It’s Time for a Financial Checkup!
We believe it’s important to build your investment portfolio on top of a solid foundation. The last thing we want is to see cracks developing in the foundation that can destroy your portfolio and wipe out a lifetime of savings or your inheritance. For this reason we offer the financial planning foundation work to all of our clients.
What is Financial Planning?
Financial Planning is the organization of your financial situation for the purpose of constructively managing income, assets and liabilities to meet your goals.
To meet your unique needs, a financial plan needs to consider your entire financial situation – your income, assets, liabilities, savings, preferences, risk tolerance, family situation, economic situation, and your health and longevity.
The benefit of financial planning is that it can help you to:
- Choose your lifestyle through balancing your spending and savings – spending too little might result in your sacrificing life experiences; spending too much might mean you outliving your money;
- Invest your money wisely by selecting the right asset mix, selecting good investments, sheltering income from taxation, and controlling risk;
- Eliminate, reduce, and defer income taxes so you have more money growing faster to meet your goals;
- Protect your family against devastating financial losses – like the death, disability or illness of the family breadwinner, property loss, theft or damage, and liability claims; and
- Distribute your estate according to your wishes, make sure your legacy is creditor protected, and death and transfer taxes as well as future income taxes to beneficiaries are minimized.
Financial Plan Components
A financial plan will typically include the following components:
- Cashflow Projections and Planning
- Retirement Planning
- Special Goals (like college, charity)
- Investment Planning and Management
- Family Security
- Tax Planning (Tax Minimization)
- Estate Planning
- Inheritance Planning
- Business Value Maximization, Exit and Succession Planning
Let’s take a closer look at each of them.
1. Cash Flow Projections and Planning
A Cash Flow Projection projects your cash inflows and outflows throughout your lives. It’s where all the pieces of your financial plan come together.
Projecting your resources and savings through time allows us to see if you’re on track to reaching your goals. If you’re retired, a Cash Flow Projection tells us what retirement living standard you can achieve.
To create a projection, we need to make a number of assumptions – such as income tax rates, future inflation, future returns on your portfolio, and how long you live.
These can change and your projections must change with them.
2. Retirement Planning
For many people, one of their most important goals is to prepare for their eventual retirement.
Retirement planning involves thinking about what you’d really like to do with your time if you didn’t work, and then preparing yourself financially, physically and psychologically for this.
Retirement is a big change. How will you keep challenged mentally? How will you maintain your self worth and be a valuable contributing member to society? What activities will you and your spouse do to have a full, balanced and happy life?
Without work ties, you have more freedom to live where you’d like and pursue activities and challenges that you previously didn’t have time for.
So in your thinking of retirement, try to arrive at an appropriate balance between diet / exercise, spouse / family / friends, leisure / fun, relaxation, social, charitable and intellectual / creative (personal growth) pursuits.
Once you’ve figured out what you want to do in retirement, you’ll have to figure out what it will cost. You don’t want to retire and then discover that you don’t have enough money to do the things you want to do. Nor would you want to put off retirement longer than necessary because you’re not sure how much you actually need.
Once you’ve priced out your retirement activities, and know exactly how much you need to save, you’re in a better position to take full advantage of tax-sheltered retirement plans like RRSPs, spousal RRSPs, pension plans, supplemental pension plans and other incentives that might be available to you.
In practical terms, we ask that you try and figure out as best as possible your needs through time. If you need a Budget template to help you categorize your expenses, let us know.
The better job you do with figuring your needs, the better and more realistic your Cashflow Projection will be. And the custom built portfolio will then better suit your needs through time.
Also, note that in addition to your retirement needs, you might have a few special non-periodic needs or “Special Goals”.
3. Special Goals
It’s important, even essential to have dreams. Some of the best things in life are free, but many dreams cost a bundle.
What are your dreams? Perhaps they involve buying a cottage, a large boat, a super-size motor home, or helping your kids or grandkids with college. Or maybe you want to make substantial gifts to charity?
Your financial plan should include these special goals as they may mean different strategies and tools that are used to best achieve them. And by knowing your goals, we might be able better structure your investments to fund those goals; this can lead to even greater tax savings.
Let’s look at three of these special goals to see this more clearly.
i) Major Purchases
If you buy a cottage, sailboat, deluxe motor home, or some other costly item, you need to know how it affects your retirement plans and other goals.
Depending on how you raise the needed monies – from your money or your spouse’s, from a company, RRSP or personal investment account – this will trigger varying levels of income tax. Also, you will need to consider how your portfolio will look like after raising the monies. Which might mean further transactions to make it well diversified.
And if the purchase is not planned until sometime into the future, you need to figure out how best to invest the needed cash in the interim. The longer your time horizon, the more that inflation may affect your purchase. Your saving and investment plans need to take this into account.
ii) College Education
A goal shared by many is for a great education for their children or grandchildren. It’s much harder today for students to pay their own way through college. The cost of education has risen much faster than inflation.
A Registered Education Savings Plan (RESP) is a good way to save for education. It provides big tax savings plus free grants from the government.
A Tax Free Savings Account is another great way to save for this goal. Although there’s no government grants, all of the income and gains in the plan tax-free. Withdrawals can be made anytime which are tax-free.
Where an RESP and Tax Free Savings Accounts aren’t enough, you might consider setting up a formal trust. With this, the capital gains, and in some cases the investment income, can be taxed in your children’s hands where it is subject to little or no taxes.
And where you have your own company, taxable loans to your children can be a cheap way to raise funds to finance their education.
iii) Charitable Giving
Many of us have a cause that’s dear to our hearts. What a legacy to leave – a meaningful gift to a worthwhile charity! If you have surplus assets, it might be best to donate now rather than after you’re gone. Not only do you save taxes now, you’ll also see the good that comes from your giving.
If you would like to give before your death, you should try to donate stocks that have large gains. By doing this, your capital gains are exempt from tax – so you save on the capital gains tax.
Planning for each of your special goals helps you know how much to save and to pick the right investments to reach your goals. And in planning for these goals in advance of funding these needs, you may be able to structure your holdings to save more in taxes. A well thought out plan can make the difference between reaching your dreams and falling short.
3. Investment Planning and Management
Your portfolio and regular savings need to be invested to grow to provide for your needs. When you invest, both returns and risk need to be considered. Without proper risk control, losses can be devastating.
4. Family Security
One of the top priorities in financial planning is protecting your family against devastating financial risks that result from accidents, premature death, disability, illness, significant property loss, and liability claims. Without proper protection, any of these risks could destroy your family’s dreams and goals.
It’s natural for us to avoid thinking about the bad things that might happen. But bad things do happen. You cannot predict them but you can make sure you’re properly protected financially if they should happen to you or your family.
5. Tax Planning
Taxes affect every financial decision you make whether you are aware of it or not. They affect how you save, what you invest in, and how you withdraw money from your portfolio.
For the average household, income taxes represent the single largest expense. The more money you make, the more you pay in taxes. With our tiered tax brackets, as your income increases, so too does the percentage of tax you pay. Your financial decisions must consider your tax situation or you could end up paying much more in taxes than you otherwise have to ‑ a needless waste of your money!
By knowing your situation and goals, we are able to help you plan your financial activities to keep taxes low throughout your life, leaving you more money for your needs and dreams.
6. Estate Planning
The biggest concern for many is making sure your spouse and other family members are well provided for after you pass away.
Many of us know people who died and left their loved ones in chaos. You may know others where the courts split their money up in ways they would not have wanted.
Estate Planning is simply taking steps now to ensure your affairs are well looked after when you’re gone. It’s critical to plan now since none of us knows when our time is up.
If you’re wealthy, your planning will focus on how you can transfer your estate according to your wishes as well as providing creditor protection and tax advantages.
If you’re less wealthy, it’s vital to take steps now to ensure your family has enough money to live comfortably if you suddenly die.
When you get right down to it, Estate Planning is having the decency to take care of your family by putting your affairs in order. This means:
- you ensure your family has enough money to meet their needs,
- guardians are designated for minor children,
- your organ donation intentions are registered (which could save lives once you’ve passed away)
- your funeral plan is completed,
- you protect your wishes and decision making authority in the event of your incapacity (Representation Agreement and Enduring Power of Attorney),
- you choose an appropriate Executor and Trustee (as well as alternates),
- you help your Executor carry out their duties and making your wishes to family members known (family love letter),
- you anticipate potential challenges to your estate distribution plans (for example, a Wils Variation Act Claim) and use structure or include potential defenses for issues that might arise,
- your bequests are structured to meet the needs of your beneficiaries (this include Trusts in your Will as opposed to outright gifts),
- you review the legal ownership of assets and beneficiary designations of RRSPs/RRIFs, pension plans and life insurance so assets will flow on death as intended, and
- income taxes and transfer related costs (like probate fees and legal fees) are minimized.
To save taxes (including both Canadian and U.S. Estate Taxes) and other costs to make sure your money goes where you want after your death, you must do your estate planning now. You just don’t know when something might happen to you.
7. Inheritance Planning
Similar to planning the distribution of your estate, you might also plan for the receipt of any inheritances. This could not only help you save taxes on your inheritance on your parent’s death, but can also help save you taxes for several years to come. And a properly planned inheritance can also provide a level of creditor protection. As our society is becoming more litigious with higher court awards and also due to the high odds of a marital break up, inheritance protection is a vital part of planning.
8. Business Succession Planning
If you own a business, chances are that it represents a substantial part of your net worth. Although today you might be focused on its survival or growth, you also need to plan for the day when you’re no longer running it.
And since your exit from your business may not be at the time of your choosing due to disability or death, you need to plan for this now.
Without a succession plan, your business may not survive your exit. Or you might find that you or your family can’t get someone to buy it for what it’s really worth when you need the money.
Your planning should consider the involvement level and desires of your family members relative to the business, in addition to your needs. This can affect who you might sell to – be it a partner, key employees, family members, or a competitor.
Should you sell to family members, your estate plan needs to treat fairly the interests of those who are active in the business versus those who aren’t.
Once you know your business exit plan, then we’ll work with you to help you put together the right tools to protect your business value and ensure you get the most for it. Here we can help you with Shareholder (or Buy/Sell) Agreements) and tax planning to manage the capital gains tax on sale or on your death.
Why you should use a qualified and experienced planner for your financial planning
Your financial future should not be placed in the hands of some nice guy, a family friend or former sports star, or an accountant who’s too busy and knows less than you about investments. And you shouldn’t put your life’s savings in the hands of an investment or insurance advisor whose only qualifications are a license to sell you investments or insurance products.
A truly professional advisor takes a lifetime to build up their educational and professional credentials. They’ve gone through a period of articling or training with seasoned financial advisors, they’ve seen hundreds of situations similar to yours, and adhere to a code of ethics and practice standards.
Our financial planning clients choose me, Steve Nyvik, because they refuse to gamble with their lifetime of work and savings. They want an advisor who is educated (with formal university and professional designations) in income tax, investing, and controlling risk and has spent more than 20 years successfully managing money for families in similar life situations.
Our clients want to see their hard work pay off in achieving their family’s goals, being able to enjoy their chosen lifestyle, and to sleep soundly because they understand and are comfortable with how their affairs are managed.
In order to get this process going, call me, Steve Nyvik, who will send you a “Financial Planning Checkup”. This checkup contains a number of questions covering the main financial issues for which your response will determine whether there is a potential problem or opportunity or if further investigation of an issue is needed.
We want you to be secure, save taxes, and achieve your goals and dreams. We provide financial planning to our clients as part of our commitment to your financial health. All materials provided by you will be held in confidence and will not be shared with others without your permission. Call us if you would like to get started.