In these uncertain times, it’s more important than ever to build your financial house and protect your family. And yes, even during this pandemic, there are many things you can do to build your Financial House now and protect your family during uncertainty and in the future.
Here are our 4 tips to build your Financial House now from the ground up.
Have a Solid Foundation for your Financial House
The Foundation consists of making sure you have a Will, Power of Attorney and Insurance. These three things provide the basic protection for your family.
Preparing A Will
Your will is a written document that sets out the instructions for what should happen to your estate (property) after death. It also names a person (formerly known as an executor but now called an estate trustee) who will carry out the terms of the will.
It’s important to remember if you divorce or remarry to update your will as your original will be null and void.
When a person dies without a will, there are laws that determine what happens to their property and what the process is before their estate can be dealt with. This leads to a freezing of all assets (other than life insurance, with a named beneficiary) and there can be a significant financial hardship for the family until the estate is released. Sometimes it can take 6-9 months before this process is complete.
Adrienne’s husband was only 46 when he died without a will. As a university student with two young children and no income coming in, Adrienne was left in a difficult position. She documented her story in this video to help people understand the importance of a will.
Power Of Attorney
A power of attorney is a legal document in which one person gives someone else the power to act on their behalf. In Ontario, there are laws that set out the two types of powers of attorney that can be used if a person becomes incapable: a power of attorney for personal care and a continuing power of attorney for property (finances).
Looking after our estate, whether it’s big or small is very important. Please make sure that you do have a current legal will and powers of attorney as most people, unfortunately, do not.
Make an appointment and go and see a Lawyer so that you will have a peace of mind knowing that you’ve taken care of yourself and your loved ones before it’s too late!
Insurance is an essential component to the Foundation of your Financial House. It will protect you and your family against a financial loss in the event of death, disability or a critical illness. Every family’s situation is different and not all types of insurance are needed by every family, but the most important kind of insurance is life insurance.
Life insurance is an essential financial tool that can make all the difference to your loved ones in the event of your death. It will allow them to enjoy the lifestyle you planned for them while they grieve without the added burden of any financial hardship. Life insurance is truly the foundation of your financial house and everything else is built around it. The named beneficiary would receive the proceeds tax-free and would then be protected from any financial impact. If someone in your life will suffer financially when you pass away, you need life insurance.
The next of our 4 tips to build your Financial House discusses how you can eliminate bad debt and leverage good debt.
Eliminate Bad Debt
Are you drowning in debt?
Before the pandemic many Canadians had significant debt levels in both non-mortgage and mortgage debt in 2019. During these more challenging times, it is sure to rise. For the full CTV report click here.
We have helped so many families eliminate debt and rebuild their credit scores. Depending on your circumstances, we may be able to consolidate your debts and build an emergency fund. We have numerous methods to do this, as we work with many institutions including private lenders.
In more difficult situations we can help clients through a consumer proposal or bankruptcy. If filing bankruptcy is the best option for you, while this may seem embarrassing, sometimes it is the best way to get you on your feet and give you a chance for a fresh start. Don’t worry, we will work with you through the whole process – you’re never left alone.
Leveraging Good Debt
Yes, you read that correctly. Despite what everyone has told you, there is such a thing as ‘Good Debt’. Good debt can include the mortgage used to buy another property, the new mortgage you used to consolidate your higher interest debts, ie: credit cards, the money you borrow to invest in the market or even the money used to pay for higher education at Colleges and Universities. In a sense, good debt is an investment in something that will grow in value and or generate future income. At the Blackmore Levy Group, we offer full mortgage services, representing all lenders and cover all types of mortgages.
The last of our 4 tips to build your Financial House, is how to build wealth for your retirement as tax efficiently as possible. When circumstances change drastically and the financial markets plummet, if you have money to invest, now is the RIGHT time to invest for your future. No-one can time the markets perfectly, but if you dollar cost average, by putting your money gradually into the markets (weekly, bi-weekly or monthly) and invest in solid businesses, you cannot go wrong. This will help you build a nest egg for your future retirement.
To help build your Financial House paying the least amount of income tax, here are the three best options:
TFSA – Tax-Free Savings Account
Although “savings account” is in the name, it’s actually not a savings account. Think of a TFSA as an investment chest that you can put different types of investments into, such as Cash, GIC’s, Bonds, Stocks, Mutual Funds and even Segregated Funds. The “tax-free” part means that any growth on the investments is tax-free.
Annual contribution limits apply and if you don’t use it all in one year, it rolls over to the next and accumulates from previous years. You can use it for both short-term savings, such as a vacation or emergency fund. It’s also well suited for your long-term and retirement savings as the money deposited into a TFSA is not taxed when you withdraw it. The retirement bonus! Your withdrawals are not considered income, as they’re not taxed and they don’t impact government benefits or pensions.
RRSP – Registered Retirement Savings Plan
An RRSP is also an investment chest that you can put different types of investments into, such as Cash, GIC’s, Bonds, Stocks, Mutual Funds and Segregated Funds. There are annual contribution limits that are based on your income, with the maximum contribution amount set as 18% or a set annual maximum. The traditional use for an RRSP is for your long-term savings and for your retirement.
RRSP’s have some special tax advantages. Any growth on your investments grows tax-free. You get immediate tax relief by deducting your RRSP contributions from your income each year. Therefore, your contributions are made with pre-tax dollars. You will, however, pay tax when you withdraw the savings from your RRSP. As you’ve deferred this tax liability to the future when your marginal tax rate will be lower in retirement than it was during your contributing years! RRSP’s have to be closed at the end of the year you turn 71 so that’s when you can either, convert it into a RRIF, buy an Annuity or withdraw it all in cash.
SRRSP – Spousal Registered Retirement Savings Plan
A spousal RRSP is registered in the name of your spouse or common-law partner. They own the investments but you contribute to it. You get the tax deduction for any contributions you make to the spousal RRSP. However, any contributions you make will reduce your own RRSP deduction limit for the year. They won’t affect how much your spouse can contribute to their own RRSP. The growth on the investment also grows tax-free.
A spousal RRSP is a way for you and your spouse to split your income more evenly in retirement. That means the combined income tax you pay as a couple may be lower than what you would pay if all your savings were in a single RRSP. You may want to do this if you earn more money than your spouse and you’re likely to be in a higher tax bracket when you both retire. Or if you have a pension plan and your spouse doesn’t.
If you start with our 4 tips to build your Financial House now during this fragile time, you will be in a great position to protect your family as well as build wealth for your retirement.
Would you like to build your Financial House now and protect your family? Together let’s build it right! At Blackmore Levy Group our team is passionate about helping families by educating and planning financial futures one family at a time. For your free customized blueprint of your Financial House call us at 1.888.520.6520 or connect with us here.