Where Should Amy Stash Her Cash?

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By iA Private Wealth, March 20, 2019

By anyone’s standards, Amy has already done well for herself and is better off financially than many of her peers. A perennial overachiever, she found work as a computer consultant right out of university and lived with her parents – and on a strict budget – while she saved enough for a down payment on a house. Her only real debt is her mortgage, which she diligently services and plans to pay off well before the end of its 25-year amortization period. With the money she has in the bank, she is considering buying another property as an investment. Amy sees herself getting married and having children at some point, but for now she is happily dating and checking off as many destinations as she can from her travel bucket list.

So, what’s the issue?

Amy has a good job and is disciplined about her spending and savings habits. When a relative suggested she speak to an Investment Advisor, Amy was skeptical. After all, her situation seemed simple enough. Why would someone like her need professional financial advice? The more she thought about it, however, the more she realized that it couldn’t hurt to get a second opinion on the state of her finances, and it might even help! She decided to keep an open mind.

Blind spots revealed

Meeting with an Investment Advisor actually opened Amy’s eyes to both her future potential and the gaps in her current approach to money matters. Based on their conversation, the advisor urged Amy to consider the following:

  • Was she using her RRSP and TFSA to their fullest, to take advantage of their tax benefits and ability to compound wealth to help her meet her short- and long-term goals?
  • Speaking of long-term goals, what did Amy’s retirement plan entail, especially since, as a consultant, she would have no company-sponsored pension to rely on?
  • How comfortable was she being concentrated in only two asset classes – in her case, low-yielding cash savings and higher-risk real estate?
  • Where was Amy at in terms of financial literacy? Did she understand how much risk she could tolerate and how to effectively invest in the market?
  • What strategies did she have in place to safeguard her capital in the event of illness, death or a change in her job or relationship status?

The biggest wakeup call for Amy was recognizing her level of preparedness for greater complexities that were likely around the corner when she would be handling wealth planning not just for herself but for her family-to-be. With few obligations, a handful of bills and no dependents, Amy’s finances have been relatively straightforward to navigate. Now as an adult in her 30s, her life is poised to change rapidly.

From the simple to the complex, partnering with an Investment Advisor is worth it

Amy learned that while it can never be too early to start gaining proper understanding and control of your finances, it can be too late. She also learned that seeing past blind spots is much easier with another set of eyes, and that money management is no different from high-performance sports in that even the best “athletes” like Amy need a coach.

Whatever your life stage or financial situation, our highly experienced Investment Advisors at iA Private Wealth are here to help. Contact us today to create your personalized financial road map.

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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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

Just for Students: Budgeting 101

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By iA Private Wealth, October 07, 2019

Congratulations! Your hard work and perseverance have paid off and starting this fall, you’re off to pursue your post-secondary education. It’s something to be proud of, because getting to this point isn’t easy – especially when it comes to saving money and having enough to support yourself until you graduate. These basic budgeting skills will help your dollars go further and get you through your studies with as little debt as possible.

Be the subject of your own research

Step #1 to mastering money management is understanding your spending habits. Track where your money goes so you can separate the must-haves from the nice-to-haves. That way you can create a realistic budget, because you know where you can tighten up or cut costs. Don’t forget to allot some money for emergencies and other unforeseen expenses, especially if living away from home is new to you. Properly managing a household, however small, takes practice.

Beware the lure of instant credit

Not all debt is created equal. Getting a student loan to fund your future is one thing, going on a shopping spree with a high-interest credit card is something else entirely. Choose a no-fee credit card, keep the limit low, avoid using it regularly and pay off any balance monthly.

Save smart

You may be eligible for certain tax credits and deductions, including an income tax credit for money spent on tuition and a student loan interest deduction. If you have money to set aside, direct it toward a tax-advantaged savings vehicle like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). The earlier you can start saving, the earlier the magic of compounding can take over, allowing you to focus on other priorities.

Educate yourself

With the increasing number and complexity of financial products, financial literacy is as important as ever. As you graduate out of school and become more financially independent, the skills you develop around money matters will set you up for greater success. Harness your curiosity to teach yourself about finances and seek out experts who can help – the payoff in the form of long-term financial stability is well worth the time and effort.

Your homework

Good budget planning can help you avoid a financial crisis – now and in the future. Don’t wait until you’re living away from home and paying for rent, a meal plan and tuition to start thinking about your financial obligations. We can help you start now.

Talk to one of our knowledgeable and experienced Investment Advisors to learn more about smart ways to budget for student life – and beyond.