Smart Ways to Get Smarter About Money

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By iA Private Wealth, November 15, 2019

It would be too dangerous to get behind the wheel of a car without knowing the rules of the road or even where the gas and brake pedals are. Yet that’s the way many Canadians “steer” their personal finances, with no real understanding of how money works or how to get it to work for them. Adding to the challenge is that they often don’t recognize their blind spots. An IPSOS poll of over a thousand adult Canadians asked them 15 questions to gauge their financial literacy. Although 78% of Canadians surveyed rated themselves as financially literate, more than half (57%) failed the literacy test1.

Gaining a handle on the five basics of saving, spending, debt and credit management, and investing better empowers you to build a nest egg, control how much you owe, and ultimately achieve your desired lifestyle. Here are some tried-and-true approaches for focusing on these five money essentials to develop your financial literacy.

Spotlight saving

Having savings is integral to your well-being, financially and otherwise. Besides being able to cover unforeseen expenses that can pop up regularly, saving enough for big milestones like retirement requires starting in time. If you wait until the last minute, you’re more likely to fall short of your goals or worse – find yourself in financial hot water.

A proven and straightforward approach to saving is to “pay yourself first” through automated transfers to your bank account that coincide with paycheque deposits. Your savings then become just another bill, but one that you’ll benefit from in the future.

Monitor and control spending

It’s easier to prioritize saving when you know how much money you have to begin with. Track where your money goes in order to identify your spending habits and find saving opportunities. You can then create a budget based on allocating your money between your must-haves and nice-to-haves. There are countless user-friendly online resources you can turn to for support. The convenience of accessing many of these applications from your smartphone can help you keep your budget top of mind. Even simple changes like packing your lunch and using cash instead of credit whenever possible can help keep your spending in check.

Manage debt effectively

Like your spending, it’s important to have a clear picture of exactly what you owe. That’s because interest can work both for you and against you. You can borrow a small amount of money and end up owing much more than you need to over time as the interest piles on.

With borrowing costs at historical lows, it’s tempting to rely on debt to fund your lifestyle, but that’s neither economical nor sustainable. Living within your means is most effective for managing debt. In other words, you need to spend less money (or make more of it) to lighten your debt load. One of the first steps in managing debt is to tackle the amounts you owe that are incurring the most interest. Don’t be afraid to negotiate with creditors for reduced rates – every little bit counts and can shave off substantial time and money from your repayment plan.

Use credit responsibly

When you pay off your credit card on time, all the time, it functions as a handy, interest-free loan that’s more secure than carrying around the same amount in cash. When you only pay the minimum monthly balance, month after month, it becomes an expensive means of buying things. It’s important to understand what you’re getting into, from the interest rate you’re being charged and fees that may apply to what your credit limit is. That way you can appreciate the true cost of your credit card purchases. A general rule of thumb is to never borrow more than 20% of your annual income outside of your mortgage. That said, even if your credit is out of hand, take heart – it’s possible to recover by having a concrete plan for repaying the debt and sticking to it.

Investing 101

The point of investing is to grow your money so that you have more in the future than you have today. How you choose to put your money to work is contingent on your personal situation, including your goals, time horizon and risk tolerance.

Investment choices available to you typically fall into three main categories: cash and cash equivalents (think T-bills and money market mutual funds), fixed-income products like Guaranteed Investment Certificates (GICs) and government bonds, and equities (stocks). In general, the higher the expected return on an investment, the more risk you’ll need to take to achieve that return. Cash and GICs are typically on the lower end of the risk continuum, while equities are on the higher end.

This is where it’s valuable to work with an investment advisor, as he or she can help you evaluate your investment options and determine the balance of risk and reward that makes sense for you.

Lessons to last a lifetime

In today’s increasingly complex world of money, financial literacy is more relevant than ever. Dealing with personal debt, planning for longer life expectancy and navigating a growing range of sophisticated financial products all become more manageable when you grasp the fundamentals. Mastering these concepts takes time, but with practice provides a lifetime of benefits. For more information in how to advance your financial literacy, contact one of our Investment Advisors today.

1 Source: https://www.lowestrates.ca/reports/lr-financial-literacy-canada-report.pdf

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

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Succession Planning for Your Family Business

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By iA Private Wealth, May 8, 2024 If you’re like most entrepreneurs, your family business isn’t just a job – it’s your passion. That’s why you’ve invested so much time and effort into growing your business. Now that retirement is on the horizon (or no longer an abstract, way-in-the-future thought), you’re turning your attention to next steps. More specifically, it’s time for a succession plan. Succession planning is complex and the transition process could take years. Let’s look at some key considerations so you can begin strategizing now and construct a plan that’s right for you, your family and your company. All in the family For a minute, we’ll put aside the business aspect of succession planning and focus on the family aspect. Mixing work and loved ones can be tricky, especially when it comes to naming a successor to the family enterprise. Among the next generation, who gets the inside track to lead your business? Is it, by default, the oldest child? The one who exhibits the best leadership skills? The one who’s most interested in your business or is in a certain role that lends itself to taking over? There’s no automatic “right answer” since all family and business situations are different. What’s universal, however, is the need to give everyone their say and then, once you’ve arrived at a decision, communicate it clearly and logically. You might not achieve consensus – and some feelings could get hurt – but you’ll earn respect for transparency. While family harmony is desirable, of course, you’re also wearing a business owner’s hat and must ensure the continued strength and viability of your company. Going outside the family Don’t assume a family member will take over the business. Maybe none of the next generation works in your business, is interested in leading it, or is qualified to take over. Another option is for a current employee to lead the company. Once you’ve identified a good candidate, be sure to let them know – in as much detail as possible – what the leadership role entails. Again, explain this decision to your family and encourage questions. Every step of the way, open communication can align everyone’s interests and expectations, and helps minimize conflict. Regardless of whether the leader-to-be is a family member or other employee, build a comprehensive, goals-based development plan to position them for success. Document the key responsibilities you face (both regularly and ad hoc), and train the future leader to handle those duties. Be open minded and seek input on where they see potential for improvement in organizational processes, business culture, company structure and avenues for growth. Everyone has different perspectives, and fresh insights could take the business to the next level. Navigating finances The financial side of succession planning can get complicated if you have more than one child, each with varying degrees of involvement in the company. If the family business spans generations and also involves extended family (e.g., cousins, nieces, nephews), the complexity increases. The owner(s) must determine the best – and most fair – way to transition the business and allocate assets. When selling to a third party, will family members remain involved in the business? If so, in what capacity? Whether the business is sold to family members or a third party, your selling price should reflect fair market value. For many owners, their business represents their largest investment and biggest source of retirement income. Don’t shortchange yourself by discounting the sale price – even if selling to your own children. Given the challenges of succession planning, it’s typically wise to consult regularly with your advisor and related professionals, such as a lawyer, business exit strategist, and tax and estate specialist.
What Are the Financial Implications of Divorce?

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HBP or FHSA: Which One Should You Use?

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Tax Filing Checklist

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Can You Retire Early?

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By iA Private Wealth, January 11, 2024 While some people love their job so much they never want to retire, for a lot of us the only thing better than saying goodbye to the rat race is doing it sooner than expected. But before clocking out early, there are a few boxes to check to ensure you’re making the right choice. Figure out your finances The first thing to consider is whether retiring early is financially feasible. Working with an advisor to assess your wealth plan may identify issues affecting your long-term finances, and allow you to amend your plan to ensure you have the money needed in retirement. An advisor can calculate your sources of income after you stop working, and project what benefits you’ll likely receive from the Canada Pension Plan (CPP) and Old Age Security. Keep in mind that if you draw from CPP before the typical age of 65, your benefits are reduced accordingly. If you hold personal RRSP/TFSA assets and a workplace pension, those will be accounted for as income sources, as will investment accounts, a business or property you might own, plus other savings and assets. Whatever your income streams, factor in tax implications because a good portion of your cash flow could be taxable income. After totalling your financial resources, consider likely expenses, including the cost of everyday life. Where do you plan on residing and will you rent or own? Do you have health concerns or family history to be mindful of? What lifestyle do you anticipate? Will you travel regularly? What are your hobbies? Do you have dependents to look after? Once you answer these questions, you can arrive at a rough estimate of your expenses. If there’s a shortfall between income and expenses, you’ll need to address it. Proven ways to close the gap include modifying your expected lifestyle to reduce costs, possibly working part time, saving more aggressively and generating higher investment returns (e.g., maintaining enough exposure to equities and other securities with growth potential). Benefits of retiring early There are two major benefits to taking an early retirement: Mental/physical health. Over the course of many years, work takes its toll. Even if you enjoy your job and colleagues, working is often stressful and can drain you mentally and physically. Maybe long work hours compel you to sacrifice valuable activities like regular exercise, socializing and eating sensibly. If you have a serious illness, it might make sense to retire early and tend to your health care needs. Meaningful use of time. While all work has value, being retired lets you focus on things you like doing. Perhaps certain volunteer opportunities and other philanthropic pursuits are appealing, or you want to devote more energy to favourite hobbies. You’ll also have abundant quality time to spend with friends and loved ones, or to begin working on that “side job” or project you always wanted to try. On the fence? Maybe you need a change of pace but don’t want to retire completely. In this case, consider a phased retirement, which means scaling back on work (e.g., taking a part-time job or putting in fewer hours at your current job). This phased approach allows you to continue earning money for the future, provides the social benefit of interacting with colleagues, promotes mental fitness so your mind stays sharp, and offers flexibility to spend more time doing things you enjoy. Whatever you choose, ensure your decision takes into account all your unique personal and financial circumstances. <!-- We can help you with a wealth plan that addresses tax efficiency, so contact us today. -->