If we knew how things would unfold in the future, then financial planning would be easy.
If we knew things like future investment returns and future inflation rates, then that would remove a lot of uncertainty in a financial plan.
If we also knew when we’re going to die, then we could make sure that we spend every penny and “bounce the last check”.
But because of all the unknowns, we have a lot of uncertainty within a financial plan. To create a great financial plan, we have to evaluate and plan for that uncertainty. We have to understand both the average and the extremes. We don’t want to run out of money in the future, so it’s important that we manage this uncertainty properly and avoid making bad assumptions.
Life expectancy is one of those assumptions and it’s a big assumption within a financial plan. Assume a life expectancy that is too short and there could be years (or possibly decades) of meager retirement income.
When it comes to life expectancy, we can’t just assume the average, we need to know how much longer our money needs to last. Is it 5-years past the average, 10-years, 20-years, or more? Hopefully it’s for a very long time.
Credit reporting has turned into a multi-billion-dollar business but getting your credit report doesn’t have to be expensive, in fact, you can get a free credit report mailed to you once per year and all it takes is just 5-minutes.
A credit report represents all your recent credit history, mortgages, credit cards, vehicle loans, lines of credit, and even some bill payments. It’s often referred to as a “consumer disclosure” or “credit file disclosure” but most people call it a credit report.
Every piece of debt you’ve recently owned (even if paid off or closed) should be represented on your credit report. It will also capture your current and past addresses, phone numbers, even employers.
In today’s world your credit report is very important. It directly impacts your ability to qualify for new debt. Plus, it often gets pull as part of a thorough background check. It can also help identify fraud and identity theft early on, limiting the damage.
Your credit report is so important that it’s a good idea to check and review it on a regular basis.
What is advice-only financial planning exactly? What does advice-only financial planning entail?
Also known as fee-for-service financial planning, advice-only financial planning involves no products, no commissions, just advice.
With traditional forms of financial advice, there is always the nagging doubt about whether the advice is truly unbiased or if is it just to sell a product and receive a commission? There is always that lingering question, is this advice really in your best interest or is it in the best interest of the advisor?
Advice-only financial planning eliminates this conflict of interest. An advice-only financial planner is compensated directly by the client and only the client. There are no products, no commissions, just pure advice.
An advice-only financial planner works for the client to provide the best advice possible and good financial advice can be extremely helpful. It can reduce stress, provide peace of mind, capture unseen opportunities, avoid unnecessary risks etc. etc.
There are many different ways to receive financial advice, but one of the most unbiased and trustworthy is advice-only financial planning.
Let’s go deeper into exactly what advice-only financial planning is and why, in today’s world of low-cost self-directed investing, it makes more sense than ever to get an advice-only financial plan…
One of the hardest things about RESPs is choosing the right investment and managing the allocation between stocks and bonds. There are so many RESP investment options and it becomes especially challenging when families have more than one child. When families have a few children, who are perhaps a few years apart in age, it becomes very challenging to set the right asset allocation for the investments inside the family RESP.
Why is it important to set the right asset allocation?
Asset allocation is a large driver of risk. The more equity assets in a portfolio, and the less fixed income assets, the more risk. There is always risk when investing, whether that be in stocks or bonds, but stocks have always had a “risk premium”. That means they have a higher risk but also a higher return.
When managing asset allocation in an RESP we need to be very careful because were typically investing over a few different time horizons.
A 16-year old high school student is going to have a very different asset allocation in their RESP than a 4-year old pre-schooler. We want to make sure the 16-year old has money for post-secondary in two years and isn’t going to lose half of their education fund during a downturn. On the other hand, our pre-schooler has loads of time, so we can take on a bit more risk and hopefully grow their education savings over the next 14+ years.
It’s these different investment horizons that make investing inside an RESP especially challenging (even more so for self-directed RESPs where the individual investor is making all the decisions).
Typical investment horizons for RESPs include…
There are a large number of benefits available to low and moderate income households. Some of these benefits are government benefits, they provide direct income support. But some of these benefits are a combination of government & private benefits, and they help offset specific expenses.
Many government benefits are automatic based on annual tax filing. As long as an income tax return is filed on time each year, these benefits are automaticity calculated and paid based on adjusted family net income (aka. AFNI… this is essentially line 23600 of your tax return).
But there are other benefits that are available to low and moderate income households and these benefits must be applied for individually, and are not automatic based on annual tax filing, but they can still provide a significant benefit for low and moderate income households.
Most of these non-automatic benefits are delivered with help of private companies and they help offset specific types of expenses. These benefits are a combination of government/private and must be applied for every 1-2 years.
The global pandemic has impacted all of us differently, our personal finances have gone through many changes and some have “weathered the storm” better than others.
FP Canada, the board that governs the Certified Financial Planner (CFP) designation in Canada, recently came out with a survey called “The Tale Of Two Pandemics” and it highlights both the positive and the negative impact that the pandemic has had on our personal finances (more details on the survey results at the end of this post).
There are some troubling stats within the survey, for example 14% of those in Ontario have been forced out of the labor market, 21% have seen an increase in expenses, and 14% have seen a reduction in work hours/income.
But the survey also highlights the opposite side of the pandemic, many people have not experienced a job loss, or a reduction in income, or an increase in expenses over the course of the pandemic.
In fact, looking at the statistics, it looks like there is a large group of people that have not been affected by the pandemic at all, and another group of people who have actually benefited financially from the pandemic.
This is consistent with the conversations we’re having with clients.
For those who have been fortunate enough to remain gainfully employed, for those who own a home or recently purchased a home, for those with a mortgage or other debt like student loans or HELOCs, and for those who are investing on a regular basis, the pandemic has actually improved their personal finances in a number of ways.
The pandemic has impacted us all differently, but for many people there have been one, two, three or more positive changes that may have actually improved their personal finances. As it turns out, this is especially true for those who had a financial plan already in place.
Here are some ways that a person’s personal finances may have improved during the pandemic…