Our Financial House.
Have you ever built a house before? If I were to ask you what the first thing we would need in order to build that house was, what do you think most people would say? I actually ask this question quite often, and the vast majority skip right to the foundation. But if we are putting hundreds of thousands of dollars into this brand new house, are we just going to “wing it”? I hope you answered no to that. So if we aren’t going to wing it, we will need a plan, or a blueprint correct?
I like comparing our financial plan to building a house because they are both going to be worth hundreds of thousands of dollars if not millions (if done correctly), and they are both a huge step in your life. Now if we want our financial lives to be worth hundreds of thousands (or millions), does it make sense not to just wing it and to actually get a plan put together?
I believe that every client is different, and will have different needs. A good financial professional will get to know their clients, and understand what is important in their lives. They will learn more on the risk tolerances of the different individuals in the household. And with that, they will create a wholistic plan. That is a plan where everything is working together, and not as separate products thrown in the mix. This is the “know your client” phase. After we gather the “measurements” for our financial house. We can start brainstorming on what products and services might benefit and serve you the most.
After we gather all the information from our “know your client” section and we have started to brainstorm ideas, we can move on to our foundation. Now, if you were to build a house… would you want a strong or weak foundation? Hopefully you said strong, because if there is a storm you would want that house to continue standing. The foundation in our financial house is insurance. We want to know, that if something happens to the bread winners, that financial house will stay protected and standing. All to often do you see someone that just had a heart attack a week prior back at work. He or she are not back at work because they want to be. They are there so they don’t lose their homes. And not getting enough time to fully get healthy, leads them to being more susceptible to risk in the future.
A strong foundation, like in the preview picture will hold funeral planning, Disability insurance, Critical illness insurance and life insurance. I will go more into depth of each of these in another article. These will cover the bases and if anything were to happen to you, you would get the proper amount of time to fully heal up and not wipe out your entire financial house.
Our 4 Walls.
After we have built a strong foundation, we can raise the walls. Our walls are our investment vehicles. Now if you had a ford, a Chevy, a dodge and a gmc, in a 5 seater truck, could you fit the same passengers? Grandma, Grandpa, the dog, the kid, the cat. All 5 fit in each vehicle and that is the same with our investment vehicles… we have Registered accounts like RRSP’s, Open accounts, TFSA’s and Insured life strategy. All investments can fit inside these vehicles. GIC’s, Mutual funds, Segregated funds, stocks, bonds etc… the biggest difference between them is how they are taxed.
Now, as Canadians most of us know about RRSP’s and the tax deductions and tax deferred growth. But what we don’t know is that 100% of that money is taxed when we go to pull it out and by age 71 the government forces us to start pulling it out. Now with open money, you can get the same tax deductions and tax deferred growth up to about 95%. When we go to pull it out, we have structured something called capital gains so only about 50% of that money is taxable. I look at the TFSA as one of the biggest gifts from our government because no, you don’t get any tax deductions and there is a limit to how much you can put in, but when you go to pull it out, 0% is taxed! What I am finding today is that the banks are selling these as tax free SAVINGS accounts. Now what’s the average return for a savings account today? 0.25%?? And then they charge you a $20 fee to hold the account. The TFSA is one of the best investment tools the government has ever given us, so let’s use it that way. Now the last investment vehicle I mentioned was the insured life strategy, and it is also the most complex so I won’t go much into depth with it for this article, but what you need to know is that most accountants and government officials have them because they know how they work. There is no tax deduction and you have to qualify, but when you go to pull it out there is no tax.
Don’t Wing Your Financial Life.
Now that we have covered some of the basics of our financial house, does it make sense as to why we can’t wing our financial lives? Having a structured and consistently updated plan will provide you with peace of mind, confidence, protection in case of a storm, and real growth. Get in touch with a financial broker to create a plan that works best for you. Get in touch with me on my contact page, and we can either sit down, or I can get you in contact with one of my colleagues from around the country. I strive for a 0 pressure atmosphere and believe finance should be understood by everyone at no charge.