The 7 parts of Financial Planning

There are a lot of misconceptions about financial planning – and more and more often the word “holistic” is being tacked on to this process – a meaningless and confusing addition in my mind. Done properly, financial planning has always been about “the whole person” and “the whole family” and about all of those things that are important to the client. It really isn’t financial planning when done properly since finances are not a goal but rather a means – finances are an asset to be used to achive important goals in people’s lives. So here is my take on the 7 parts of “financial planning”.

Life Planning
 What gets you up in the morning?
 For what are you striving in life?
 What excites you about your future plans?
 How do you see your personal or business legacy?
 What is important in your life today?

Cash Flow Management
 Sources, reliability and expected duration of current and future income
 Taxation of current and future income
 Expenses review and analysis
 Includes any Education funding requirements
 Income tax planning – personal, investment and business sources of income

Debt Management and Net Worth Enhancement
 Good Debt versus Bad Debt
 Analysis of Debt amounts, repayments, interest rates and purpose
 Restructuring opportunities for enhancing Net Worth growth
 Net Worth targets
 Non-retirement financial goals and objectives (education, asset acquisition, travel, etc.)
 Funding of goals from surplus or designated cash flow
 Includes all assets other than personal effects and non-realisable collectables, antiques and jewelry

Investment Management
 Individual Risk Tolerance Profiles
 Full investment analysis and review including purpose, goals and priority
 Targeted holdings and transition plans as appropriate
 Tax efficiency and effectiveness
 Includes business review from investment perspective including eventual disposition plans

Risk Management
 Lifestyle protection
 Asset protection
 Cash-flow protection
 Retirement protection

Estate Planning
 Legacy planning
 Survivor income and bequest planning
 Tax planning for your estate and legacy
 Charitable bequests (if applicable)
 Special needs bequests (if applicable)

Retirement Planning
 Current sources of income, duration, taxation and indexing
 Expected sources of income, duration, taxation and indexing
 Lifestyle objectives – 3 stages of retirement – lifetime income requirement
 Tax efficiency and effectiveness of income
 Protection of lifetime income from erosion by inflation

Each client has different priorities and it isn’t my job as a planner to tell them what to do or in what sequence things should be done, with one exception. Without Life Planning be done first, the rest is just a bunch of meaningless numbers with no importance or urgency attached – and also a waste of everyone’s time!

2012 Taxes – some quick reminders

With mid-December upon us, I wanted to just do some quick reminders for year-end!

a) Don’t go into debt on credit cards just because it is Christmas!
b) Tax Free Savings Accounts (TFSAs) – to use your 2012 allowable limit, you must contribute BEFORE December 31st, 2012. There is no 60-day grace period as there is with RRSPs and Spousal RRSPs. The TFSA limit increases for 2013 to $5,500.
c) Registered Educations Savings Plans (RESPs) – similar to TFSAs, there is no 60-day grace period to get your contribution into the plan for 2012 purposes and obtain the maximum Canada Education Savings Grant (CESG).
d) If you need to maximise your 2012 Medical Expense Claim, and need prescriptions refilled, glasses or contact lenses ordered or maybe hearing aids purchased – do them now before December 31st, 2012 or you won’t be able to use them for your 2012 tax return claim. Also consider any needed dental work.
e) Charitable donations also run on a calendar-year basis so mail those cheques now or do it on-line. Remember, once you have donated $200. in a tax year, the Federal Tax Credit on all donations in excess of $200. increase from 15% to 29%!
f) For those of us who are self-employed and are considering when to purchase software upgrades, software updates (for programs that are income-tax sensitive) or new hardware, consider purchasing them now – some very good deals are available and thy should count toward 2012 allowance business expense deductions. The same applies to car servicing or repairs that are due – including switching to your snow tires!
g) For students, pay for your 2013 tuition fees before the end of December and the deduction can be applied to your 2012 tax return – particularly if you have income from a part-time job.

Be happy, be safe and look forard to a happy and successful 2013! Cheers

Year-end tax planning – not too early!

Yes, I know it is just October 1st – 3 months to go but now is the right time to begin your year-end tax planning. Why? Avoid the rush and decisions made in haste tend to be either wrong or not sufficient.

I will start with RRSP and Spousal RRSP plans – start adding up any contributions you have already made in 2012 – going right back to January 2012 (yes, I know you probably claimed some or all of the January, February and March 1st contributions on your 2011 tax return), but get the detailed list anyway and then get your copy of your 2011 Tax Return and Notice of Assessment (NOA) and cross off contributions that were deducted and then compare your remaining deposits to your maximum Allowable RRSP Contribution Limit from the bottom of page 2 of your NOA. Plan now to make as many deposits as you can before year-end so your top-up cheque in early 2013 doesn’t put your bank account into over-draft.

Generally, deposits to RRSPs and Spousal RRSPs should be made into accounts for the spouse with the lowest potential post-retirement income (from all sources) so you can take maximum advantage of income-splitting opportunities.

TFSAs – Tax Free Savings Accounts – these operate on a CALENDAR-year basis – there is no 60-day grace period into the next tax year – so decide on what you can comfortably afford, and get it in now and where possible, ensure contributions end up in the hands of the spouse with the lowest potential income at retirement even though withdrawals from TFSAs are tax-free.

Charitable donations may or may not be part of your life, but if you are going to make them, now is the time to get them in so you can check to make sure you get your deductible receipts – sometimes they tend to get lost in the year-end crush – no receipt, no claim. So take the time check. Tax receipts can be claimed by either spouse so it doesn’t matter in whose name the receipt is issued.

Investment income can be planned and controlled within certain limits. Check with your financial advisor or planner to determine if you are going to have reportable losses that can be used to offset some or all of your gains. No-one can estimate year-end results – particularly in the current market conditions, but you can start to get a handle on where you currently sit and then arrange to meet with your advisor no later than the first week of December to make your final decisions about triggering losses or gains!

Medical and dental expenses are another important consideration as these also operate effectively on a calendar-year basis. If you know that you are going to need prescriptions re-filled or dental work completed, make sure you get them done before year-end so that you will have the maximum allowable claim – subject to the usual threshold of 3% of earnings.

We will look at other year-end issues and opportunities over the next few weeks. Cheers!