethink your strategy.
If you haven't opened one yet, get out there and open one up today. You'll be happy you did. And if you're still somewhat confused, scared, excited, nervous, and potentially need some one-on-one coaching, contact us for information on our coaching program.
Happy New Year to you. And you. And you and you and you.
I don't know about you, but I LOVE January 1.
Why do you ask?
It's the first day of the year when there is not much else to do except set myself up for financial success for the year ahead.
Our finances are always changing. Every. Single. Day. And it's important to evolve and change along with our finances and ensure that we're adapting as our circumstances change.
Here are the top 3 things that I accomplished on January 1.
1. I updated my Net Worth Tracker. I love a good Net Worth tracker. It allows me to analyze and understand where all of my finances are, and how they've improved over the last year.
2. I filled out the Financial Freedom calculator. Every year, I fill out a calculator that determines how much I need to save for the year ahead in order to reach financial freedom. I also use the CRA retirement calculator, which helps me determine what kind of CPP and OAS I'll be receiving when I hit a certain age. You can find that calculator here. https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html. Once I've figured out my CPP and OAS income, then I can go back and fill in the rest. Easy peasy lemon squeezy. Once I have my Financial Freedom number, it's time for me to set up my financial plan.
3. Go through my budget and understand my cash flow for the year ahead. We all have financial goals. We also all have expenses. It doesn't matter if we work or not, at the end of the day, it costs money to live, and it's important that we understand our expenses on a monthly basis. Personally, this is a big year for me. I just bought a car, I'm going on a trip to Belize in March, and I'm getting married in August. There are a lot of expenses coming up, but I'm not worried. I have a solid understanding of my expenses for the year ahead, and I will have to change my lifestyle for a few months so I can accommodate all of those upcoming expenses. I track every single dollar that I have coming in, and every dollar coming out. I know that most people brush this idea of a budget aside, but what better way to manage your finances than to track it?
So before you spend another day heading into work, I suggest sitting down and doing some of the above. It will not only help relieve some of the financial stress that you may be facing, but it will help put your finances into perspective and will allow you to focus on what's a priority.
Greetings from Wiesbaden, Germany! I've been here for the past week and a half for my Oma's 80th birthday. This is me stuffing my face with the Thanksgiving dinner that we prepared for our German family. Do you know how hard it is to find a Turkey in this country? It's not easy - let me tell you!
Travelling is an important part of my life, and it’s something that I try to do at least once a year. However, it can get expensive, and it’s something that definitely needs to be budgeted for. I’ve met lots of travellers who end up stressing during or after a trip because they’ve dug themselves so deep into debt.One of my personal goals is to help others create and manage their personal finances and budget for short or long-term goals. So, this post is a list of some handy tips to ensure that you have financially stress free travels.
1. Plan and research:
It’s always smart to have some kind of idea as to where you want to travel to so you can start looking into flights and accommodation. This will be the most expensive part of your travels. Sites like Google Flights, Kayak, Momondo, and Cheapoair will scrounge the Internet for the cheapest flights possible. And with so many great accommodation websites like Airbnb, Couchsurfing, Booking.com, Agoda, Priceline, and Hostelworld, it’s always great to give yourself enough time to find the cheapest nights available in parts of the city you want to explore. It’ll also be helpful to read some travel bloggers who have recently travelled to your destination as they often discuss how much money they spent. On top of your flight and accommodation, you’ll also want to budget enough money for your food and drink, daily excursions, transportation, and a small emergency fund in case anything goes wrong.
2. Budget: Just like your food, clothes, rent/mortgage, car etc., travel should be a line item in your budget. If it’s something that you foresee doing in the near future, add it into your yearly budget and account for it from the get-go. That way you won’t be scrambling a few weeks/months before you leave, and you’ll have already had some money set aside.
3. Save, Save, Save: When I saved $20,000 for my trip to South America and Southeast Asia in 2015, I took 15% of my paycheques and put it into a high-interest savings account that I didn’t touch. If I had any money left over after all of my bills were paid and my fun was had, it went into a TFSA where I invested in Index Funds. These funds paid out a dividend and gave me between a 5-10% return for that particular year. It’s one thing to save, but investing your savings will help you make money even faster, getting you one step closer to take off.
4. Open a Separate Account: Once you have a rough idea as to how much money you’ll need, open up a separate bank account that’s out of sight, out of mind. A TFSA and/or high-interest savings account is great because it will accumulate interest faster than an everyday savings account. For those who don’t know the first thing about investing, Wealthsimple is a really great platform that makes saving and investing easy and effortless.
5. Be Flexible and Open: When I was in Brazil, I was complaining to this Irish girl that the flight from Chile to Thailand was $2300. She suggested that I try to be a little more flexible with my timing and not look for a direct flight, but rather create my own trip around the world and book different lags of the flight myself. At first, I was a little skeptical but she helped me research some different itineraries and I booked 3 separate flights. Although it took me 48 hours to reach my final destination, I ended up saving over $900. It’s definitely worth being flexible and having an open mind because you can find some really great deals if you just think outside of the box.
Conclusion? be smart with your money
For those of you who are as gung-ho about seeing the world as I am, be sure to work hard so you can play hard when on the road. The worst thing that could happen is that you start to travel and realize that you don’t have enough money to do the things that you want to do. This is a once in a lifetime opportunity for most. Make sure you’re smart with your money before you takeoff so you can leave your financial stresses on the runway. And as always, if you're planning a trip and need some personal finance guidance, please contact me!