Tips for Financial Purpose Can Benefit in Life

As advisors, we help people gain clarity as to the purpose and meaning of money. We help people get clear about their values and goals in life. Although there are many specific issues that can be addressed on the subject, a few basic concepts are certain to emerge. The following list of tips, which encompass all three areas of financial planning – retirement, estate and tax – will serve you well throughout your career and life.

Avoid the temptation to spend.
We have shifted from a producing society to a consuming society. People borrow to the maximum on big-ticket items, such as an expensive vehicle or house. Save up significant down payments first. This requires setting aside the natural craving for instant gratification. Doing so will free-up resources for you down the road and help avoid the dependency on debt that is so common, even among high-income earners.

Live under your means.
It is not unusual to find couples who make $200,000 a year or more living paycheque-to-paycheque. If your income is rising, set your lifestyle at a level which reflects your income last year, not at what you anticipate you might make this year. This way, your spending won’t get ahead of your income. Use the extra income to pay down debt or set aside savings for large purchases in the future. One of the biggest tricks in your financial life is to live below your means. Our culture has pressured everyone to live above their means. 

If it’s too good to be true…
Don’t invest in a scheme you don’t understand, tax shelters or overly-risky investments. Avoid get-rich-quick schemes and fast-money ideas. Your best investments when starting out are your RRSP and paying down personal debt.

We are not suggesting you should never take risks. Taking risks is fundamental to building wealth. George Hartman, in his book titled “Risk is a Four Letter Word”, lists 10 truths about investing. Three of these truths are:

• There is no such thing as a risk-free investment. Even the purchase of a GIC is a decision to lose purchasing power after taxes and inflation.  The challenge is to decide what level of risk you are willing to assume and to understand the implications of that choice.
• A rational investor will take on greater risk if the anticipated reward is sufficient
• It is usually better to focus on risk than return. Setting an upper limit on the amount of risk you are willing to assume automatically puts a ceiling on the rate of return you can realistically expect to earn.

The details of life.
Prepare a will and powers of attorney. This is especially important when you have dependents and should not be overlooked even if you are single. Obtain appropriate insurance coverage on contents, liability, overhead, disability, and life and critical illness insurance. Although we cannot plan for every contingency, we need to do what we can to protect ourselves, our families and our businesses from financial ruin.

We should have had puppies.
If you have children, you know they cost about $221,000 before post-secondary education. You may want to start saving for their education now by setting aside a pre-determined amount every month. Education savings will help prevent a “Failure to Launch" syndrome. You will likely not have Matthew McConaughey in your basement. Consider using a registered education savings plan to accomplish this.  We all know the cost of future post-secondary education will continue to rise faster than inflation.

Seek good advice.
Engage the services of an accountant, lawyer and financial planner. Call them before making any major financial decisions or commitments. The money you spend for advice will be a fraction of the cost of making a big mistake.
Plan for retirement early in your career. We have all seen the statistics about the benefits of contributing to an RRSP early in our lives and the benefits of paying down our mortgage as quickly as possible.
Educate yourself. If you have read this far, then you are already taking this to heart. Your must take responsibility for your finances. You cannot rely on the government or others to bail you out. Learn as much as you can. The press is full of information.

Be a philanthropist.
Finally, give back. None of us are Gates or Buffet, but we can all make a difference. Give to your community and global poverty. Give of your money and your time. Learn about the plight of single mothers locally, the needs of local charities. Investigate how 3 billion people on this planet live on less then $2.00, yep, two dollars a day. 

Spending all of our resources on ourselves or hoarding them for the future only leads to self-absorption.

You can have a fulfilling life spending less, saving more and giving more.