What to Teach Your 18-Year old About Opening a TFSA

What to Teach Your 18-Year old About Opening a TFSA

by FinancialFinancial PlanningInvestment Planning

It’s not easy getting your teen interested in the idea of investing in their future. Most teens have a shorter attention span and are rarely focused on long-term goals — they’re thinking about the present. This can make it somewhat difficult to explain the benefits of saving, especially if most of the financial terms go straight over their head.

If your teen has turned 18, it’s time to start teaching them about TFSAs. 18 is the age when Canadians can begin opening and using TFSAs, and with compounding interest, it’s wise for them to start early and do just that.

With the right words and some guidance, you can help them grow a future nest egg as they ease into adulthood. But where to begin? Here are five things you can teach your 18-year old today about opening a TFSA.

The Art of Compounding

If you start early, the power of compounding can add up to millions of dollars over the long-term. If that won’t get your teen’s attention, nothing will. Once they are interested in what you have to say, that’s when you shock them with the long-term benefits of a TFSA. The best way to make them understand is to show them a real-life example of how much money they can expect to earn in 20, 30, 40, and even 50 years when they start making small contributions each month, starting now. When they see the power of compounding in action, it’s sure to get them excited about forming a long-term strategy that invests heavily in their future.

The Benefit of Tax Savings

It’s unlikely that your teen knows much about taxes or how they will impact their savings over time (and if they do, great for them!). That’s why now is the best time to teach them about tax-sheltered instruments, like a TFSA. They may not fully understand all the tax jargon in relation to capital gains, interest earned, or Canadian dividends. Hone in on the fact that with a TFSA, they can withdraw their money tax-free — unlike the majority of banking accounts. They’ll appreciate the idea of avoiding fees and having more money in their pockets.

How to Maximize Contributions Without Penalties

Accidentally contributing more than $5500 a year may result in penalties. It’s essential to teach your 18-year old about the maximum contributions and how they can add to their account without acquiring fees. For instance, if they were to contribute the full $5500 in one year, they could have to wait a full calendar year before putting more money into the account. Your teen can contribute to their TFSA for every year that they have been at least 18 since 2009, as illustrated here. An example of this would be if you have a son who turned 18 in 2016 and is just opening a TFSA now, he would actually be eligible to contribute $16,500 right away.

How to Be Smart With Their Money

Unlike an RRSP, money can be withdrawn from TFSA at any time without paying taxes. This could be a concern if you invest in your teen’s savings account and they withdraw the money straight away. That’s why it’s important to teach them how to be smart with their money, why a long-term goal is better than short-term gains, and that a TFSA is an investment tool more than a savings account.  You may even consider teaching them how to use their TFSA to purchase mutual funds, GICs, and other investment accounts to help grow their money, not just save it. The more they know now, the better choices they will make in the future.

If you’re not sure how to discuss TFSAs with your teen, we can help. At The Beacon Group of Assante Financial Management Ltd., we manage not only our client’s wealth plans but also their children’s investments too. We can teach them the benefits of long-term objectives and what the right choices are for investments with a particular goal in mind. To learn more about our family wealth planning, contact us today.

5 Common Investing Mistakes

5 Common Investing Mistakes

by FinancialFinancial PlanningInvestment Planning

Protecting your wealth is arguably more important than growing it. Even if you make smart investment decisions, pay yourself first, and put some money away for your retirement, there are still a number of common investing mistakes that could drain your finances dry. Don’t waste your hard-earned money on poor financial decisions — be prepared for success by avoiding these common investing mistakes.

Not Funding a Retirement Plan

As a Canadian, you have access to a number of retirement plan options, whether through your employer or through the bank. One of the biggest mistakes many people make is not setting up a plan in advance and adding the maximum amount to it every year. Why is this important? Because most retirement plans are tax-sheltered, so you can protect your money until after you retire and your tax rate declines. Besides the tax advantages, you might also be eligible for a match program with your employer. Some will match your contributions which is essentially free money (that will steadily grow over time).

Forgetting to Rebalance

One mistake most investors make is forgetting to rebalance their portfolio back to its target asset allocation annually. Without a routine check-up and rebalance, your asset classes could end up overweight or underweight, neither of which is a good thing for your performance. If this sounds familiar, contact a financial advisor to help get the proper allocation to increase your overall expected return.

Doing it All Yourself

Unless you have industry experience in trade and finance, it’s best to get a helping hand from a seasoned professional. An experienced financial advisor can help you understand all the relevant risks to you and your portfolio, including what the appropriate benchmarks are, which asset allocation will achieve your goals, and how to diversify for steady long-term gains.

Not Planning for the Long Term

Short selling and day trading can make you a lot of money, but it can also gut out your entire savings if the market takes an unexpected swing. Instead of chasing performance and focusing on short-term gains, you should create a long-term plan and stick to it. Having a sound investment plan is not as much fun as playing the market, but it’s much more profitable in the long run.

Not Creating an Investment Strategy

Investing is not just about growing your assets, it’s also about using cost-efficient structures and tax planning to keep more of your money. Without an investment strategy, you could essentially be missing out on much of your opportunity for growth. Therefore, successful investors are ones that ensure they operate under a prudent investment strategy — the best plans are not only ones that offer significant growth opportunities but also help to shelter against taxes and minimize risk along the way. Always remember that each individual will need a strategy that fits within their goals — no approach will work for every investor.

When you’re ready to move forward with an investment strategy that’s tailored to your specific needs, contact us at The Beacon Group of Assante Financial Management Ltd. We’ll create a plan and implement strategies by choosing the best-in-class products and services that will excel through the market’s ups and downs, creating long-lasting wealth for you.

5 Methods to Determine Your Retirement Savings Goals

5 Methods to Determine Your Retirement Savings Goals

by FinancialFinancial Planning

Do you know how much you need to save for retirement? Most people don’t. Fortunately, there are a few questions you can ask yourself to determine what retirement savings goals you need to implement today to have a brighter future tomorrow. Don’t worry if you’re far from ready; we’ll also explain what you can do to give your savings a well-needed boost.

What are Your Current Expenses?

One method to determine your retirement savings goals is to find out how much you’ll realistically need for retirement. As a rule of thumb, each person should have one year’s salary saved for every three years of income. To figure out this number, you’ll need to identify your individual expenses, like food, transportation, healthcare, mortgage and debt expenses, and then adjust your strategy to ensure you can afford the lifestyle you desire. Remember — it’s always better to save too much than too little!

How Long Have You Been Investing?

If you’ve been taking advantage of compounding interest for decades, it’s likely that you will have a significant nest egg brewing in the wings. However, if you only started investing a few years back, it’s unlikely that you’ll have much saved once you retire. Depending on how many years you have left, you’ll either need to invest more aggressively or rely on your pension, social security, and RRSP more heavily. Either way, talking to a financial advisor can ensure you’re on the right track no matter how many years you have to go until you retire.

Have You Been Maxing Out Your RRSP Contributions?

Not everyone can afford to max out on their RRSP contributions every year, but if you have done so, you’ll likely be well positioned for retirement. Every little bit counts, so if you can start adding more to your RRSP today, it’s wise to do so. Any money you contribute now will be tax sheltered until you withdraw it in retirement, providing you with some extra income.  

Do You Have an Employee Retirement Plan?

If your company has a retirement plan in place, you’ll have to save less on your own. This is because each month a specific dollar amount will be deducted from your account and automatically deposited into your RRSP. Even better, if your employer offers a match program, you’ll get dollar-to-dollar contributions from your company for every dollar you put in. That’s free money!

Do You Have any Other Sources of Equity?

Investing isn’t the only way to boost your retirement savings. If you have a Life Insurance plan or income property, it can easily be sold for equity when you retire. Another popular way to access money for your retirement is through a reverse mortgage. A reverse loan pays you each month by accessing some of the equity in your home. It’s only available to help retirees who have accumulated wealth in their home to cover basic monthly living expenses.

Most Canadians do not have enough money saved by the time they retire, and it’s often not because they couldn’t save enough, but rather because they didn’t have a retirement plan in place. To help prepare you and your family better for retirement, contact us at The Beacon Group of Assante Financial Management Ltd. We’ll help you get the maximum return on your investments, reduce your risk level, create a tax strategy that works for you, and ensure that you have the most amount of money possible so that you can fully enjoy your retirement.

5 Key Pieces of Effective Tax Optimization

5 Key Pieces of Effective Tax Optimization

by BusinessFinancialFinancial PlanningTax Planning

There’s one thing that you can’t avoid no matter how hard you try, and that’s taxes. Tax adherence is a responsibility of every Canadian citizen, no matter how much money you make or what type of work you do. While you can never escape taxes entirely, you can take advantage of methods made to minimize them to reduce the burden on you and your family.

If you’re looking for ways to reduce the amount of tax you pay out to the government throughout your years, review these five components of effective tax optimization and keep them in mind for the future.

Income Optimization

There are a number of income optimization methods that you can utilize to help minimize your taxes. For one, you can engage in income splitting with your spouse to transfer the tax liability from the higher-income earner to the lower one. You can’t legally “split” your income amounts per se, but there are a number of ways to utilize this strategy without penalty such as: creating a spousal loan, contributing to a spousal RRSP, or establishing a family trust.

Tax Efficient Investments

There are a number of registered accounts that you can take advantage of to defer your taxes into the future. If you’ve maxed out on your limits, you need to find other places to shelter your money. An expert financial consultant can help you maximize your tax-efficient investments most effectively by strategically distributing your income and investments across your RRSPs, RRIFs, TFSAs, and a number of other tax-sheltered options like your life insurance policy.

Business Management

One tax efficiency strategy that can help you keep as much of your income as possible is expense management. Learning how to claim expenses correctly can increase your tax efficiency and reduce both your personal and corporate tax bill. Corporate clients can also take advantage of optimizing salaries and dividends, estate freezes, and other advanced methods to minimize taxes.

Tax Deductions

Another effective way to reduce taxes is to take advantage of all the possible deductions and credits on your income tax and benefit return. Deductions, such as retirement and CPP contributions, moving expenses, child care expenses, support payments, student loan interest, and tuition expenses can all be claimed for tax credits. In fact, there are over 90 deductions and tax credits that you can claim in Canada that will put more money back into your pocket each year.

Investment Strategies

Higher net worth Canadians that have a lot of money tied up in investments will often find that the tax on the interest can become substantial if they don’t have a proper strategy in place. A professional advisor can provide you with a number of strategies that can reduce your capital gains and lower your investment taxes to optimize your returns.

A professional and experienced financial advisor can work out the most effective strategy for your personal and corporate tax optimization. Their expertise ensures that your finances will adhere to the newest regulations and follow all legal practices to avoid penalties and unlawful misconduct.

Our experts at The Beacon Group of Assante Financial Management Ltd. will enjoy crafting the best tax strategy for your particular needs to ensure that the best approach is taken to enhance your success.

Long Term Care Settle It Before the Time Comes

Long-Term Care: Settle it Before the Time Comes

by AgingFinancial PlanningTax Planning

As you enter your “golden” years, the reality is that it can often be too late to protect your family from unforeseen events as you continue to age. That’s why you need to start planning now for your financial future. If the idea of long-term care is making you lose sleep, it’s time to settle it before the time comes. Let us show you how.

Estate Planning Protects Your Wishes

No one can accurately forecast what will happen in the future. And most people think that having a will is all they need to protect their wishes – but they’re wrong. If you don’t have an estate plan created and something suddenly happens to you, your intentions may not get carried out as you had planned. Only an estate plan can provide clear direction and an accurate representation of your intentions. So take the time now to define what is most important to you and how you wish for your assets to be handled before you can no longer make the decisions for yourself.

Your Assets are Your Retirement

Your more substantial assets are a crucial factor in your overall wealth. If you plan to sell your assets (whatever they may be) or transfer some down to your children, take the time now to make a detailed succession plan. Having a professional financial planner by your side can ensure that you make all the right choices when it comes to obtaining the wealth that you and your family will need during your long-term care.

Tax Planning For Your Future

It’s especially important that you have an effective tax strategy in place that will help minimize the effects of taxation during your long-term care needs. There are a number of strategies that can optimize your tax position such as maximizing government-sponsored programs, creating tax-efficient cash flow, and legacy planning. Tactics like these can help you reduce your taxes and leave you with more money in your pocket for when you need it most.

Insurance Planning Is Your Safety Net

The requirements of long-term care can have a significant impact on your family’s financial future and health. Without a safety net in play, it may be difficult for them to manage all the financial risks associated with any illness or disability. To ensure everyone is protected, it’s crucial to have an insurance plan in place as part of your wealth management strategy. Setting up life insurance coverage will ensure everything is settled before the time comes.

The Beacon Group of Assante Financial Management Ltd., we provide a number of services to ensure that your wealth is always protected. We can help you put a meaningful plan in place that will protect you and your family now and in the future.

Why Major Life Changes Are Good for You

Why Major Life Changes are Good for You

by Financial PlanningLife Changes

Change is inevitable. Even when you try to avoid it, there will always be unforeseen challenges and less than perfect conditions thrown your way. However, you shouldn’t fear these situations; significant life changes can be beneficial for you in many ways. The life lessons you learn during these difficult times can help you to be more prepared for the future and teach you how to deal with change more effectively. To show you how this works, here we feature a few of the ways that a major life change can benefit you and what you can do to be better prepared for the bumps ahead.

Fosters Growth

When you experience a major change, you’re often faced with challenges you’ve never had to deal with before. In most cases, your belief system is tested and you’re pushed beyond your limitations – but this isn’t always a bad thing. When you go through a life-transforming event, you’re forced to step outside of your comfort zone and grow. With each step, you become more skilled, confident, and eventually more successful as you begin to see things in a new light.

Makes You More Adaptable

Some people fear the idea of change, but in reality, change is inevitable and something we need to get used to. We can’t always prepare for a significant life transition to occur, but we can learn how to cope with one. Experiencing a significant life change can be useful for you as it can push you to be more flexible in your approach. As you drive through the challenges, you learn how to change plans and adapt to circumstance. Best of all, you build confidence to take on new situations and become better equipped to deal with other obstacles that may arise.

Teaches You To Be Prepared

It’s impossible to forecast everything that will happen in your life, but you can at least be prepared financially for any unexpected circumstances. Major life changes can be costly, especially if you lose your job or undergo a divorce. Experiencing a life change can teach you why it’s essential to have a backup plan in place to make sure you protect yourself.

Changes can be jarring, no matter what area of life they affect. The best way to deal with these uprooting events is to know that in the end, you’ll always come out on top a different person. The changes you go through will shape who you become – embrace them!

Methods to Gauge Any Investments Risk Level

Methods to Gauge Any Investment’s Risk Level

by Financial PlanningInvestment Planning

Every investment has risks. If you put your money into individual securities, your risk lies solely with that company and how they perform in the market. When you purchase a mutual fund, your money is spread across a number of individual securities, and the performance will be the result of the whole. To give you an idea how to gauge any investment’s risk level before you add it to your portfolio, follow these rules.

Check The Beta

Many investors use Beta to determine how volatile a particular security or portfolio is in comparison to the entire market. Any beta number greater than 1 will indicate a higher level of risk. For instance, a beta of 1.5 means that an investment return will be 1.5 times as volatile as that of the market. On the other hand, if the beta dips below 1, it implies that the investment will be less volatile than the market and pose less risk.

Look At The Company History

It’s easy to get caught up in the idea of investing in a start-up that could be the next Amazon or Facebook, but the odds of that happening are not in your favour. Instead of throwing money into unknown start-ups and crowdfunding campaigns, pick companies that have illustrious histories of success and trends of making money. You can reduce your risk by putting your money into businesses that have spent decades navigating through the competitive marketplace and generating solid returns to their investors.

Research The Owners

Before you put your money into a security, you should know who you are investing with. Do the owners have a track record of success? Can they easily raise capital if needed? Can the team execute their vision? It doesn’t matter how great the idea is if they don’t have the right management team. If you can’t get a clear view of where the company is headed and whether they are positioned to carry through the market storms, then it’s best to avoid the risk.

Know What Risk Profile They Fall Under

It’s important to understand which investments are considered high risk and which ones are deemed safe. Options, Futures, and Collectibles are considered high-risk because they can provide significant returns as well as big losses. Mid-risk investments like equity mutual funds, large and small-cap stocks, high-income bonds, and real estate investments still carry risk, but they are relatively safe and usually provide stable returns. The safest investments you can purchase are government bonds, money market funds, and treasury bills. You won’t get the biggest returns but the likelihood of a return is very high.

Check If They Are Diversified

When investing in funds, you should only put your money in something that is diversified across a number of asset classes. Without asset allocation, you’re susceptible to risk during market swings. When you have a portfolio that is properly diversified, your investments will continue to grow no matter what the market condition.

Predicting the markets is challenging, especially if you don’t have a background in finance. At The Beacon Group of Assante Financial Management Ltd., we can help you manage your risk and create a balanced portfolio that will take advantage of the markets up and downs, maximizes your wealth, and provides you with stable returns into the future.

 

Changing Your Fiscal Year’s End Date

Changing Your Fiscal Year’s End Date – Why You Might and How You Could

by BusinessFinancial Planning

Looking to change your fiscal year’s end date to another time of the year? Choosing your year-end date can have strategic tax advantages, as well as operational advantages. And technically, you can change it to any date on the calendar, as long as it meets the Canada Revenue Agency’s (CRA) requirements. To learn more about why you might and how you could change your fiscal year’s end date, check out our short guide on the advantages and the process of doing so.

Benefits

Businesses with high inventory counts may prefer a year-end date to match with their offseason since a quieter time makes it easier to organize taxes and complete year-end tasks. A change may also help you to align your dates with your accounting firm’s slow period, getting you more attention, better rates, and a quicker turnaround when you need it most.

Sole-Proprietorship

When you open a sole-proprietorship, your fiscal year’s end date is automatically set for December 31 of the year you apply. However, you might want to have a date that makes filing taxes easier for you (as mentioned above). To request a change, you need to send a request to the CRA. To do this, you just need to fill out a form called the T1139 – Reconciliation of Business Income for Tax Purposes. The CRA will then review the application and determine if your reasoning is relevant enough for a change to occur. If your reasons are just, it is not likely you will be denied.

Corporation

For a corporation, the fiscal year’s end is established when you submit your first corporate tax return (T2). Technically, you don’t have to file it on December 31st. You could file it any other month, as long as the date you do so is within 53 weeks of your incorporation date. In the event that your corporation is already established, you’ll need to send a letter to the director of your local tax service office requesting a change.

Requirements for Approval

Not all applications will be approved by the CRA. They will only approve those that have sound business reasons and are not applying to attempt to minimize their taxes. An example is if your corporation is changing the fiscal year end date to match that of the date used by the parent corporation – such a reason makes sense for a multitude of reasons for both the umbrella company and for the company applying.

Special Circumstances

In some cases, you may be able to adjust your fiscal year-end date without the written approval of the CRA. For instance, let’s say your corporation is being acquired by another business and that company would like the fiscal year-end dates to match – you could just make a straight change. Other cases where this is acceptable include: when the corporation has wound-up, where a business has to end its tax year at a certain time because it’s moving abroad, or when a business has become exempt from tax.

Changing your fiscal year end is not right for every business – it also has the potential to introduce more tax reporting complexities. So, it’s always wise to talk to an advisor first before making a decision. We recommend getting in contact with us at The Beacon Group of Assante Financial Management Ltd. before you make any decisions regarding your fiscal planning.

Downsizing: Why It’s Not Always a Bad Option

Downsizing: Why It’s Not Always a Bad Option

by BusinessFinancial Planning

Are you considering downsizing your business but are afraid it may lead to poor results, slower growth, or other negative consequences? You shouldn’t worry – it may actually be a better idea than you had imagined. Here are just a few of the reasons why downsizing isn’t always a bad option.

Reduce Debts

Bad management and poor decisions are not the only causes of business debt. Sometimes it’s just plain old bad luck, and sometimes it’s the result of trying to grow too fast. When the debts are getting a little out of control and beginning to have a major impact on the business operations, downsizing can be the key to helping you get the finances back in order.

Remove Weak Links

Sometimes when companies grow too quickly, they must take on a large amount of staff without taking as much care and consideration in the hiring process, ensuring they can keep production in line with demand. If something happens in the marketplace, in your area, or within the company, and there is a dip in business as a result, you may find yourself over-staffed with underperforming, low-quality employees. Downsizing during this time can help you remove the weakest links within your teams and provide better opportunities for the ones who are dedicated and add real value.

Balance Resources

Another advantage of downsizing is that you can rebalance your resources. There will often come a time when certain departments may be receiving more resources than they need, putting a damper on your bottom line. It can be hard to notice when this is happening amongst the chaos of your everyday operations. Downsizing can assist you in this scenario by providing you with a good opportunity to re-evaluate and re-allocate resources to where they are most needed.

Generate Revenue

When you downsize, you will likely end up with equipment, supplies, and assets that you will no longer need. You can sell these within your industry and generate money that you can reinvest into the business to help grow your company into the direction you desire.

Improve Work-Life Balance

It’s a misconception that businesses need to be large to be successful. Sometimes bigger is more difficult to manage; it’s chaotic and more exhaustive on resources and employees than smaller businesses are. This is particularly true if you and all your managers are working non-stop to manage your large-scale operations. What’s the point if you can’t enjoy your life? Downsizing can help create a better work-life balance and keep your business structure in check as well.

Downsizing is not always a bad option.  In many ways, it can end up being the best option for your business to get back on track and succeed the way you planned. To find out if your business could benefit from downsizing, talk to one of our advisors today. We offer advice and guide you through the process when you’re ready to make a change.

Getting Back on Track with Your Savings

Getting Back on Track with Your Savings

by FinancialFinancial Planning

We all have things we’d like to save for – whether it’s an addition to the home, a retirement plan, or post-secondary education for the kids. Reaching these goals can be a complicated and challenging process. Often, we get a little off track with our savings and need some help to get them back under control. If this rings true to you and you feel like it’s time to re-visit your savings plan, check out these 5 ways you can start getting back on track with your savings today.

Create a Savings Strategy

Once you know what your financial goal is, it’s important that you create a savings strategy. First, figure out how much you want to save each month to reach your goal, and then decide on what the deadline is to achieve your goal. By dividing the total amount you need to save by the number of months that it will take to complete your goal, you will get the total of how much you need to save each month. If the amount looks too high, you should look at your expenses to see if you can find ways to save more money. A financial planner can help you find better tools and ways to reach your goal without burdening your lifestyle.

Review Your Options

There are plenty more options to save money than just through a savings account. Saving tools like Registered Retirement Savings Plans (RRSP), Tax-Free Savings Plans (TFSA), and Guaranteed Investment Certificates (GIC), are just three of the most popular methods available in Canada to help you save. By talking to a professional advisor, you can get the guidance you need to help make a decision that is right for your financial goals.

Track Your Expenses

Once you have a detailed strategy and savings plan in place, you need to start tracking your expenses. By tracking how you spend your money like your monthly bills, entertainment, and lifestyle expenses, you will be able to see more clearly where you spend the most money. This will, in turn, help you find ways to trim down your expenses and free up money for your savings, like cutting back on eating out or switching to a more affordable gym membership.

Pay More Than Just Credit

With credit being easy to obtain, many people have gotten away from the habit of saving and instead, focus only on paying back their credit. Without any money in savings, you are just living off of debt. To get back on track with your savings, you need to put a proper payment strategy in place for both your credit accounts and your savings accounts. One method is to set up an automatic payment to your savings account, so you are paying a little bit each month, instead of just paying your credit back. You will be surprised at how fast it adds up.

Look For Better Deals

If you’re spending too much on your insurance, mortgage, and bank fees, you could be losing out on saving opportunities. To find better deals, hire a professional advisor who can look through all your expenses and help determine what better options are available to you. A new bank account, re-financed mortgage, or new insurance policy can help you to free up some of your money for your savings accounts.

When your savings need to be resurrected from the dead, talk to us at The Beacon Group of Assante Financial Management Ltd. Our professional advisors can help you better organize your expenses and get your savings back on the right track.