So you are educated, degree in hand and your cap is flying through
the air as classmates smile for the camera and high fives are the order for the
day. Some of you have jobs lined up; some still have a few interviews to go.
What is in common with most is the unsure “next steps” in your new
personal financial world. You
are flying the coop, and need to sort a few things out. So here is a list of things you will want to consider as
you begin to grow financially.
1. Make a budget and watch it. “You can't manage what you don't measure” is an old
management adage that you need to turn into a habit. Unless you measure
something, you don't know if it is getting better or worse. This sounds like
basic advice, however when it comes to money, it’s a foundation. As you grow, the edges of your budget will want to be elastic, so you need not carve it in
stone; however, be aware of where your money is going. Note you will modify and
increase your budget with expansion of income, but the key is, you are in
control.
2. Develop a relationship with a financial advisor. Financial planning is a process and not an event. This
means working with a financial planner can start when you don’t have much
money, and things grow as you do. Understand there are many good things
to do with your money and the best laid plans are the ones which you have
prioritized. To a degree, you will be following a pre-set road-map with some of
the basics of financial planning; however your own course is when you follow a
compass to help you define your own path. A financial planner will provide you
with the right tools to make the right decisions. Remember you can’t learn to
swim on the internet. The same is true with financial instincts. Grow with your
money.
3. Prepare for taxation. Yes, you will pay lots of tax, but
good planning from the beginning will keep you out of trouble, and help you
hold onto your cash. The old adage that you can save more in tax then you can
save in your bank account is a place to start. You will always be able to build
your savings accounts, but you should also try to pay as little tax as the
rules allow. Revenue Canada provides rules on how to structure for personal
returns. Paying too much tax is simply a sign of poor planning, yet poor
planning attracts tax. To look at an example, if you have worked for 40 years,
and it was pointed out to you that revenue Canada is a large beneficiary of
your estate, would you want to change that? The way to change it is to plan
now. The cost to talk with an accountant is nothing. The cost of avoiding one
is expensive. Common tools are RRSP’s TFSA, RESP’s, Income Splitting, Income
avoidance, Incorporation, Holding Corporations and more. The sky is the limit.
A good conversation with a financial planner will help you get off on the right
foot.
4. Insurance and Risk. At the most basic level, your income can be cut off because you
live too long, die too soon, become disabled or have a critical illness. These
financial problems are all associated with risk, and your attention needs to be
drawn to their importance. Your position on this ladder is dependent on life,
family, occupation and income. Your obligations to self and family is the
beginning. This is where reviewing a priority pyramid is crucial. Your health
and age will heavily influence the cost. Availability of the solutions in this
category will vary. Therefore, designing a plan for Life Insurance, Disability
plans, Critical illness and retirement plans is personal. Early planning will
help save heartaches. These products require good health, and premium is based
on age, so the sooner the better. If you will have a need someday, it would be
prudent to start when the cost is lowest.
5. Control your spending and handle your debt. Don’t necessarily overreact to it
your debt. Student debt can be a large part of your life, but with today’s low
interest environment rushing to pay it off may not be the best strategy. The
things to consider are repayment structures, interest rates, personal taxation,
incorporation (if you are a professional) income splitting, and investment
options. Again the term “Financial Planning” becomes apparent here.
6. Build an emergency account. While the return on your investments is important, the
return OF your investment become of greater importance. Now that you are
growing up, you would hope independence is soon to follow. If you run into a
financial emergency, you need to be able to turn to your own resources, and not
necessarily turning to your parents first. We also don’t mean turning to
credit cards or lines of credit. A true emergency account should be a 3 month
supply of cash to pay bills if you hit the wall financially, or need to fly
home, or get fired, or become disabled and need to survive the elimination
period, or for any other unforeseen thing.
7. Keep your credit clean. It seems everything eventually leads back to good credit these
days. Getting a credit card, applying for a mortgage and buying a car are
the obvious things we all think of. However, did you know that buying life or
disability insurance, getting a job, receiving promotions, receiving some
licenses, and professional references can all be linked back to your credit
standing? There are ways to keep your credit score positive. Checking your
credit score for accuracy is also important, so pay your bills, don’t max our
credit cards, and build a consistent positive cash flow.
8. Create the habit of savings. Saving money should be as automatic as
paying a bill. Every month you pay your rent, power with electricity and put
gas in the car. As well you should pay yourself. Therefore add to the RRSP,
TFSA, RESP’s, and insurance plans, etc. No amount is too small. Priority
planning and habits are the key.
9. Get a Will.
Stats Canada says that 100% of people will eventually die someday. We just
don’t know when. For the cost of getting a will in place, it just makes sense
to get one in place. Your assets may not be large, however a living will or a
power of attorney would be good to be in place if you should get into an
accident and someone needs to take care of things for you, until you can speak
for yourself.
10. Use your common sense. Deal with people you trust. And if it sounds too good to
be true, it likely is.
If you are in Nova Scotia and would like some insurance advice,
please contact Corry Collins:
corry@maritimewealth.com
902-444-7000
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