What Does Your Money Mean to You?
Posted 24 May 2019 by Natalie LeBlanc
Money is a tool. How you spend it, how you save it, and what it means to you is entirely different from your neighbour, your friends, and potentially even your spouse.
The primary concern for most Canadians is, of course, having enough money to cover basic necessities in their day-to-day lives, now and in the future. This is the premise of saving for retirement: work now and use that money to not work later. Saving for this next era of your life via investing is a popular avenue, and if you’re reading this newsletter you’re likely in that camp as well. But what are you invested in? Why?shutt
Avoiding the Tax Man
Perhaps the second-most thought-of financial decisions surround taxes, specifically income tax. Filing your taxes each year is something every Canadian must handle and it can be a real source of stress when you don’t understand how the system works. When April rolls around, are you frantically throwing together whatever came in the mail and hoping CRA doesn’t send you a big bill, or do you already have a good idea of what your tax bill/refund is going to be on December 31st each year?
Some investors largely base their investing decisions on the tax treatment of the products in question, both at the time of investment and the time of divestment (or sale) and leave the rest of the factors to their advisor. Where different products can be taxed differently, taking taxation into consideration should be a factor for all investors. This can help determine things like whether an RRSP or a TFSA are the better account options for you.
How much should you save?
We are often asked how much a person should be putting away to save for a comfortable retirement. The answer is never simple and always depends. When do you plan on retiring? Do you have pensions? Are you planning on selling your house upon retiring?
But perhaps the most overlooked question, what do you want to do in retirement? Assuming you’re able to cover your basic needs, how you will spend the rest of your time dictates how much you should save now because how you spend your time is how you will spend your money. If you hope you travel the world you’ll need to save more than if you simply hope to spend your days in the garden (unless your garden rivals that at Versailles!).
Who else are you saving for?
Once you’ve reached a comfortable level of (current and retirement) income, what’s next for your dollars? Many people have children and/or grandchildren to whom they will their estates after their passing – how important is it to you to leave a legacy for your family? Are your children well-taken-care-of for their futures or do you expect an inheritance to make or break them? Questions like these help to make decisions regarding beneficiaries of your investments and how you write your will.
Another common beneficiary in people’s wills are charitable organizations that are important to them but giving to charity doesn’t have to wait until your passing. Many Canadians give to charity regularly, 84% according to StatsCan, to help better the lives of other Canadians and people around the world. Consider whether gifting money to charity is an important part of your financial plan. Your money can be a big help to those who need it.
Investing in your values
The scope of investment products available to Canadians is a wide one. Between mutual funds, ETFs, interest-bearing accounts, GICs, and many others, there are a lot of product types to choose from. When deciding where to put your money, do your values and beliefs play any role or are you simply chasing a maximum return? Do you prefer to let your advisor drive the bus on investment selection or do you personally follow the many mutual fund managers out there? Do you believe you are “voting with your dollar” by investing in certain companies that support causes important to you?
The decision of where to invest, and what to invest in, is increasingly driven by factors other than rate of return. Socially Responsible and Green Investing are two popular choices amongst our clients, but other factors investors consider might include countries that are important to your heritage or companies in industries where you have personal interest.
Your involvement and interest in investment products will, of course, influence your final decision of where to invest.
Don’t ignore your bank account
Your relationship with money & finances may not have always been a positive one – do you remember a time when you dreaded your bank statement coming in the mail? That time could be now, even! Having a relatively negative relationship with money is likely to colour your financial decision making and can sometimes create a habit of avoidance or inaction that makes the situation worse. Speaking with a financial advisor can help alleviate the stress of now knowing, by providing clarity into things you may not understand and sound advice to bring your bottom line back to a comfortable level.
What to do with your next paycheque
Now that you’ve thought about what your money means to you, how you want to make it work for you, and why, it’s time to develop a plan. Look at what you have, and what you owe. Is the money you have working for you, or just sitting there? Are you making strides towards lowering your credit card balances? Do you have a handle on your larger debts, like car loans and lines of credit?
These factors of your finances don’t work for you in isolation. It is important to bring together all the pieces of your financial puzzle to get an accurate picture of the “now,” in order to plan for the future. Make your money work for you, your values, your family, your world.