Cash Flow Changes When Starting A Family

Cash Flow Changes When Starting A Family

Starting a family is probably one of the most complex periods in a person’s financial life. There are changes to income, expenses, insurance, investments (RESPs) etc.

Anticipating and managing all these changes can be overwhelming. It’s good to have a framework to help understand what changes you can expect and how large they may be.

It’s also a good idea to prepare yourself financially for all these big changes. There are a few things you can do to prepare your finances for a decrease in income and an increase in expenses.

Generally you can separate the financial changes when starting a family into six different areas.

There are changes to…

– Income
– One-time expenses
– On-going expenses
– Insurance
– Investments
– Taxes and Gov. Benefits

In each of these areas there are different financial impacts that come with starting a family. Some of these impacts are positive and some are negative.

For example when it comes to Income, most new parents can expect to receive the Canada Child Benefit, one of the most generous benefits in Canada. This government benefit could add thousands to a new parents annual income (plus its non-taxable!) But at the same time a new parent may take 12-18 months off work which has a very negative impact on Income.

There are also many new expenses a new parent will face. There are one-time expenses, on-going expenses and then short lived but high cost expenses like daycare.

To help a new parent plan all these changes we need to look at each area separately to understand what changes we might expect.

A Fool Proof Way To Manage Investment Volatility

A Fool Proof Way To Manage Investment Volatility

With investments values moving up and down 5% to 10% per day this investment volatility can feel like a roller coaster both financially and emotionally. If you’ve been watching your investment portfolio day-to-day you may be feeling a bit nauseated by now.

Thankfully there is a fool proof way to manage this investment volatility, just don’t look.

Not looking at your investment portfolio is simpler said then done of course, but it’s the best way to manage investment volatility.

It’s been proven that we put more weight on negative experiences than positive experiences. We feel the impact of negatives more than we feel positives.

Even when they’re the same size, a loss feels worse than a gain. Losing $50 feels worse than gaining $50.

So with markets jumping up and down 5-10% per day this can lead to some VERY negative emotions. The positives just don’t out weight the negatives and we end up feeling worse and worse with each rise and fall.

But not looking at your investment portfolio can be surprisingly hard to do. So what can the average investor do to help themselves feel better during a market correction? What strategies can they use to avoid looking at their investment portfolio? What routines can they implement?

This post looks at a few different ways to help you manage the emotional impact of investment volatility.

It’s Time To Plan, Not Panic: How To Prepare For A Recession

It’s Time To Plan, Not Panic: How To Prepare For A Recession

They say the best time to plant a tree was 20-years ago but the second best time is now.

The same goes for financial planning. The best time to build a plan is before a crisis/recession/depression but the second best time is today. A good financial plan will help ensure that you’re prepared for a recession or financial emergency.

Having a financial plan provides an incredible amount of peace of mind. A good financial plan will already have anticipated a scenario like this and will ensure you’re still successful. It will highlight how to prepare for a recession and what changes you need to make to ensure you are successful over the long-term.

There are a few best practices that can help improve the ‘robustness’ of a financial plan. These are practices you can start using right away, even if they weren’t previously part of your plan.

Some of these best practices focus on behavior. They help manage your financial routine during emotional periods like this. Some focus on flexibility. They ensure that you have room in your plan to absorb the unexpected, whether that be changes in income, changes in expenses, or changes in investment returns.

It doesn’t matter if you’re in retirement, starting a family, or just starting to save and invest, there are a number of ways that you can prepare for a recession that will help you feel better about your finances and your long-term plan.

This post will touch on many of these best practices. These are best practices that we’ve covered in previous posts, so we’ll cover the basics here and link to past posts for more detail.

Great Low Risk Investments And Where They Fit Into Your Plan

Great Low Risk Investments And Where They Fit Into Your Plan

Low risk investments are an important part of every financial plan. There are certain reasons we want to use low risk investments in a plan and there are different types of low risk investments that we may want to consider.

Often we can become too focused on increasing investment return to appreciate the usefulness of a low risk investment. When used appropriately, a low risk investment provides an important source of funds in an emergency, or provides less volatility in our investment portfolio, or provides a psychological advantage that may help us avoid making a behavioural mistake during a downturn.

There are a few places that low risk investments will show up in a typical financial plan. If you haven’t considered these uses for low risk investments then it might be time to get a second opinion on your financial plan…

1. Emergency fund
2. Saving for infrequent expenses
3. Saving for a down payment (Or other short term financial goal)
4. Fixed income portion of an investment portfolio

These are some of the typical uses for low risk investments but what are some good low risk investments to use and which of these uses would they be appropriate for?

New Parents Guide To Setting Up An RESP

New Parents Guide To Setting Up An RESP

Congratulations! You’re starting a family or have already started a family and through all the craziness of raising children you’re also thinking about setting up an RESP. That’s fantastic!

As a new parent you now get access to a special tax advantaged account called the RESP and it comes with some special features that all parents should take advantage of.

As the name implies, the Registered Education Savings Plan (RESP) is meant to help parents (or relatives) save for a child’s post-secondary education.

There are a few benefits to the RESP that make it attractive to parents. One is that investments inside the RESP are able to grow tax free. The second is that contributions receive a matching grant of up to 20% or $500 per year, whichever is lower. Plus there are even extra grants and learning bonds available for lower income families.

But with all the attractive features of an RESP there are also some restrictions. These restrictions can sometimes be worrisome for parents and cause them to avoid setting up an RESP for their children. In this post we’ll explain what an RESP is, what you’ll need to set one up, some of the terminology you’ll encounter, and finally how to withdraw from your RESP in the future.

How RRSP Contributions Affect Your Government Benefits

How RRSP Contributions Affect Your Government Benefits

RRSP contributions can be a great tool to help manage your income taxes before and after retirement. They can also be a great tool to help manage your government benefits in a similar way. RRSP contributions affect government benefits like the Canada Child Benefit (CCB), Ontario Child Benefit (OCB), Guaranteed Income Supplement (GIS), GST/HST Credit, Ontario Sales Tax Credit etc etc.

What many people may not realize is that most government benefits have a “claw back” rate that acts like a tax rate. If you earn more income the “clawback” rate will reduce your government benefits. But the opposite also happens, if you make an RRSP contribution and your income goes down, then this “clawback” rate will work in reverse and it will increase your government benefits!

There are a couple situations where RRSP contributions can have a BIG effect on government benefits. Let’s take a look at two real life examples.

One example is a senior who is receiving GIS benefits. We’re going to plan some strategic RRSP contributions to help them maximize their GIS benefits. This is counter-intuitive, we’re always told that TFSAs are best for low-income individuals, but in this case we can use RRSP contributions strategically to maximize GIS.

The second example is a young family with three children. They’re receiving the Canada Child Benefit and the Ontario Child Benefit and we’re going to plan some strategic RRSP contributions to help them maximize their family benefits.

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