Understanding the Financial Industry
3 minutes read
Looking for a few extra ways to cut back during COVID19? We’ve compiled our top 5 list of proven ways that you can cut back on your spending to allocate your finances to what’s most important to you during these tough times.
Some of these techniques have helped our own coaching clients save $1000's per month by executing on these tasks. It's a good time to start to analyze your credit card bills to make sure that you're not spending money on something you're not using.
And now is the perfect time to do so, since we all have a little bit more time on our hands.
In light of everything that’s going on in the world right now, I thought there was no better time to write about managing your cash flow. Hundreds of thousands of Canadians have lost their jobs and income over the last few weeks, and they’re scrambling. This is not good. And from what I’m seeing, I think this is going to be a wakeup call for a lot of people. I wish things didn’t have to be this way, but this should be a learning lesson that money is not infinite. It comes and goes. But when it comes, it’s important to manage the crap out of it, and set yourself up for anything that may come.
I find it fascinating (and also scary) that a number of Canadians couldn’t financially support themselves until the end of the month. The amount of calls that the big five banks have received in regard to mortgage deferrals is incredible. Almost 300,000 as of today (April 4, 2020). And the number of people who couldn’t pay their rent on April 1 was through the roof (I’m sure).
However, regardless of where everyone is right now in their financial situation, it’s important to take a step back, look at what you do have, and stretch your dollars as far as you possibly can. Here’s a step by step breakdown on how to approach the next few months. More on managing cash flow in weeks to come, but here’s where to start.
Just remember that what we are going through is not permanent. There are going to be sunnier days, and hopefully, we’ve all taken something away from this. There are lessons to be learned, and mindsets to shift. There is no better time than now to actively start learning about personal finance because of how important of a role that it plays in our society.
If you're interested in learning more, please take a look at our website and find some upcoming webinars. www.enrichedacademy.com
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.