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Making the decision to get married begins a new and exciting adventure in your life as a couple. Love and excitement permeate the air as you start planning the perfect day. Although the decisions surrounding a wedding seem endless, such as setting a date or picking the perfect venue, there are other important questions that need to be answered as you start your lives together.
Should two people manage the money?
The short answer is yes! Allowing only one person to be in control of the household finances can lead to potential disaster. You and your soon-to-be spouse should take an evening and sit down to discuss who is going to manage which aspects of the household funds. Be sure to honestly answer the “who, what, when, where and why” when it comes to both of your finances.
Now is the perfect time to come clean about everything you have whether it be the amount of debt or the bonus you received last week. Take out your last bank statements and review what you have and what you owe.
How will you handle the expenses?
There are a few different approaches to how you can split the expenses as a couple. One option is that you can split the expenses 50/50 (which means splitting everything equally). This works the best if both partners make approximately the same amount of money.
Another option is that you can split everything proportionately. For example, if one person makes $60,000 per year and the other makes only $30,000 annually, then the person with the higher income could pay 60% of the expenses and the person with the lower income would be responsible for the remaining 40% of the expenses. For this approach to work, each partner should prepare a personal budget to ensure that the expenses breakdown is realistic.
The last option is to pool all your money together, then set your financial goals. When using this approach, it is highly suggested to set aside a budgeted amount so each partner can have personal indulgences. Overall, this is a great strategy to ensure you are working together towards a goal while avoiding resentment.
How much personal spending money does each of you need?
The truth is each spouse needs their own personal spending budget. By setting aside a personal amount that will be outside of your household budget, you avoid the resentment that will come if you need to ask your partner for money each time you want to purchase that $10 t-shirt or buy that morning coffee. Together decide on an amount that is fair and work it into your budget.
You should also decide how much can be spent before you need consent from the other person. If one of you is a shop-a-holic, make the number low. If one of you is extremely frugal, negotiate a higher number. Doing this will not only eliminate the need to hide things from your partner, but it will also help to limit impulse purchases which can easily push your budget off-track.
How will you cope when things get difficult?
Are you prepared for the ups and downs that life will throw you? As much as you probably don’t want to think about worst case scenarios, make it a point to discuss what you would do if life throws you a lemon. Do you have a will, life insurance, disability and critical illness insurance, emergency savings, and so on? By having this conversation now, you will both be prepared for the potentially awful circumstances that life may throw at you in the future.
Check out our sample wedding budget here: MoneySmart Wedding Budget
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As another year comes to a close, we begin to reflect on the past and what changes we would like to make in the upcoming year. Particularly after the holidays, a new year is important time to take a look at our financial health (especially since our bank books are probably a little worse for wear).
Finances are a great place to start fresh at the beginning of a new year. Just by starting to make some financial resolutions, it can help make financial decisions seem less daunting. Not only does getting your finances in order sound like a great idea, but keeping your finances fit can also help you to feel better by alleviating some of your current financial worries.
Here are just 6 tips that may help you to make a healthier financial start to 2016:
- Spend less.
This sounds so easy right? What makes it more difficult is that everyone has monthly expenses and you need a place to live and eat. However, even when it comes to your monthly expenses there are ways to spend less. For example, try shopping around for lower-priced cell phone service or TV/internet services. You can also try stocking up on everyday staples such as paper towels when they are on sale. The best way to spend less is to know what you are actually spending in the first place. Check out our New Year’s Cash Flow Management Sheet to see where your money is actually going.
- Save more.
Once you have looked at your spending it will be easy to see where you can save more. The key to saving more is to implement a savings plan that will help you stay disciplined when it comes to your savings goals. One of the simplest ways to ensure you save regularly is to make it automatic. For example, one great way to save is to set up a pre-authorized monthly plan that is tied to your pay cheques that way the money disappears as soon as it hits your bank account and you get used to starting with a lower monthly budget right away.
- Invest more.
Take the time this year to become an active participant in the management of your wealth. Set up a meeting to speak with your advisor and make sure your investment mix has an appropriate level of risk and growth potential. Make sure your investment mix still meets your needs and does not need to be rebalanced. Also the beginning of a new year is a great time to update your advisor on any big changes that have occurred in your life such as a new job or you moved to a new home.
- Pay down debt.
You probably have a variety of debt, like most Canadians do, consisting of a variety of things like student loans, credit card balances, car loans and mortgages. You probably have a large portion of your income already dedicated to your monthly debt payments. You should take a look at your account statements and see which of your debts you are paying the highest interest on. Try to make the highest interest debts your focus for repayment.
- Create an emergency fund.
If you are just using room on a credit card or a line of credit to use as an emergency fund, you are probably in a vicious cycle. By creating an emergency fund, you can rely on that money when something comes up (like the furnace breaking down) as opposed to relying on increasing debt. You should have at least 3 months of expenses covered in your emergency fund account.
- Stick to your budget.
Trying to navigate your financial life without a budget is like trying to drive a car without a gas gauge and odometer. You will never know if you can make it your next fill-up without running out. A budget can help you allocate your funds between essential categories such as essential spending, retirement savings and short-term savings. If you have a set budget, it will be easy to get into a cash flow routine that will help you fix your finances in the long-term.
Start off the New Year on the right track by just taking a few minutes of your time to actually look at your finances. Stop just opening bills and reading the minimum balance due every month. Take charge of your finances and start the New Year with financial peace of mind.
To help kick start your New Year, here are some additional daily reminders which might come in handy throughout 2016:
12 Daily Reminders
1. The past cannot be changed.
2. Opinions don’t define your reality.
3. Everyone’s journey is different.
4. Things always get better with time.
5. Judgements are a confession of character.
6. Overthinking will lead to sadness.
7. Happiness is found within.
8. Positive thoughts create positive things.
9. Smiles are contagious.
10. Kindness is free.
11. You only fail if you quit.
12. What goes around, comes around.
– Vex King | bonvitastyle.com
*Source: Fidelity Investments. 10 Resolutions for 2016 – and how to get started. Dec 8, 2015. Web.
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In 2009, the Tax-Free Savings Account (TFSA) was introduced by the Canadian federal government. The TFSA is a great option to help Canadians save for long and short term financial goals and the funds can be withdrawn at any time on a tax-free basis.
Unlike a Registered Retirement Savings Plan (RRSP), the TFSA is meant to help you save for any type of general savings needs as opposed to simply retirement. There is no penalty to withdrawing funds from your TFSA whereas withdrawing funds from an RRSP will have resulting tax implications. However, like an RRSP, there is an annual contribution limit. For a TFSA the annual contribution limit is not linked to your income, but rather it is set by the federal government and it is the same limit for all Canadians.
How the TFSA Works
Here is some general information on how the TFSA works:
- Canadian residents age 18 and over can save up to $10,000 (beginning in 2015) a year in a TFSA
- Contributions are not tax-deductible, but investment returns (capital gains, interest and dividends) earned in a TFSA are not taxed, even when withdrawn.
- Withdrawals are tax-free and funds can be used for any purpose.
- Unused contribution room can be carried forward indefinitely. As well, any amount withdrawn from a TFSA can be re-contributed in a future year without requiring new contribution room.
- Neither income earned in a TFSA nor withdrawals will affect eligibility for federal tax credits or income-tested benefits such as the Canada Child Tax Benefit, Old Age Security (OAS) or the Guaranteed Income Supplement (GIS)
- Investments eligible for an RRSP can generally be held in a TFSA.*
Annual Contribution Limits
If you have never contributed to a TFSA before, the contribution limits from 2009 are cumulative. Thus, if you were to open a TFSA today you could contribute a maximum of $41,000.00, and then an additional $10,000.00 per year going forward.
Year Contribution Limit 2009 $5,000.00 2010 $5,000.00 2011 $5,000.00 2012 $5,000.00 2013 $5,500.00 2014 $5,500.00 2015 $10,000.00
Rate of Return Matters
Since the funds held within a TFSA are mutual funds, the better your rate of return, the faster your savings will grow. Please refer to the below charts developed by RBC Global Asset Management for some examples as to how much your TFSA may be worth assuming the contributions are maxed out.
Who does the TFSA benefit?
As you can see from above, the TFSA is a great option (whether you are an individual investor or an investing couple), even if you cannot invest the maximum allowable contribution on a yearly basis.
Thus, the TFSA can benefit the following:
- Young people just starting out: TFSAs will stimulate more savings when starting at a younger age.
- Seniors: TFSAs can provide retired persons with a means to save on a tax-free basis; neither withdrawals nor income earned in a TFSA will trigger clawbacks on Old Age Security (OAS) benefits or the Guaranteed Income Supplement (GIS).
- High Income Earners: Taxpayers who have already made the maximum contribution to their RRSPs will have another tax sheltered savings vehicle.
- Lower Income Earners: Taxpayers in a lower tax bracket may prefer to forgo the modest tax deduction of an RRSP in exchange for tax-free growth and withdrawals of a TFSA.
- Anyone Saving for a Large Ticket Item: TFSAs can be used to fund a car purchase, vacation or down payment on a house.*
In other words, the TFSA can benefits just about EVERYONE!
If you would like more information on TFSAs or would like to open a TFSA, please contact us.
*Excerpt from Mackenzie Investments Flyer. “Introduction to TFSAs.”
**Chart complied from RBC Global Asset Management Charts: Tax Free Savings Accounts – Rate of Return Matters (Individual Investor) & Tax Free Savings Accounts – Rate of Return Matters (Investing Couple).
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Just the thought of estate planning can make some people cringe.
Unfortunately, as much as we hope, we won’t be young and healthy forever and creating an estate plan can help to ensure that your wishes are carried out after you pass away or if you are no longer healthy and require permanent assistance.
There is no time like the present when it comes to estate planning because tomorrow may be too late.
Successful estate planning can happen through following some simple steps.
1: Designate a team of professionals
If you are not a cardiologist, then you probably shouldn’t perform open heart surgery. The same principle applies to estate planning. The easiest way to create an estate plan is to use the experts. Professionals such as estate lawyers, accountants, financial planners and insurance agents are there to help you. They are the ones who keep track of the legal side of estates. It’s their job to help you with the legalities of estates, so use them to your advantage.
2: Draw up a household balance sheet
Understanding your household budget can help you to plan for your estate. By figuring out how long it will take to pay off your mortgage or how much your electricity bill is every month will help you to know how much money your estate will require when you are no longer able to take care of these things yourself. Update your balance sheet when things change so that if someone does need to take over your estate, they will know how much the household costs to run on a monthly basis.
3: Understand your life insurance needs
Life insurance is again a tough topic because it is forcing you to face the reality that one day you are going to die. However, life insurance is the perfect tool to aid in estate planning because it can provide the funds for your estate. It will ensure that there will be the funds required to pay off your mortgage, pay off your debts or to leave a legacy for your children.
4: Draw up your will
A Last Will and Testament is a very important part of any estate. It helps your Executor or Executrix to know how your want your estate to be handled and what your wishes are for your estate. Consult with a lawyer to draw up your will and your chosen Executor(s) know where it is kept and that they are responsible for your estate.
5: Establish a power of attorney for property
If something were to happen to you and you could no longer look after your property, who would you want to do it? For your power of attorney for property, you should choose someone who will be able to make day-to-day decisions easily and, perhaps more importantly, respectfully.
6: Establish a power of attorney for personal care
Who would you trust most to make decisions for you when you are unable to due to medical issues or old age? The person you choose to be your power of attorney for personal care should be someone who knows you well enough to know when you are no longer able to care for yourself. You should be able to trust them to put your best interest above their own.
7: Minimize taxes and administration fees
Taxes are one of the unfortunate necessities of life and even after you have passed your estate will still incur taxes to some degree. Planning for these taxes early on will help you to preserve your estate for children or whoever you plan on leaving your estate to. Planning for the different types of administrative fees (such as: probate, lawyers, property management, etc.) will help to ensure that your estate is dealt with properly and in a timely manner.
8: Keep track of accounts and important information
Keeping all of your account information and important documents in one place will help your Executor(s) to deal with your estate properly. The easiest way to do this is with binders. By keeping your most recent bank account statements, legal documents, life insurance policies, investment account statements or stock certificates in a binder (using a separate binder for bills and/or property management) you not only keep yourself organized by knowing your assets, but it also helps your Executor to know who needs to be contact in the event of your death.
9: Review and update regularly
This step is very important. Every so often you should review your estate plans to ensure that the plan is still relevant. Although estate plans should be reviewed approximately every 5 years, you should look at your estate plans anytime a new life event happens. For example, did you purchase a cottage? Look at your estate plan because now you will need to account for a capital gains tax that probably wasn’t in your plan before. Make sure all your important documents are still in one place and that nothing new should be added or maybe some things need to be removed. Having an up-to-date plan is essential to successful estate planning.
10: Let someone know
Perhaps the most important step of all is to let someone know about your estate plan. What use is an up-to-date binder with your account documents in it if no one knows where to find it. Keep a listing of anyone who needs to be contacted in case of an emergency in the same spot, so whoever you let know about your estate plan will know who they need to get in touch with.
By following these ten simple steps, you are on the way to creating a successful estate plan.