Ten-point plan for financial fitness

By: Robyn Thompson

Give your personal finances a workout

Will there be a recession? Will inflation keep eroding our purchasing power? Will stock markets recover? Will rates keep climbing. We can make educated guesses, but the reality is that no one knows for sure. As individual investors and consumers, we have no control over these things. But we do have control over our own finances. 

The past couple of years have brought many financial challenges for individuals and families. And that has brought into focus the crucial importance of getting your own financial house in order as a way to cope with financial emergencies and plan for future contingencies.

Here’s my 10-point method for getting financially fit again. 

1. Set a goal

Don’t just promise “not to spend more,” for example. You’ll soon be disappointed. Instead, set an actual financial objective. For example, resolve to set aside a fixed amount from every paycheque (or if you’ve been generating extra cash because of reduced spending during the pandemic), and put it into an investment account. Make the amount realistic, and set aside whatever you comfortably can, but do it consistently. Over time, it can really add up. 

2. Make a plan

Assess your financial priorities. Write them down. Are you saving for a down payment on a home? Are you setting funds aside for retirement? Do you need funds for a vacation? Or a new car? Or are you using every last cent to live on during the pandemic? All of these need a plan. Whether it’s cash flow management, debt control, or investing and saving, you need set priorities and assess available resources. 

3. Formulate a budget

Believe it or not, budgeting isn’t that difficult. You probably know what you earn every month. Well, simply deduct what you spend from what you earn every month. If you come up with a negative number, you’re “over budget,” and you have a problem. If you have money left over, you’re on the right track. Find out where you stand! Simply record every expense for a month. It won’t kill you, and believe me, it’s going to start solving a lot of problems for you.

4. Pay off your credit cards

Borrowing money with a credit card is easy. And with “one-click” online shopping, it’s easier than ever. But unless you can pay that debt back at the end of every month, you’re digging an ever-deeper debt hole, one that’s difficult to get out of unless you stop digging. Pay off that credit card debt first. And start doing it now, by paying more than the minimum balance on your highest-interest rate cards. If you have to, use debt consolidation loans at lower rates as a way to cut debt-servicing costs.

5. Open an RRSP and a TFSA

If you don’t have either of these registered tax-advantaged plans, resolve to open them this year, and start contributing regularly. Both the RRSP and TFSA shelter investments within the plan from tax and are essential long-term savings and retirement planning vehicles. You don’t need a lot of money to open a plan, and regular contributions from then on will get the power of tax-free compounding working for you right away.

6. Create a portfolio and allocate assets properly

This is a must for those who already have some investments, whether in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). When choosing what to put in the plans, make sure your overall investment holdings reflect your tolerance for risk. If you tell me that you’re an ultra-conservative investor, but your portfolio consists only of equity mutual funds, you’ve got something mixed up. Rebalance your portfolio to just the right mix of safety, income, and growth assets that reflect your true risk tolerance – and let you sleep nights.

7. Build and maintain an emergency fund

It’s essential to have three to six months in an emergency fund for life’s unexpected expenses. Given all the other challenges you might be facing, including paying off debts, is this something you can even consider doing? The answer is “yes,” and you should begin immediately.

Remember to pay yourself first, even if it’s just a few bucks a month. If you haven’t been able to save because you have debts to pay, make minimum payments on all your debts and use any money left over to build your emergency fund. As your cash flow changes, maintain the same percentage contribution to your fund.

If you don’t have any savings, start with a manageable amount, such as $1,000, and then work towards saving three to six months of living expenses.

8. Make a will

The will is the primary legal document that directs how you wish your estate is to be handled after your death. Your “estate” is basically all your assets, including all bank accounts, cash, investments, real estate, safety deposit box contents, and goods and chattels to which you have legitimate title. Your will is the instrument by which you direct who gets what. It can also be used to establish guardianship of your children.

Along with your will, consider setting up powers of attorney for property and personal care. These name someone you trust to handle your financial affairs and healthcare decisions if you should become incapable of doing so.

9. Get life insurance

Life insurance provides an essential financial cushion, especially for young families, in the event of the death of one or both partners. To get optimal coverage (life insurance to protect your family, extended health care, disability and critical care), analyze your current protection, including all employment coverage and benefits, and assess your true needs. 

You’ll quickly see if you have too much (a fairly common situation for clients who first come to me) or too little coverage. 

10. Review, revise, and update

At least annually, conduct an investment portfolio review (and even better, a review of your entire financial plan). Things can change radically over a year, so a review will help determine whether your plan is still on track, and if not, where to make changes. Look at how your assets are allocated and whether market changes have skewed allocations from your target. Check that your portfolio is sufficiently diversified among asset classes and geographically. Monitor individual holdings to determine whether a switch or change is needed if performance targets have been met. Check mutual fund and ETF performance to make sure the funds are still delivering what you expect.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

Content copyright © 2023 by Robyn K. Thompson. All rights reserved. Permission to reprint articles by Robyn K. Thompson, is hereby given to all print, broadcast and electronic media provided that the contact information at the end of each article is included in your publication. Organizations publishing articles electronically, a live, clickable link to robynthompson.money must also be included with the body of the article.

Any questions, please email to robyn@robynthompson.money. Thank you.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management Inc. and wealth consultant.

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