Submitted
For many of us, the New Year means a fresh start.
So even if you fell into a financial slump during the year, or went off the deep end over the holidays, now’s the time to reboot, bounce back and make smart plans for the future.
Here are three short-term goals and three longer-term goals to help you prepare for the future.
Short term financial goals:
1. Start saving more
You can start by using a budget calculator to find out where your money goes. See what’s making you fall short, break even or come out ahead. With a clear understanding of your monthly spending habits, you can figure out where you can cut back. You may find that you’ve been spending more than usual on dining out.
Once you’ve formed the habit of saving regularly, you might be wondering how best to handle the money you’ve set aside every month. Depending on your financial priorities, you may consider aiming for financial goals.
2. Use a TFSA to save for a milestone
Got a milestone coming up this year, like a wedding, a dream vacation, or a new home? Growing your money in a tax-free savings account (TFSA) is ideal for short-term goals like these. Here’s the gist: You put after-tax money in your TFSA, and any investments you hold inside your account – GICs, mutual funds, segregated funds, stocks, bonds, etc. – grow tax-free.
Plus, you’re free to take your money out at any time, for any reason. So, you could use your TFSA money to meet any of your financial goals, whether it’s planning for a big expense, putting money aside to help finance a parental leave, paying off credit card debt, or building up an additional source of retirement income.
But keep an eye out for the yearly contribution limit, which has risen to $6,000 for 2019. However, if you’ve never opened a TFSA and you were at least 18 in 2009, you can contribute up to $63,500 today. And, you can re-contribute any withdrawals in the following year.
3. Build an emergency fund
No matter how hard you try to save, life has a way of throwing unexpected financial demands your way. While you can’t usually predict a financial emergency, you can prepare for one.
An ideal contingency plan lets you to save and grow your money during good times and have easy access to it when hard times come along. For such cases, you may consider putting some of your spare cash in a high-interest savings account. You can’t hold investments in them, but they do pay slightly more interest than an ordinary savings account.
Long-term financial goals
1. Saving for retirement
Making the most of your registered retirement savings plan (RRSP) is one of the best ways to secure your financial future. Any investments you have growing in an RRSP are tax-free until you take them out, which is presumably when you’re retired and in a lower tax bracket. Along with growing your retirement income for the future, your RRSP contributions also help you now, by giving you deductions that can reduce the income tax you’d otherwise pay.
Just remember that RRSPs are better for long-term savings, not short-term savings. Why? Because early withdrawals from your RRSP can increase your annual income and are subject to a number of tax penalties.
2. Getting the right life insurance
Having an emergency fund can help see you and your family through short-term crises. But what about the long-term challenges your family could face if you were to die? This is where life insurance plays a starring role.
No matter your age or current financial situation, you likely have people who rely on you financially. These financial obligations don’t die with you. Instead, they’re passed along to someone else. With the right life insurance policy, your family or other beneficiaries can use the money from the death benefit (the amount of money paid or due to be paid when an insured person dies) to cover any expenses or debts that they had relied on you to pay for.
While you’re still alive and healthy, life insurance can bring you peace of mind, knowing that the people you love will be financially protected when you’re no longer around.
3. Take steps to plan your estate
If you have life insurance, you’re already doing a lot to protect the people you cherish. But you also want to make sure the money you’ve worked so hard for goes to the right people after your death – with as little stress as possible.
Begin by listing all your assets (bank accounts, investments, registered savings plans, real estate, etc.), then think about whom you’d like to inherit your property and whom you would ask to be your executor (the person who carries out the terms of your will after your death). Then, you’ll be ready to see a lawyer about writing your will. If you die intestate – without a will – the law decides how your assets will be divided. This means your money and valuables might end up in the wrong hands. There are also ways to reduce the income tax your family or beneficiaries might have to pay. Without a plan in place, your heirs could inherit a huge tax burden.
Once you’ve written your will, you need to update it regularly because change is a natural part of life and significant events like illness, divorce, marital separation or having children can affect your estate.
Feeling a little overwhelmed? Sorting through your finances can be intimidating if you’re new at it. But you don’t have to do it alone. An advisor can walk you through all your options, check off everything you need to address and help you build a plan that suits all your goals.
Source: www.sunlife.ca
Sponsored by Shannon Hood Financial Services Inc.
