Thursday, November 26, 2015

The Road to a Successful Retirement

Ottawa Redblacks wide receiver Greg Ellingson catches a pass which he ran for the game winning touchdown against the Hamilton Tiger-Cats in the CFL East Division final in Ottawa on Sunday, November 22, 2015. (THE CANADIAN PRESS/Adrian Wyld)

Even if you are not a football fan, you can appreciate a dramatic ending which results in a crucial win,  the winning play that allows a team to advance to the Grey Cup.  Ottawa’s quarterback, Henry Burris, and wide receiver, Greg Ellingson, connected to orchestrate the 93-yard winning touchdown.  In those last dying minutes, the situation appeared all doom and gloom. Who knew that they would pull off a win that will go down as one of CFL’s top moments?   The synergy was so obvious between these players.  They believed in their abilities. They put forth their best effort to create a wild ending. 

The Ottawa Redblack’s success didn’t come together on a whim in those last minutes.   Every player on this team worked hard throughout the season to achieve success leading up to that moment.   Their ultimate goal was to win games which would allow them to play in the big one, the Grey Cup.   In an interview, Henry Burris shared that he tells his sons, “This is what it’s all about. All the hard work Dad puts in pays off. When you do the right things someone always looks out for you in the end.”

To write about achieving success is so fitting now between the weeks of the Western-Eastern Final Division Playoffs and the Grey Cup.  The best of the best are in a showdown to see who triumphs.  I learned a thing or two about watching the action play out on the football field.  I am not ready to turn into a pro football player but I certainly can see the benefits of having effective coaches working behind the scenes to create the winning plays.  That’s my job as a financial planner as I help prepare you for the ultimate winning play of your lifetime, retirement.

One winning strategy you may often brush aside is paying attention to your Notice of Assessment.   I hear your question.  “My what?”  When you file your annual tax returns, Canada Revenue Agency (CRA) mails a Notice of Assessment which summarizes the total income and tax payable from the previous year.  You are also shown the amount of your upcoming year’s RRSP deduction limit.   The sample statement below indicates that this tax payer’s RRSP deduction limit is $37,878.

Contributions to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Plan (RPP) reduce your taxable income.  Here’s the ripple effect.  When you invest money into a tax-haven (shelter) like an RRSP or RPP, you earn the right to receive back the taxes collected off your pay cheque.  For sole proprietors, investments into a tax-haven defer income taxes from being paid on earned income. Rather than directing money towards taxes, directing money into registered savings plans can be your winning play.    
Contrary to what some might believe, the sky is not the limit when sheltering money inside RRSPs and pension plans.  You gradually build RRSP contribution room based on 18% of annually earned income as shown on your statement. If you have a pension plan, your limit is reduced.  Using this RRSP deduction limit amount as your goal and taking advantage of opportunities to save towards this amount will build your retirement savings. 
A different way to look at this is your RRSP deduction limit as though it’s an outstanding mortgage. When you set your goal to pay off (or in other words, pay up) this balance, you are implementing the strategy to “pay yourself first”.  Here are some way to help you tackle this daunting task.
Arrange regular weekly, bi-weekly, monthly contributions in an effective way to dwindle down the deduction limit.  These regular contributions should balance with your day-to-day living expenses and debt obligations.
Build your retirement savings with tax refunds.  Don’t stop to think about it; don’t give yourself leeway to change your mind and spend the money on something you will regret later.
Cut your spending to make room to catch up on your RRSP contribution room.  You won’t have to keep this trend going forever. This strategy is only in place for a “season” until the deduction limit has been reduced to only the current year’s contribution.      
Divert any over-time earnings, cash gifts from relatives, Christmas bonuses or incentive pay from your employer directly into your RRSP savings.  You can’t miss something you weren’t expecting to receive.   
Exert every effort to take advantage of the deduction limit to create a new habit.  Once you see the opportunity of reducing your personal income tax by savings, you will become addicted to maximize RRSP contributions annually. Savings won’t become a “have-to” strategy but a “want-to” strategy because of the benefit of achieving your goal.
Your retirement fund will not come together on a whim.  Regular contributions, whether through your own efforts or combined efforts with your employer, will help fund your ideal retirement plan.  The success of a dynamic football team is built with the players who make it happen on the field and the personnel who help make it happen from the sidelines. You are the key player with the earning ability to make your retirement happen.  At the same time, you seek help from your coaches, investment advisor, tax accountant, lawyer, and financial planner, to help make your retirement plan happen with critical advice and strategies.  The end result is you are in the position to create your own wild and memorable retirement after years of hard work.  Don’t pass up this chance to achieve your retirement dreams.

Thursday, November 19, 2015

Budgeting for Success

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We know the dangers of driving too fast on an icy highway. A vehicle can easily spin out of control and collide with other vehicles or anything that gets in its way. The consequences can be disastrous.  However, we can remain hopeful that the vehicle can recover and come to an abrupt stop with the occupant unscathed. Whether we are talking about “reckless driving” or “reckless spending”, both are the result of reckless behavior. 

I sometimes wonder if people choose to ignore the well-intended message, “live within your means” which warns them to spend only what they earn. Instead some replace this with a more fun piece of advice like “enjoy life while you can.” 

Although there is nothing wrong with enjoying life, I am certain that splurging beyond what we earn is not permission to do so.  Imagine taking a vacation we can’t afford, purchasing a vehicle with monthly payments we can barely make, buying more clothes than our closet can hold, or doling more toys on our children than they need.  What’s the point in enjoying life in this way when all this splurging leads to despair?   

As a financial planner, I meet with clients who are looking for a glimmer of hope to get back on track.  I have to admit sometimes their situations look very grave to the point that they require help from the Credit Counselling Society.  In either case, whether someone chooses to draft a consumer proposal agreement with their creditors or declare bankruptcy, both their credit reports and their lives will be severely impacted as a result of their actions. These are tough life lessons.    

I once heard a speaker share with her audience that you have to scare people before they will be willing to take the appropriate action. Reading through the details of a consumer proposal should be enough to scare you into realizing that you never want to travel down this road.

I truly appreciate that the Credit Counselling Society offers helpful advice in making a personal budget.    Their workbook, 7 Steps that will help you build a budget that works, provides the tools designed to create a spending and saving plan that ensures you find success in achieving your financial goals.

Maybe you don’t like to be scared into action, however if you need help determining  whether you are travelling down a slippery slope, spending more than you earn, consider these H-E-L-P tips.

H – Heed the warnings.  Look at your bank statements to identify whether the withdrawals are greater than the deposits. 

E – Excel at making the best use of your hard-earned dollars.  Only you can take care of the money that you have earned.

L – Learn about creating a budget that helps you work toward your goals.  

P – Promise yourself that you will stick to the plan so that you can enjoy life with the income you currently earn.  

Have you encountered any “h-e-l-p” tips that make sound financial advice? Please share.

Thursday, November 12, 2015

Overcome Your Fears about Money

As the deadline for this week’s blog approached, I caught myself making excuses.

“I don’t have to write.”

 “I can skip a week.”

“No one will miss hearing my writing voice.”

“I don’t have time to write.  The financial plans I am working on are piling up.” 

Ironically, the biggest reason for not wanting to write about “fear” was because I was afraid. I felt like I couldn’t pull enough information together to create the “perfect” blog.   Maybe I was meant to encounter this anxiety so anything I would say would be truly authentic.  Now you know you are not the only one who has fears.  The fact is most people are afraid of something.  Having fear about money may very well be on the top of peoples’ lists.

I know the anxiety that comes with money shortfalls. Following my divorce, I went on a spending spree.  I took a vacation to Vegas, shopped for clothes, and spent money needlessly.  After consoling myself, the reality hit home when the credit card statement arrived.  This kind of behavior was abnormal; it had to stop or I would be in financial doo-doo.   Since I was supporting not only myself but a child, I needed to control my spending.    

Your fear may be having too much debt or not having enough money to meet your lifestyle needs.  You feel stuck.   The unknown is frightening.  But here’s news for you.  You can overcome those fears with a plan of action. 

Life isn’t intended to be lived in fear.  You have to find a way to move in the direction you wish to go rather than digress in the opposite direction because you are afraid.  Finding ways to personally deal with the fear about money is the ideal solution.  Books, articles, and Internet searches reveal a wealth of information on the subject.    In my quick search of resources, I found an entire chapter in the book, The Secret, dedicated to “The Secret of Money”.  Jack Canfield’s book, The Success Principles, devoted a chapter to “Feel the Fear and Do It Anyways” which coincidentally is the same title to a book written by Susan Jeffers. From the 352,000,000 links on the Internet, I picked only two, Kristin Wong’s blog, A Guide to Managing your Fear of Money and Tony Robbins’, Are You Free of Financial Fear.  Obviously, the fear of money is something shared by an astounding number of people.

© <a href="">Pablographix</a> | <a href=""></a> - <a href="">3D Metaphors, Maze, Labirynth, Solution, Problem, Obstacle, Solving, Arrow Photo</a>


Certainly, I am not an expert in overcoming fear.  I know, however, from my experience that fears can be overcome.  My simple prescription is to follow the 3 D’s:  Decide, Decipher, and Devise.   


You have to decide whether you want to live in fear or whether you step forward courageously and do something (anything) to get out of your rut. Understand that when you acknowledge your fear, you are now in a stronger position to take control.   You might even seek professional help.  Setting aside any feelings of shame or embarrassment is not only a bold step on your part but an important one in the right direction.


You will need to decipher the best approach to conquer your fear. When dealing with debt, you need to determine your options. This may require working with your creditors to pay off the debt, looking at your sources of income, or examining your spending habits to identify the necessary changes. If this means living on the bare minimum for a time, so be it.   

Once your decision is made and your options deciphered, you are prepared to devise the plan.  Sticking to the grueling task of doing what needs to be done will give you immense peace of mind.  When things get out of hand, handling money responsibly becomes extremely important. Taking ownership of your mistakes with a well-devised plan will help overcome your fears.  This only happens because you are doing “something” to rectify your past mistakes.  Make your phone calls. Take advice from appropriate people who offer assistance. Execute your strategy. 

Litany Against Fear

This litany may be your best ammunition against fear.  When you resolve to tell yourself there is nothing to fear, your mind has no room for the fear.  The greatest favor you can do for yourself is to put this into practise.  Read this litany repeatedly.  Your fears should dissipate into nothing because you had the courage to face them.   


Thursday, November 5, 2015

Your Financial Well-Being is Too Important to Ignore

November is recognized as Financial Literacy Month in Canada. If you didn’t know, this is its 5th anniversary.  The National Strategy’s primary focus is to improve the financial well-being of Canadians.  This month you have a chance to spring into action.  Treat November as your financial “check-up” month.  With the New Year only two months away, you may have thought about incorporating one or two money-related resolutions. Try jump starting your journey to financial health with some of the following ideas.
Transform Your Checklist into a Financial Tree.
We work more effectively when we have the right tools.  A checklist is a great tool. In addition to any financial plans you have, consider using the checklist with the ten recommended financial items every Canadian should have.  {Click here to print a copy.} Like Santa, who is known to check his list twice, you should too to ensure you haven’t missed anything.
Occasionally, transforming a tool into something easily relatable takes creativity. In my mind, I saw a healthy tree with branches depicting the ten financial items. Since I can only think of these things, I asked my friend, Liz, to create the poster board. This was the only instruction she was given.  I was astonished with the extra touches Liz had randomly added.  As you can see, pictures of life events were included:  spending time with loved ones including the family dog; enjoying recreational activities; and portraying scenic vacation spots.   My initial reaction was: “This looks too busy.  There are too many distractions.”  Then I made the connection.  Isn’t this the way life is?  Busy!  The added pictures created the reality. While you juggle life, you can’t ignore the important financial items which make up a healthy financial tree.
It doesn’t have to be perfect to work.
My poster board does not have to be fancy or full of state-of-the-art graphics to be effective.  My purpose is to create a connection to alert you that this information is too important to ignore. I believe anyone can distinguish a healthy tree from an unhealthy one.  A healthy tree’s leaves are vibrant; the bark isn’t scarred or pitted; and new growth appears yearly on its trunk and branches.  In much the same way, anyone has the ability to distinguish whether their financial situation is stable or unstable by assessing whether all the right financial components are in place.
How Healthy is Your Financial Tree?
A financial tree can be divided into three parts.  The top branches focus on taking care of the family’s needs first.     These items have a direct relationship to meeting a family’s needs if a catastrophic event occurs.
q  A Written Financial Plan
q  A Will and Estate Plan
q  Living Will and Power of Attorney
q  Insurance: Health, Disability, Life and Credit
The second part of a healthy financial tree is made up of the other items related specifically to money matters:
q  Pay yourself first
q  Registered Retirement Savings Plan (or Tax Free Savings Plans)
q  Pay your mortgage more frequently
q  Three months of savings
q  Credit:  Get it while you don’t need it
q  Registered Education Savings Plan for Children or Grandchildren.
The third part is the roots which represent  the type and amount of debt.  Debt will either make your tree flourish or stifle its growth.  “Good debt” often refers to mortgage or student loans. Building equity in your home or receiving an education to secure a well-paying job contributes to a person’s assets or ability to earn an income.   Excessive loans for any other purpose than these may jeopardize a person’s financial health.  
Items That Require Your Attention.
Here’s the challenge. 
Use this month to review your financial affairs.   If several items require your attention, then number them in order of importance. Begin the process of chipping away at them one item at a time. 
If you are a “doer” and all your items are checked, then book appointments to review your important documents, investments and insurance coverage.  This ensures you have accounted for any life changes.     
The media won’t let you forget Financial Literacy Month in November. Every year you will know when it’s time to schedule your financial health appointments so you don’t ignore the important things in life.  Just like the “Wise Owl” gloats as he sits perched on the branch in picture, you too can gloat about your financial situation.