Blog

What happens to the advisor when a client dies?  It depends on the advisor, and the relationship.  There's a variety of responses; journalist Todd Humber interviews myself & Adam Schacter about what to do, what not to do and how to maintain a connection to best advise the remaining family.

Click here to read the full article

This article by Jonathan Got is a great overview of what happens when you need to make a claim on your critical illness insurance policy.

What stod out to me when I was helping one of my clients with a claim through a group benefits policy last fall was how important it is to state your situation, then ask "What coverage do I have?"  "What benefits apply to my situation?"  My client received great advice from the benefits provider, and was eligible for more than he thought initally.

My conversation with realtor Nicole Lopez on her podcast focsed on how to build the foundation for financial literacy, make decisions with more confidence and change the way to you relate to your money.

Don't let the title of the episode stop you from hitting play- the conversation is applicable to both men and women!

Your net worth and your cash flow (or income) are related, and they are separate.  It's important to understand the separate numbers and how they relate to each other when you are making financial decisions.

Listen here for a short explanation.

“Improving Finances” was listed by 38% of respondents to Forbes Health/OnePoll survey.  That’s a lot of us who want to change our finances.  I’m confident that resolution is a re-run for many of us.

If you’ve thought about ‘improving your finances’ before, and haven’t made the change that you wanted; if you’ve tried to tackle where your money is going, how to get a grip on whether you’re going to be okay in the future, if you can afford to [fill in the blank] and still [fill in the blank], I have a few tips for you to get you from saying it to doing it.

Pick small steps- by small, I mean SMALL. (ironic, I know) Clarifying one thing at a time is progress and will build your financial foundation.  Need examples?  Figure out your monthly take-home income if you’re not sure where your money is going.  Listen to a podcast episode on money if you want to build your knowledge and comfort with finances.  Need recommendations?  Follow me on Facebook, Instagram or LinkedIn for future posts on this.

If you are changing any of your habits, give yourself time to solidify the change.  “A new habit” is actually two steps- you have to stop the old habit and start a new habit.  On average, you need 66 days to form a habit if you do it every day.  Some of your financial goals may not happen every day, so do two things with this information:

     ◊  make a plan to check in with your habit at least weekly to keep momentum (even if that’s just a reminder of ‘hey, my RSP limit this year is $45,839 sticky on your mirror)

     ◊​   be kind to yourself if you need to re-start when the old habit took over.

A new calendar year has been changing our bank account amounts for a long time, from RSP maximums indexed to inflation to increases in Canada Pension Plan contribution rates.

2024 has some standout amounts that you should be aware of, in addition to the regular, steady changes.

WHEN YOU'RE WORKING

Canada Pension Plan (CPP) contribution amount- the CPP contribution rate for working Canadians has been increasing since 2019, and 2024 is a big jump in the payroll deductions.  The employer & employee contribution rate has increased to 5.95% of contributory earnings and the maximum pensionable earnings have increased to $68,500.  In dollars, that’s a maximum of $3,867.50 from an employee and a matching amount from the employer; if you are self-employed, that’s a maximum of $7,735.00.  CPP2 is new- this contribution covers income from $68,501-$73,200.  Employees and employers contribute 4% to a maximum of $188 each and self-employed Canadians contribute up to a maximum of $376.

For perspective, in 2020, CPP maximum pensionable earnings was $58,700 and contribution rate was 5.25%.  that calculated through to a maximum payment of $5,796 to CPP (either split between employer & employee or fully paid by a self-employed Canadian).  Four years later, we’re up to CPP maximum pensionable earnings of $68,500, a 5.95% contribution rate and a maximum payment of $7,735.  Those are increases of:

17% in the maximum pensionable earnings

13% in the contribution rate

33% in the dollar amount of the contribution

If your bank account is feeling a little dented, those numbers help explain a few of the dings.

The increases in CPP contributions are connected to increases in the CPP payments that you will receive in retirement.  The multi-year increases were designed to take CPP retirement payments from 25% of maximum pensionable earnings to 33%......an increase in retirement payments of 32%.

IF YOU HAVE CHILDREN

The Canada Child Benefit (CCB) has a cost of living adjustment that is calculated in July every year.  For July 2023- June 2024, the increase was 6.3% (the Consumer Price Index as of mid-2023) and 2024 payments will increase in July, based on the CPI calculated at that time.

Why July?  CCB amounts are based on net family income.  By scheduling the increase for July, the government is using the most recent income data that they have for families.  Another great reason to file your tax return!

WHEN YOU'RE SAVING

2024 RSP maximum- 18% of earned income to a maximum of $31,560 (corresponding income of $175,333).  If you contribute the full amount monthly, that’s $2,630 per month.

Reminder: before making any changes to contributions, check any scheduled deposits that you have happening through a group plan at work so that you don’t over-contribute.

File your income  taxes on time, then check your Notice of Assessment (NOA) from CRA to see how much contribution room you have available for 2024.  The amount on your NOA includes any previous contribution room that you haven’t used plus any new room generated by your 2023 income.  Make changes to your deposits as needed.

2024 TFSA maximum- $7,000 of new contribution room.  If you have never contributed to a TFSA, and you were born in 1991 or earlier, you have cumulative room of $95,000.

Reminder: do not over-contribute!  Many people have more than one TFSA account, and it’s easy to over-contribute.  Your TFSA limit is a global limit- no matter how many TFSA accounts you have, your limit is your limit.

Recommendation: review the purpose of your TFSA.  Is this long-term savings?  Do you want growth from this money?  Is it intended to fund a specific purchase, like a new car or a house?  Is it your emergency money?  The investments inside your TFSA should match your goals; the risk level and volatility should be chosen after you’ve chosen your goal for the money in the TFSA.

RECEIVING CANADA PENSION PLAN (CPP)

 CPP payments are increased once a year using the increase in The Consumer Price Index (CPI).  This keeps your CPP amount equal to inflation (as best as possible, depending on your spending patterns).  What does that mean?  It means you can still buy the same amount of stuff with your pension this year as you could last year, even though prices have increased.  Your CPP amount has kept up with the increase.  This is a valuable feature in any pension, investment return or income stream.

The CPP increase for 2024 is 4.4%

RECEIVING OLD AGE SECURITY (OAS)

OAS payments are adjusted quarterly for inflation, also using the same CPI as CPP.  The increase from Jan-March 2024 is 0.8%.

WHAT IF CPI IS NEGATIVE- DO MY CPP & OAS PAYMENTS DECREASE?

No.  If the CPI is negative, payments remain level.  This is true for all government payments that depend on CPI adjustments.

More information:

Canada Child Benefit information

CPP contribution rates

CPP2

CPP payments- 2024 inflation adjustment

OAS payments- first quarter 2024 inflation adjustment

It might not seem like a large bank account balance would be a problem, but it often is.  Many clients hire me specifically to plan to deal with this issue.

Whether it's your job that gives regular bonuses, your spending is far below your income or you received a large one-time amount, cash in a bank account casuses pressue to make a decsision.  The right decision.

Some general considerations if you are in this situation:

• do you have an emergency account?  If you lost your income for 6 weeks to 6-8 months, how would you pay your bills?  If you don't have any emergency account, consider moving the cash into a savings account (if it is currently in your main chequing account).  This money's job is to be available; it's not irresponsible to have the money 'sit there doing nothing'.  It's job is to protect your financial stability.

• Are you saving for a specific purchase or a known expense?  If yes, leave that money in cash.  Sometimes, clients tell me that they feel like they could be gaining a higher return, or doing something else with the money.  If you are considering investing in either the stock or bond market, you are taking risk.  Risk that your investment might be worth less when you need to sell it than the day you bought it.  If your timeline is less than 3 years for a purchase/ expense, you don't have the time to invest without taking on large amounts of risk (aka- you would be gambling with money that you know you need in a certain amount in a certain time).  

• Did this money come to you through a loss or a big life change?  Is this inheritance money?  Severance from a job loss?  A settlement after a separation/divorce?  Sale of a business?  I recommend taking time to review your priorities if your money came from any type of 'sudden wealth' event.  In my experience, clients take about 12-18 months to make any decisions on an inheritance.  You need time to review your new situation, set new priorities and test out what your life looks like now.  Using smaller amounts to pay off high-interest debt or purchase something that is meaningful to you is reasonable, but if you are feeling overwhelmed or a bit lost with the money goals, put it into a savings account, gather information and ideas and make decisions later.

If the bank or any other advisor is pressuring you to make a decision or purchase a product, I recommend getting another opinion.  There is rarely a situation that demands a decision on money like this before you are ready.  On the other hand, there are very real consequences to you to making a decision that doesn't align with your situation, goals or values.

Financial scams are everywhere- in your emails, your texts, on social media, through phone calls and still arrive in traditional letters in our mailboxes.

It's important to protect your information and access to your finances.

The discussion below, moderated by Steadyhand, focuses on seniors.  Seniors are a large target group of scammers, but we are all vulnerable.  Over the summer, I helped a teenager unravel a bank account hack.  The bank's response wasn't great- the target received conflicting instructions, was told he had never had accounts at that bank after explaining the situation (although they had ID with them at the time, they weren't asked to provide it; the customer service rep assumed they were attempting a scam).  The bank agreed in late August that the account had been hacked, and replaced the stolen amount.  However, the bank account owner still can't set up etransfers and a few other functions in the new bank account.  Why?  The bank can't provide a good explanation and won't help further at this time.

The effects of scams are far-reaching and can destroy financial stability.  

Steps to consider:

1. When you receive any unexpected communication, don't respond immediately.  Give yourself time to review the sender's request.
2. Get out of a high-pressure conversation.  This is important.  It is also extremely difficult to do.  Practice- write down what you will do if you receive a phone call demanding immediate action on your part.  This includes phone calls pretending to be from family members who are 'in trouble'; phone calls pretending to be from Revenue Canada (CRA). Do not stay on the phone- hang up and call the family member or CRA directly.  Big note: CRA sends a letter if there are questions or concerns or tax money owing.  The initial communication from CRA is NOT by phone.
3. Do not give out banking or personal information through email or text.  A legitimate organiziation will not ask for this information.
4. Assume that you are vulnerable to scams.  One of the reasons that scams work is our assumption that we will be able to spot the scam.  Consider approaching every unexpected notification with two thoughts:  "I'm not smarter than the average bear" and "scammers do this as a full time job, it's profitable and they are extremely motivated to get at my money".  
5. Slow down (again).  Review what you wrote out in step 2.  If this is a legitimate request and you ignore it, the organization is likely to contact you again.  I get a lot of emails claiming to have phone messages attached for 'my organization'.  Some look quite legitimate.  I've never clicked on any link; I assume that if there is a real person attached to that message, they will call me back.

Lots of things have made 2023 feel uncertain, both globally and close to home. War, politics, inflation, divisive conversations and economic shifts are part of our everyday lives.  And they can all affect our day-to-day financial stability.

How to manage a financial emergency

If you are not in the middle of an emergency right now, go back to the previous post and fill in your financial picture.  Clarity and understanding are important foundation pieces to making good decisions.  If you don't understand what's happening now, you're unlikely to choose the right adjustment to make, especially if you're under pressure.

 Step 1  Organize your net income, including the timing of pay & income deposits.  Work out how much you're spending.  Commit to an amount that you can save regularly.  Save it.  Not in your main bank account.

Step 2  When possible, build up an emergency account.  When your income is interrupted, or you have a large expense, having an emergency fund takes some of the impact out of the event.  If you have already saved, during the emergency, you're not taking on debt.....which increases your fixed expenses (to pay the debt off).....and emergency will be more contained.  An emergency fund that can cover 3 months of all of your expenses is great.  Coverage for 6 months really buffers the impact of whatever might happen.  If those amounts feel completely out of reach- do what you can.  Start somewhere.  Go back to step 1 and find any amount that can go towards protecting your financial stability.

Sidebar  "Can't I use my line of credit instead of leaving money sitting in a bank account doing nothing?"  I used to hear this question from clients all the time.  Now that interest rates have gone up, and the economy feels shaky, I don't hear it often.  Yes, you can use a line of credit if you need time to build an emergency account.  I often recommend that clients have a line of credit available.  It is a tool that can give you flexibility in a financial emergency, when your life is changing and when you need some room that is beyond your regular income.  If the line of credit is your only tool in an emergency, you need to be prepared to pay it off.  The pay-off period will stretch out the time that it takes you to financially recover, and it can restrict your financial choices until the debt is paid back.  It can still be the best solution, depending on your goals and the situation.

Step 3 Protect your earning potential.  For most of us, our biggest asset is our earning potential.  We don't put this on a net worth statement, and we often forget that this is the case.  Large expenses and rising debt can interfere with our ability to focus at work.  Losing your job has an immediate impact.  Understanding your financial situation, how much you need every month to cover expenses, how long you can survive on savings, how much you need to earn at a new job, when you need to consider large changes in your lifestyle- all of these things will settle the general financial stress that many of us carry every day.  Be deliberate about decreasing your stress- focus on what you did well in your last job/ what you do well in your current job, the skills that you have, skills that you would like to gain.  Think about how you can add value to a new employer.  It's important that you protect your ability to interview well or continue to perform well at the job that you have now.  Don't let financial stress interrupt your work performance.

What you're in the middle of a financial emergency right now?  Slow down, go to Step 1, and work from there.  Don't beat yourself up if you didn't have an emergency fund, or have already used all of it.  Work from where you are.  Know your numbers so you know what you need to do.  Don't guess.  Don't panic.  Protect your ability to earn an income.

We’re 78% of the way through 2023.  If you pay for anything, at all, anywhere, you’ll agree that prices have gone up. 

If you have debt, that price has gone up too.

As a group, Canadians are pretty comfortable with debt.  Especially debt against our houses.  For a long, long time, borrowing on a line of credit was cheap, seemingly easy money.  And since our house prices only seemed to go up, what’s the harm?  Where’s the risk?  Why wouldn’t you borrow to get what you want today instead of waiting?

78% of the way through 2023, if you have borrowed on a line of credit, or you have a large mortgage, you are getting more familiar with the risks.  And the discomfort.

This is one of the places where net worth and cash flow collide in our thinking.

For a long time, low interest rates meant that you still looked good on paper, even with a mid-six figure mortgage.  And your cash flow felt fine.  But it wasn’t long-term fine.

Now that your payments have doubled or tripled, your cash flow isn’t fine.  It doesn’t matter that your net worth still looks okay/ good / great.  You need to be able to make those debt payments AND buy groceries, pay for your car and buy winter boots for everyone in your house.

If you’re feeling cornered by your debt and are looking for a way out, start with the steps below:

How to fill in your financial picture with facts:

• Understand your net income.  This is the amount that lands in your bank account every pay period.  This is the amount that you have available to cover ALL of your expenses.

• Organize your expenses into two broad categories- fixed and variable.  Focus on fixed right now.  Get a sense of your variable, it that’s helpful for you to move to the next step, but if you’ve tried this before and walked away, you are behind on payments or money is keeping you up at night- find your fixed expenses only.  You’ll see how variable comes out after the next step.

• Calendar out your net income and your fixed expenses- when and how much comes IN, when and how much goes OUT.  Do this in whatever format works best for you- print a calendar sheet and get a pen, use an online calendar.  If you are feeling overwhelmed by payments- you need a visual. Don’t shortcut this step.

• Now you know how much of each pay cheque is already spent (fixed expenses) and how much is available for variable expenses (these are also necessary, but we often have some flexibility in how much or when we spend in this category).  Move the money that’s available for your variable expenses to a separate bank account.  Note: you can keep track of this amount on a spreadsheet, in an app or another way that makes sense to you.  A separate bank account is the fastest ‘check’ on where you’re at with your variable spending.  For some people, the cost of an additional bank account (most frequently heard objection) is a small price to pay for financial stability.

• Make pro-active choices in your spending.  Now that you know what’s coming in when and how much is scheduled to go out and when, you can start making adjustments.  If you don’t have enough to cover both your fixed and your variable spending, you will need to make some hard choices.

There’s much written and recorded about lowering your fixed expenses- think ‘cancel your subscriptions!!!’ conversations.  Often, it is difficult to significantly lower your fixed expenses without large lifestyle changes.  Most of our fixed payments are connected to a big lifestyle choice- where you live, what you drive and stuff you own and need to maintain.  It’s worth going through the list to see what’s available to reduce or eliminate, but be prepared that this may be nibbling at the edges of your situation.  If cancelling a $20 Netflix subscription solves your debt problem- congratulations.  It likely won’t.  It may give you the motivation to work further and find more reductions- congratulations!!

If you need a big reduction in expenses- it is time to look at selling your home, switching out your car.  Be aware that these are both difficult transactions- emotionally and financially.  More and more car loans are 8 years long.  If you are 5 years in to an 8 year loan, and you need a lower payment, selling your current car won’t clear the remaining loan amount.  And you’ll need to find something else to buy.  Investigate before you do either of these- know the costs so you’re aren’t moving from high payments to new high payments. 

For most of us, the variable expenses are the ones that we have the most control over- both in timing and amount.  These expenses can also be hard to decrease.  If you are spending more than you are making, you need to make adjustments while you still have some control of the situation.  If you are spending as much as you are making, you have some time to figure out how to make more or spend less in the next 12 months to 3 years.  If you are spending everything that you’re making, you don’t have anything to save.  Sounds obvious, but lots of us miss the implications of this.  How are you going to replace your car?  Repair the car you have?  Maintain your house?  Manage a layoff from work without taking on new debt?  That’s a brief list of the short-term expense spikes that affect many of us.  Long-term, how are you going to stop working?  Preview of a future post- selling your home isn’t an answer to this question.  At least, not an answer that you’re going to like.

For the next 4 weeks, spend time with the 5 steps to filling in your financial picture:

1. Understand your net income
2. Organize your expenses into fixed and variable
3. Calendar out your pay deposits and your fixed expenses
4. Calculate and move your variable money to another account
5. Make pro-active choices.  You now have the knowledge to spend within your pay periods!