10 financial New Year’s resolutions

Five moves to get your finances in order for the New Year

Canadians’ choice for New Year’s resolutions: “save money”

Make a financial resolution to start your New Year

Sensing a theme?

There’s no surprise here. “Saving money” follows close behind the perennial champions “lose weight/quit smoking” for New Year’s resolutions by Canadians.

But just like so many other goals, we often give up in frustration long before reaching the objective. The biggest reason: taking on too much too fast. If you want to lose weight, don’t try to go from couch-surfing and nachos to marathon workouts and all-broccoli diets overnight. Very few people can quit smoking cold turkey. And most people aren’t going to be able to cut their spending in half and start maxing out their RRSPs if they were living paycheque-to-paycheque.

The secret to success? Start small.

I’m only now coming back from nearly three years of physical inactivity due to injuries. I’ve lost a lot of muscle and put on a lot of weight. If I tried to jump right back in to where I was at my physical peak I would very likely re-aggravate my injuries and set myself back another six months or more. Instead, I’m taking it slow, and getting help. I’ve been meeting with a physiotherapist and a personal trainer to help design an exercise program that is appropriate for where I am today, and gets me started on the path to my short- and long-term goals.

So if you’ve never considered your long-term financial plan and haven’t started saving for retirement, here’s your first step: $25 a month into a TFSA. Put it in a 50% equity/50% income balanced portfolio fund.

You’re not going to retire rich on $25 a month, but it’s a start. That’s the real key here. Get comfortable with the money going out. Don’t pay too much attention to the account (so it doesn’t become a temptation to withdraw). Just let it run on auto-pilot for a few months. Then we’ll look at the next step. It might be increasing the deposit to $50, or opening an RRSP. It might be cleaning up your budget to pay off debt faster. But don’t try to do it all at once.

Start small. Get help.

Good luck in 2012!

When your children are young they require constant care and attention. As they grow into strong, independent adults, you’ll know all the sacrifices were worth it. Giving your child a good start in life paves the way to a future of successes.

• Have you considered how you can help shape your child’s financial future?
• Did you know life insurance pays an important role in their future financial security?

Tax-advantaged growth of policy values

Besides providing surviving family members with a death benefit, some types of life insurance can accumulate cash value on a tax-advantaged basis. If the accumulation stays within prescribed limits, the cash value that builds in the policy is only subject to income tax when it’s withdrawn. Consider the financial benefits to your children’s start into adulthood if they could access their accumulated cash value to help pay for their education, put down a down payment on their first car or home, or travel the world!

Unlike traditional investments, a permanent life insurance policy is exempt from annual income taxes on the growth of policy values, provided certain conditions are met. As a result, with permanent life insurance more of your cash value goes towards your child’s future instead of income taxes.

Protecting your child’s insurability

Life insurance is best purchased when your child is young and healthy. Some policies guarantee insurability, allowing your child to purchase more life insurance as an adult, regardless of disability, illness, occupation, residency, or foreign travel.

Without proper life insurance planning, a child who develops serious health problems or is diagnosed with a major illness may not be insurable as an adult. In addition, foreign travel to world hot spots may significantly increase your child’s life insurance premiums or even lead to being denied coverage as an adult. If this occurs and your child is not adequately insured, his or her loved ones may face a large financial burden in the event of premature death.

Covering unforeseen expenses

The tragic loss of a child is unpleasant to think about and even worse to endure. The last thing you’d want is to worry about money. Life insurance not only covers immediate expenses, such as funeral costs, it can also be used for grief counselling, taking time off work, moving costs, or whatever is needed in your personal situation. While children should never die before their parents, are you financially prepared if the worst was to happen?

Reasonable doubts

Some people believe life insurance for children is unnecessary, because they don’t contribute to a family’s income. However, when you factor in the benefits life insurance can provide through tax-advantaged growth, protecting your child’s insurability and paying for unforeseen costs, they outweigh the notion that life insurance is only for individuals with an income.

Find out how life insurance fits into your child’s future.

Photo credit: “like a record…” by shoothead, on Flickr
“Untitled” by Noukka Signe, on Flickr

If you’ve been stressing yourself out over whether to put money into your RRSP or the new(er) TFSA, here’s a video with Jamie Golombek (Managing Director of Tax and Estate Planning at CIBC Private Wealth management) where he discusses the results of his analysis of the relative tax benefits of the two options.

Spoiler Alert: There is no wrong choice.