The merging of two financial lives into one can create havoc on even the strongest of relationships and especially if money talks were never tackled beforehand. Ideally, financial discussions should have happened long before the marriage; however, it is never too late to try to understand your partner’s feelings about money and how compatible they are with yours. 

 The following quiz can help provide some insight into you and your spouse’s financial compatibility

1.       Do you have some sort of realistic budget or a spending plan in place that you are both accountable to?

2.       Are you comfortable with your spouse’s spending habits?

3.       Do you argue over monthly bills?

4.       Do you and your spouse discuss major financial decisions before they are made?

5.       Do you and your spouse have a plan of attack in case one of you should lose your job? (I.E. Currently live off of only one income and bank the other)

6.       Do you and your spouse share in the responsibility of managing your financial affairs?

7.       Do you and your spouse regularly discuss your finances including your short and long term financial goals?

8.       Do you and your spouse share the same views towards debt and savings?

9.       Are you and your spouse both actively saving for retirement?

10.   Do you and your spouse send the same message about money to your children?

Ideally, the answers to all the above questions should be yes. 

 

To achieve complete financial unity may not be a realistic goal for many couples but to achieve greater financial compatibility is. However, this does require a lot of work.  Here are a few tips to help improve your financial compatibility:

·         Devote more time to financial discussions and to goal planning.

·         Define what each of your financial responsibilities is.

·         Start making joint decisions about how your money is to be spent.

 

If you are finding it a challenge to have these important money discussions you may want to seek the advice of an experienced financial planner. A financial planner can help you identify differences you may have and how you can work towards finding a happy medium, which is valuable and meaningful to you both. When there is mutual understanding about financial goals, couples most often will work together to achieve them resulting in fewer money confrontations. You can then redirect such valuable energy towards building a more positive and prosperous future together. 

Whether you know it or not, you are teaching your kids every day about the value of money by how you spend it, save it, invest it or waste it. Qualified or not, you are their money coach and they will learn by watching and listening to your every move.

If this concerns you, not to worry as all is not lost… yet. If you want to raise financially healthy kids it’s better to start late then never at all and an allowance is a great way to start. Among other things, it teaches your kids how to manage their ‘own’ money. Even though it should be up to them to decide how to spend the money, it’s a great opportunity for you to teach some practical skills. I suggest starting with 5 simple money principles: earning, spending, saving, borrowing & giving.

Earning:

An allowance is your child’s ‘pay-day’. Establish the amount based on their age and the family finances. Be consistent and pay on time. The purpose of an allowance is really to teach your kids firsthand about money management. Don’t tie it to chores. If you are a member of the family then you are responsible to share in the household chores. This is not something you or anyone else should get paid for. However, give your child the opportunity to be able to earn extra money for taking on additional chores or responsibilities. Also, don’t pay or reward for your kids getting good grades. That is a personal accomplishment and should not be tied to a financial benefit.

Spending:

Have a discussion with your child about what exactly they are expected to pay for using their allowance. This is the start of them learning to live within their means. Something many adults don’t even know how to do successfully. Teach your kids age appropriate budgeting. For example, you have $5 to last one week and you are responsible to pay for any treats when we go to the grocery store. As your child gets older, their allowance increases as does the expenditures they are expected to use it for.

Savings:

Just as financial gurus advise you to save 10% of your income, so should you advise your kids. Teach them to pay themselves first by encouraging them to take 10% of their allowance and put it towards savings. If your child earns $2 a week, then suggest they take .20cents and put it into their piggy bank. If they earn $10 a week, again suggest $2 go towards savings. I often recommend creating ‘savings jars’ and act as the Bank of Mom. Open a ‘real’ savings account for each child and when the jars get full have the kids take the money to the bank to deposit. There will be nothing more exciting and encouraging for them, then to see their own money grow. Remember, it’s not the amount their saving that matters as much as the lessons and habits they are learning.

Borrowing:

You may think this is one aspect of money management you don’t want your kids to learn too early, if at all, but your child needs to be taught from an early age that ‘borrowed’ money is not free money. So teach your kids ‘age appropriate’ lessons on borrowing. If your child wants $10 to buy something and they have already spent their allowance, you now have a perfect opportunity to teach some valuable money management lessons.

You have the option to take a hard line, no money, no purchase. You can teach your child how to start a savings plan to build enough money to make this purchase - delayed gratification. Or you can lend them the money from the Bank of Mom. I suggest creating an ‘IOU’ jar and have your child sign an IOU. You may want to add interest on the borrowed amount to teach an authentic lesson on how the real world works. When allowance day comes, be sure you take the agreed upon amount off the top as payment for the loan.  When your child realizes they have little cash flow and nothing going towards their savings, they may think twice about the next item they so desperately need.

Giving:

Last but definitely not least, teach your child the importance of giving back. Whatever charities or causes the family supports encourage your child to take a portion of their allowance and ‘give back’ If they happen to love animals, your child can buy a can of cat or dog food and take it to the local shelter. Or buy a toy for a child who is not so fortunate. There are also many non-monetary ways to give back; donate unused clothes or toys or volunteer your time, just to name a few. It’s not about what or how much, just that you are giving back.

It’s never too late to teach your kids about money. Just remember 3 key points, lead by example, start young and let them learn by doing. Although making mistakes is a part of life when it comes to money, it’s better to make them early while the ante is still small.

Get the skinny on your financial ‘well being’ by taking the Summer Shape up Quiz.

 Quiz 

 

1.       I earn enough money each month to pay all my bills? Yes/No

 

2.       I have enough money saved to pay for emergency or unexpected costs?  Yes/No

 

3.       I have written financial goals?  Yes/No

 

4.       I have a written savings and spending strategy that I follow? Yes/No

 

5.       I know my net worth (what I own minus what I owe)? Yes/No

 

6.       I know where ALL my important financial documents are located? Yes/No

 

7.       I have a Will and Powers of Attorney in place? Yes/No

 

8.       I know where and how my money is invested and I meet with my advisor at least annually to review? Yes/No

 

9.       I have had my insurance needs reviewed within the last 2 years? Yes/No

 

10.   My mortgage and loan payments are less than 30% of my overall income? Yes/No

 Please give yourself one point for every yes answer and then add up all your points to see how you did.

 

 

If you want to manage your money better and didn’t fare so well on the quiz, don’t get discouraged. This is the time to make a new start.  Changing even a few of those ‘no’s’ to ’yes’s’ can make a real difference in your overall financial well-being.  Here are a few simple tips to get you started:

·         Educate yourself. There are many great websites and books available where you can find useful information depending on your needs.

 

·         Find a qualified financial adviser/coach. If you wanted to lose weight, you might hire a trainer or join a weight loss program. Well if you want to lose your debt or build up your savings, get a good financial advisor/money coach who can create a plan and support you along the way.

 

·         Stick to a plan. Why do diets fail? Because we do not stick with them. Make sure your financial goals/strategies are realistic and attainable. Most importantly, renew your commitment daily and follow through.

 

 Don’t worry if at first you find it a challenge to make sense of your financial health.  Like anything, it takes time. The most important thing is to just get started. Set some financial goals, follow a budget and save and you’ll be ahead of most.

 

 

Nobody takes pleasure in suddenly becoming unemployed. Just the ‘prospect’ alone can be very overwhelming and stressful. Often the worry or anxiety comes from feeling you have no control over the situation. This is partially true, you may not be able to control what your employer does but you can control to some extent how it will affect you and your family. The reality is, no one’s job is really secure but a layoff doesn’t have to be the end of the world. The key to survival is to be prepared, especially with regards to your finances.   Here are some things you can do in advance of being laid off:

 

1. Have emergency funds put aside to cover at least 3 to 6 months of your basic living expenses, such as your rent or mortgage, utilities, food and debt repayment.
2. If you are living paycheck to paycheck and do not have the extra funds at the moment to build up savings then set up a line of credit while you’re still employed. I am always cautious giving this advice, especially to people who have trouble staying out of debt. While you have an income, go to your bank and see if you qualify for more credit. If you lose your job and have no replacement income or not enough to cover your monthly costs, you will be in real trouble. This is when people get desperate and max out their 18% credit cards or potentially file bankruptcy. So get a line of credit now just in case you’ll need one later.
3. Get out of as much debt as possible. Transfer high debt loans/credit cards to lower interest rate vehicles and then start aggressively paying them down. By reducing or eliminating your debt, you reduce the amount of money that leaves your pocket each month. If you lose your job, you want to be able to survive on as little amount of money for as long as possible. 
4. Develop a ‘layoff’ budget before you lose your job. Figure out what sources of income you will have coming in such as EI and/or a severance package. Assess your basic living costs - mortgage/rent, utilities, loans, and food.  Ensure you have an emergency reserve and/or line of credit established that would cover any shortfall in income over a 6 month period.
5. Start living within your means now. Generally a good idea, regardless of whether or not a layoff is looming, but if a potential job loss is on the near horizon, avoid any unnecessary purchases for the time being, such as a new car, vacation, or renovating your home. Live as frugally as you can now and bank any extra monies.  We have heard it all before, leave the credit cards at home and pay cash for all purchases. Try to grocery shop only once a week. Eat out less. Re-evaluate your monthly bills and find ways to reduce them; call your phone provider and see if a better, less costly plan exists, let go of some of the cable channels. Get the whole family involved in the process. It will definitely teach your kids some smart money practices. 
6. Find ways to bring in some extra money now and then bank it. You could have a garage sale, sell things on ebay or assess your skills and see if there’s something you can do on the side for extra income or get a part time job now. Necessity is a time for creativity. Most importantly, bank all the extra monies you bring in.

 

 

Losing a job can often be a harsh wake-up call to how financially on the edge we have been living. In other words, living paycheck to paycheck.

 

If you are fortunate enough to be notified ahead of time of a layoff then I would highly suggest that you use that time to your advantage. Don’t just wait for the pink slip to be given. Even using one of the tips I have given will make a difference to your overall financial health. The reality is that a layoff could happen at any time and it’s best to be prepared. Hope for the best but prepare for the worst.

 

Rhonda Sherwood, CFP, FMA

ScotiaMcLeod

Wealth Advisor

 

Do you remember the good old days when spending our tax refund frivolously wasn’t such a big deal? Our jobs were stable, house values seemed to be on a never-ending climb and the stock market was booming. Things were looking pretty good.  Well, we are all feeling a little less wealthy these days; our portfolios have been beaten up, the wealth in our homes have taken a blow and on top of all that, we are worried about our jobs and the stability of our income.  There is a lot of insecurity or fear out there and so spending our tax refund on a great vacation or a new flat screen TV may not be the most financially savvy thing to do

 

 

So what should we do with this year’s tax refund- spend it or save it, invest it or splurge?

 

Well, that all depends. In these tough times, it is a good idea to give some thought to your overall financial health with the first and most obvious area being your emergency reserves.  Lets take Karen for example, a 42 year old marketing executive with a small independent firm who wants to know what she should be doing with her estimated $10,000 tax refund. In past years, Karen just reinvested her refund into her RRSP but this year things have changed. Karen’s company has been hit hard by the economic slump and has been hinting that layoffs are eminent. Although Karen is a long time employee with seniority she is not immune to layoffs.

 

 

The first thing Karen needs to do is evaluate her existing emergency savings funds to ensure that she has at least 3 to 6 months of living expenses set aside. Knowing that you have some backup money just in case can definitely ease some of your anxiety about what may happen. If Karen has little in the way of savings, a tax refund can give her the means to start building up a reserve. I would also suggest that Karen open up a low rate line of credit to help make up for the shortfall in savings. It is easier to qualify for debt when you have income, keeping in mind that this line of credit is ONLY to be used to help pay bills or pay emergency expenses.  

 

 

Let’s assume that Karen does have an adequate emergency savings fund, how then should she best use her tax refund?

 

Karen should review her overall debt load and either consolidate her loans into one low rate loan or start aggressively paying down any high rate loans.  You would be quite surprised at how many people have no idea how much they owe and what it is actually costing them to borrow it. Most often this is because we have way too much debt and it’s all over the place.  So we need to simplify our debt. We can do this by taking all our loan statements to our banker and ask if they can consolidate them into one, low rate, manageable loan. If you have only one loan payment, it not only makes life much simpler but also makes getting out of debt much more ‘doable’. Now if you have some high interest rate loans that you cannot negotiate into a lower rate loan then I would highly advise you to make it a priority to start aggressively paying them down. Use your tax refund here.

 

 

What if you have already paid off your debt and have a sizable emergency fund- then what? 

 

Lets say that Karen has a healthy savings accounts and no debt with the exception of her 4% mortgage, what then should she do with her refund?  Today’s low interest rates and stock markets make it a good time to invest versus paying down debt. Karen is in a high tax bracket, has a long time horizon and is a moderately aggressive investor who should yield between 7-8% over the long term. With all this in mind, investing versus paying down her 4% mortgage makes more sense for her. And since Karen’s tax refund was earned by making contributions to her RRSP, then why not continue the cycle and invest back into the RRSP creating an ever-growing nest egg. The $10,000 contribution would generate a $4,000 refund at the 40% marginal tax bracket, which she can throw back into the RRSP again next year.

 

So what should you do with your tax refund?

 

It’s important that you understand your unique financial circumstances before making any decisions. Use the refund productively and resist the temptation to spend it on frivolous items. In the long run you will be better off having money in the bank, with little to no debt then a big TV or just the memory of a two week vacation……..

 

 

What the heck is a recession?
Well we now know that we are officially in one, so what the heck is it? In simple terms, a recession is when the economy stops growing and for the most part, starts going in reverse. Technically it is described as two or more consecutive quarters of negative growth and job losses.

Why does a recession get worse?
As companies start making less money they cannot continue to hire people or employ some of their existing workforce and layoffs start to happen. You may buckle down and start to spend less because you are now either out of a job or worried that you soon will be. Guess what happens if we all stop spending? Businesses sell even less and profits go down even more and it all starts all over again with more layoffs.

So how does a recession end?
The short answer, when the reverse starts happening. For the most part, a recession will correct itself as interest rates drop to a level that encourages borrowing and spending again.

 Is this why interest rates keep dropping?
Yes. When the Bank of Canada drops the interest rates, it’s as if they are putting our money on sale. When things go on sale, people tend to buy.  Imagine that you borrow $100,000 at 7% to buy a home. Your monthly payment is about  $700. Today you can get a mortgage anywhere from 4 to 6%. So lets say you got a 4% mortgage today, then your monthly payment will be about $530.00. That’s almost $200 cheaper a month. This means that more people can now afford to get into the housing market.

So if it costs me less to borrow money, I more inclined to do so.
Exactly, when rates are low and money is cheap, people and businesses will borrow and start spending again. If we are all spending again, the economy will start expanding.

Isn’t credit and spending how we got into this mess to begin with?
It wasn’t that simple but more a deadly mix of easy money, predatory lending, an unsustainable housing boom, a lack of rules and regulations and the fabrication of complex and treacherous financial instruments that have basically caused this global recession

Last thoughts
Well we will come out of this, we always do but it takes time…………..

 

Rhonda Sherwood, CFP, FMA
Wealth Advisor
ScotiaMcLeod
rhondasherwood.com
itshermoney.com

 

I always advise women of two things, first take care of your personal finances throughout your years ‘as if you had to’. And  second, save regularly regardless of your financial health. This was the adage of a client I dealt with years ago. A lesson learned when her husband of 25 years walked out and left her and their 3 kids in a state of financial shock. As she said, “how I wished I had paid attention to our finances over our marriage”.  Twenty years later she is retired and fulfilling her dream of travel. 

 

How? 

Well she had decided to become a student of her own financial health. Her first step was to get a true understanding of the financial situation she was now in. She figured out how much money she needed a month to house and clothe her children. With that in mind she went in search of a job that would pay enough to cover these basic needs.  And then regardless of her financial position every month she put away whatever she could towards her retirement savings. When she finally decided to retire she had over $300,000 invested. In her words, “I started saving just $5 dollars a month. After a few years this had crept up to $25. And by the time the kids had left home I was saving $200 a month. It just became an empowering habit”. 

 

So what did I learned from this client?

Take responsibility of your own financial health throughout your life, ‘as if you have to’.  This means you should have an understanding of what monies come in and what monies go out. And second, set up a regular saving plan.  The latte factor as it is called. If you are spending $4 a day on that fancy coffee you can surely find $20 a month to put aside for savings.

 

Start small if you have to and invest into something you cannot easily access. Take charge of your financial health and make your retirement your responsibility.  As I like to remind my female clients, “A Man is not your Retirement Plan”.  You are!

 

Rhonda Sherwood, CFP. FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com

As women, we are likely to outlive our spouses or partners by an average of 5 years. Although this may seem financially insignificant when planning for a 20 to 25 year retirement, it could potentially be our most expensive years.

Things Women Need To Know

• 80% of men die married, while 80% of women die single. 75% of women living in poverty today were not poor before they were widowed.
• In 2005, women earned 84 cents for each dollar earned by men.
• The average income of a married woman is less than that of single women because the former take on more family responsibilities.
• Many women either stop working or work less hours when they have young children. This means they are not contributing to a company pension plan or an RRSP.
• Women tend to either be self-employed, have part-time jobs or work for a flat rate, all of which influence the savings.

 

So How Has This Really Impacted Us?

Let’s see - we need the same monthly income to live on as men but continue to earn less. Our broken work patterns or part time jobs have drastically impacted our ability to save and hence, the future value of our RRSP’s and pension plans are affected. And due to the increasing divorce rates we have found ourselves not only to be the primary caregivers for our families but in many cases the sole or main financial source. What money or time is left over to put towards planning our retirement?

 

As compelling as each of our stories is, the fact remains the same; older women who are single or widowed are most at risk for poverty. Although one would think that the likelihood of spending our Golden Years in a state of financial hardship would be more than enough of a motivation to get us into serious planning mode, less than 35% of women today actually do so. So if you take anything away from my words let it be this, it does not matter whether you are single, married, widowed, a business woman or a stay at home mom; take charge of your retirement planning today. Regardless of income, you will be the one who decides your level of financial security in retirement.

 

 

Rhonda Sherwood, CFP, FMA
Wealth Advisor, ScotiaMcLeod
www.rhondasherwood.com
www.itsHERmoney.com

 

One of the most frequent questions I am asked is whether one should pay down their mortgage or invest in their RRSP’s. Although I am a big believer that financial freedom is achieved first and foremost by being mortgage free, there are a few factors that play into the equation such as, the return on your investments, your marginal personal tax rate and your current mortgage rate.

 

Why are these factors important? Well the higher your personal tax rate is the greater your tax savings will be on your RRSP contributions. So if you are in a high tax bracket, contributing to your RRSP may make more sense than paying down your mortgage. However, if interest rates are rather high, potentially higher than what you might return on your investments then paying down your mortgage first may make more sense. And visa versa, if the rate of return on your RRSP’s is consistently higher than your mortgage interest rate then investing in the RRSP is the better choice.

 

These are not the only factors to consider. A suitable decision can only be made after all your financial circumstances are known, such as

•  How far off is your desired retirement date?
• How many years do you have left to save for retirement once your mortgage is fully paid down?
• What will your current sources of retirement income be i.e. RRSP’s, company pension plan & Government pension plan?
• What is the type of lifestyle you want in retirement and what will it cost?
• How many years in retirement will you need to fund ie. 20 years, from age 65 to age 85?

 

If you make paying down your mortgage your priority, you’ll save a lot of money in the long run on interest costs and be debt-free sooner. Unfortunately your retirement income may be at risk. However, if you decide to invest in your RRSP’s and forgo any additional payments to your mortgage, you will pay more in interest costs and be no closer to owning your home. You will however, have the benefit of tax-deferred, compound growth and the peace of mind that comes from knowing that you can live the lifestyle you desire in your retirement.

 

   Tips to consider

1.  Contribute the most you can each year to your RRSP. Consider setting up an automatic monthly savings plan. The ‘pay yourself first’ method of investing will help ensure that you are consistent with your contributions to your RRSP plus you will get the benefit of dollar cost averaging. You can then use the tax rebate to either invest back into your RRSP or use it as a lump sum payment down your mortgage.
2. Make sure that your mortgage amortization is no more than the numbers of years you have left until you retire.  For example, if you plan on retiring at age 65 then you should ensure your last mortgage payments is made before this date. Ask your banker for help with this.
3. Make bi-weekly mortgage payments instead of monthly payments. Using this strategy will cut years off your amortization as you are actually making an extra payment each year.
4. If you take out an RRSP loan at prime or prime plus one, consider using your tax rebate to pay down higher rate loans. For example, if you take out a $10,000 RRSP loan at 4.5%, use the tax rebate to pay off your 18% visa bill. Then make your scheduled monthly regular payments to the RRSP loan.

 

 Whether you decide to pay down your mortgage or invest in RRSPs, in the end both are good strategies that focus on paying yourself first. Although I usually advise clients to do both - contribute to your RRSP and pay down your mortgage (using your tax rebate).  Start early and be consistent and you should have a mortgage free home and money in the bank by the time you hit retirement. With proper planning and determination you can achieve both.

 

Rhonda Sherwood, CFP. FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com

 

Live by Design- create a retirement adventure of a lifetime that is exciting, comfortable and worry free.

I specialize in working with retirees and those nearing retirement who are looking for ‘Wealth Planning Advice’. Be it money management, insurance, retirement and/or estate planning advice. My clients portfolio’s typically range from $100,000 to $5 million.

 

Things to know about the new Tax Free Savings

 

 

• Starting January 1, 2009, the Tax Free Savings Accounts are available for Canadian residents who are at least 18 years of age.

 

• You can contribute up to a maximum of $5000 a year. Any unused contribution room gets carried over to the following year. 

 

• Withdrawals from your Tax Free Savings Account will not affect your ability to qualify for Federal income tested benefits like the Child Tax Benefit or the Guaranteed Income Supplement.

 

• You can have more than one Tax-Free Savings Account with different institutions but you cannot exceed your allowable contribution limit.

 

• You can open a Tax Free Savings Account and invests in GICs, mutual funds and other investments and not be taxed on any of the growth or earnings. 

 

 

 

Tips

 

• Don’t replace your RRSP for a TFSA just yet. If you are in a high tax bracket contributing to your RRSP may be the preferred route to take. Then use your tax rebate as your annual contribution to your TFSA.

 

• RESP are still an ideal vehicle to use to save for your children’s education. Like a TFSA, all growth is tax free. Unlike a TFSA, the RESP comes with the Canadian Educational Savings Grant of at least 20% but the grant and all the growth within the RESP is taxed upon withdrawal.

 

 

For More Information, check out the Government’s Tax-Free Savings Account information page.

 

 

 

Rhonda Sherwood, CFP, FMA

Wealth Advisor

http://www.rhondasherwood.com

http://www.itsHERmoney.com

Are you living the life today that you envisioned you would be living 5, 10 or even 20 years ago? Are you content with most, if not all, of the many components that make up your world: your family, friends, career, health, finances, spirituality and community? If yes congratulations, that is no small feat to accomplish and probably didn’t happen by chance. Most likely you achieved this through purposeful goal setting, hard work and perseverance.

 Although many of us probably have some idea of what we want our life to look like, few actually take the time to clearly define our goals, create an action plan and then follow through. Without setting goals, the direction of our life can change with every event or circumstance that comes our way. Wanting to be skinnier is very different than making a specific goal to lose 10 pounds in 3 months through diet and exercise. A sheer way to achieve success is to set goals and follow through.

 

Benefits of goal setting

•  Provide direction and purpose to your life
• Helps you to make decisions that will positively affect your future
• Allows you to focus your energies on what’s most important to you
• Will enhance the overall quality of your life, and will provide peace of mind           

 

Goal setting is also crucial to financial planning; as you will need the financial means to support the life you envision having. Without knowing what you want in life, you may be misdirecting or wasting away your resources. For this reason, the first step to undertake in the ‘savings room’ of your financial house is to determine what your short and long-term goals are. Your goals should be designed around your most important values.

 Take some time to think ahead. What do you want your life to look like in the coming years?  What is important to you? What would you like to have more of and less of? Without knowing the answer to these questions, goal setting will be a difficult challenge.  I often advise clients to follow the SMART system when devising their goals; goals should be Specific, Measurable, Attainable, Realistic and Timely.

• What are your short-term goals (under five years) and what are the financial resources you will need to achieve them (costs)?
  For example, New kitchen to be built by October 2009 at a maximum cost of $25,000
•  What are your longer-term goals (five plus years) and what are the financial resources you will need to achieve them (costs)?
  For example: Reduce work hours by half by age 55. Need extra $20,000 a year from investments to supplement part-time income.
               

People tend to have more goals than the money to support them, therefore, when doing financial planning often just two or three goals are taken into consideration. That is why it is very important when goal setting to prioritize, to be realistic and to set attainable goals.  You may want to retire when you are 50 but is this really within your financial capabilities? Maybe not, but perhaps with the proper planning, commitment and discipline retiring at 55 is within reach.

 However one thing is for sure, to achieve your goals you must start now. Only you can put your plan into action. Additionally, you must reevaluate your goals on a regular basis as they may change or evolve over time. So be prepared to make any necessary adjustments to your plan along the way.You have the power to create your own destiny, so take the time to invest in the future you want.

 

If a man knows not what harbor he seeks, any wind is the right wind.
-Seneca

 

Rhonda Sherwood, CFP, FMA
Wealth Advisor
http://www.rhondasherwood.com
http://www.itsHERmoney.com

 

In the last few issues of ‘itsHERmoney’ we discussed the importance of organizing the 5 rooms of one’s financial house; our personal debt room, our savings plan room, our retirement plan room, our estate plan room and our insurance needs room. Last month we tackled the topic of managing and understanding our ‘debt room’. In this issue we will deal with our ‘savings plans room’ or more specifically the importance of establishing an emergency savings fund.

  

Why are emergency savings so important?

As they say, “life happens when you’re busy making other plan” and life tends to cost money. Having enough money put aside for such unexpected events can be the difference between staying afloat or sinking financially. So one of the most important elements of your financial plan is to ensure an emergency fund is in place - and sooner rather than later.

  

Why an emergency fund?

An emergency fund is an easy to access pool of money to be used solely for the purpose of emergencies. Having an emergency fund in place gives you the “peace of mind” that you can handle most financial crises that come your way. This could be anything from an unexpected car repair bill to losing your job. Unfortunately, those who have not planned in advance for such unexpected events tend to borrow the money at the last minute and often at very high interest rates. In addition, those without emergency funds tend to collect more debt overtime.

 

So how much is enough?

This depends on many factors specific to each person’s situation such as, how employable you are, whether or not you carry substantial debt, if you have adequate insurance, if you are a dual income household and/or if you have children. The general rule of thumb is to have 3 to 6 months of your current living expenses set aside for emergency situations. However I recommend the following to my clients: 

• At the very minimum save a $1000 now in a separate high interest savings account. Set it up so it cannot be accessed by your ABM card. This will help protect against impulse buying. Remember an emergency isn’t, “I NEED those shoes’ but truly an unexpected bill or expense.
• When you have that $1000 saved and put aside you should aggressively start paying down those high rate loans and/or consolidate your loans into one lower rate manageable loan.
• Finally, when your debt is paid (excluding your mortgage) it is time to start saving 3 to 6 months worth of your current living expenses. If you find that you are spending what you earn then take 3 to 6 months of your current after tax income as the barometer of how much you need to put aside.
  I also recommend setting up a line of credit that would cover a few months of emergency expenses. I say this with caution to those who have trouble steering clear of debt. This is solely to be used for emergency means only.
   

 How to get started on your emergency savings plan 

1. Determine what you can ‘reasonably’ afford to put aside each month - $25, $50 or $100
2. Setup up an interest bearing savings account to save the initial $1,000. Again I advise that you open up an account that is not easy to access i.e. no chequing or ABM privileges. This $1,000 will help cushion any unexpected bills that may come your way.
3. Set up an automatic process to save – this can be an automatic monthly payment or an automatic transfer between accounts.
   When you are ready to start saving the larger emergency reserve- 3 to 6 months worth of your current living costs – open up another high earning savings account or a money market mutual fund (the latter is not as easy to access and takes a few days for the monies to settle once sold. It also tends to pay a bit more interest than a regular savings account). You want to ensure these funds are liquid and assessable when needed but are also growing with the cost of living (after tax and inflation).
4. Make sure that you keep your emergency funds separate from any accounts that you are using for other savings purposes, like reno’s, travel or a new car. 

 

How to find money to save

• Basically, spend less than you earn
• Save all your loose change
• Have a garage sale.
• Review your current expenses/bills to see where you can make some sensible changes - do you really need the movie channel?
• Cut back on indulgences (Bring lunch to work, have one less cappuccino a week, eat out less, and/or rent a movie versus going to the theater).
• Consolidate your debt into one low interest loan.
• Pay cash for all your purchases. People tend to curb their impulse buying when they actually have to fork over cash to make a purchase. Using cash also helps prevent out of control credit card debt and saves on the interest charges you incur when you borrow money.
• Cut down on bank machine withdrawals – those service charges do add up.
• Find creative ways to make extra money. Do you have a skill set that can be put to work?

 

Financial emergencies can come at any time and at any cost. All you can really do to help protect you and your family from such financial crisis’s is to ensure you are adequately insured and that you have enough savings put aside to help ride out whatever uncertainty comes your way. Start small if need be but start soon.

 

 

Rhonda Sherwood, CFP, FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com

In the last blog, we discussed the importance of decluttering your financial house, as clutter and chaos tend to go hand in hand. Hopefully you have had the chance to tackle the mounds of paper that represent your financial house and separate the ‘must keep’ documents from the ‘shred now’ stuff. And even further, file those ‘must keeps’ according to each financial room they represent; personal debt, savings plans, retirement plans, estate plans and insurance needs.

 

Once you have accomplished this hefty task, you can then educate yourself on the basics of each of your financial rooms. Let’s begin with your personal debt room; do you know how much debt you have? What your debt is costing you (interest rate you are being charged)? And how long will it take you to pay off each loan that you have?

 

If you don’t know the answers to the above questions you could be in danger of accumulating debts that you will find hard to repay. Unfortunately anyone can experience financial difficulties and fall into the debt trap. The only way to avoid this common problem is to take the following precautions.

• Develop a good understanding of exactly what you owe and to whom. Create a debt journal with the following headings; amount owed, to whom, interest rate being charged, scheduled repayment amount and date loan will be repaid. Have the highest rate loan as your first entry, then the second highest as the second entry, and so on.
• Create a debt reduction plan. It is best to do this with the help or guidance of your banker/financial planner. Not only can they provide advice as to what loans you should pay down first, they can also help create and implement a debt repayment strategy.
• If you decide to go it alone, then ensure you pay down your highest interest rate loans first. If you can, try paying more than the scheduled repayment amount. You might also talk with your banker to see if you can renegotiate the interest rate on your high rate loans.
• If you have many loans, consider consolidating them into one manageable loan.
  Credit cards are probably the worst debt traps. They are often easy to acquire and easy to use…. and abuse. If you are not paying down the full amount owing on your cards the interest starts accruing and before you know it, you are knee deep in debt. If this sounds familiar then it may be time to take some serious action. Go see your banker and ask to convert all your credit card debt into one manageable loan. Then cut up those cards and start paying cash for your purchases.

 

 Access to credit does not have to be your enemy. Credit can be a good thing if you can use it responsibly. I often advise my clients to open up a line of credit that would cover 3 months of their living expenses should they ever happen to lose their jobs and/or become unable to work. I have seen emergency circumstances come about and without easy access to money, the situation can quickly become worse. You just need to be responsible and not use it until you really really need to.

 

If you decide to create your own debt reduction plan, check out some debt reduction calculators at: www.itsHERmoney.com/herfinancial-calculators. Remember it is not the amount of money you make that will lead you to financial independence but how you spend and save it!

 

 
Rhonda Sherwood, CFP, FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com

 

1. Preparation: first we must understand what makes up our ‘financial house; it’s our personal debt, our savings plans, retirement plans, estate plans and insurance needs. Our financial papers should be sorted and filed in these 5 groups.
2. Declutter: once we have sorted all of our papers into the 5 groups, it is time to go through them and start shredding. The rule of thumb is to keep your last two statements plus your original documents and shred the rest. If you haven’t gone paperless yet, it’s definitely time to do so. Most banks and financial companies offer on-line services.
3.  Develop a ongoing process to manage your financial papers
    

 

If you’re like most, you probably don’t have the time to assess your future retirement needs. However, with increasing life expectancies and concerns over the stability of our health care system and government/private pension plans, early retirement planning is a must.

 

To help you get started, here are some questions to think about:

1. How much money will I need to last throughout my retirement years? Some experts say you’ll need up to 70% of your pre-retirement income. 
2. What will be my sources of retirement income? Relying just on government benefits is a mistake. CPP and OAS on average make up only a third of your total retirement income needs. 
3. How long will I live? How long did my parents/grandparents live? How is my overall health? A legitimate concern many people have is, “will I outlive my money?”
4. What if my spouse dies first? Am I prepared financially? On average, women outlive men by 5 years.
5. How will I handle the unexpected? Do I have enough emergency funds? You should have money put aside or a line of credit set up for financial emergencies.
6. What activities and hobbies will I take up in my retirement years? What might these activities cost? What is the cost of what you enjoy doing today? Add 3% (inflation) to that cost for each year you have until retirement.
7. What if I need assistance in my retirement? Have I planned for home care and medical costs? With such a large portion of the population retiring within the next 10 to 15 years, home care cost are likely to dramatically increase. 
8. How will I manage my retirement money? Will I invest it myself or use the services of a financial planner/ broker? Do you want to be concerning yourself with investment decisions in your 60s, 70s or 80s? Think about consolidating your portfolio and working with just one advisor. 
9. Have I thought about estate planning? Do I have a Will, Power of Attorney and a Living Will in place? If you don’t plan for the inevitable, the government will step in to take care of things for you and most likely not how you would have preferred it to be done.    

    

 

If you haven’t yet given much thought to what your retirement days might look like, it’s time to step back and reflect on how you would like to spend this phase of your life. Taking a realistic look ahead and planning carefully will help ensure that these ‘golden years’ will meet your expectations.

 

 
Rhonda Sherwood, CFP. FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com