Ten resolutions to improve your fiscal health

As we start the first week of 2021, hindsight is finally 2020 and I don’t think many of us are sorry to see it go. And with the start of a new year, it’s the time many set goals and intentions for success and growth. This year, in addition to the familiar resolutions about eating less and exercising more, how about focusing on your fiscal health?

In today’s blog post, I’m going to highlight the top 10 things that can have the greatest impact on your financial success.

1. GET YOUR BALANCE SHEET IN ORDER: You can’t expect to reach a goal without knowing where you’re starting from. Using January 1 as the effective date, update your personal balance sheet (assets vs. liabilities, broadly speaking). If you’re already retired, you also need to know if the income you receive from the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP), Old Age Security (OAS), retirement plan assets, or other sources is still going to support your current lifestyle. Either way, you need to have a scorecard. Everything else really proceeds from this, so take the time to bring all these numbers up to date.


2. REVIEW YOUR BUDGET AND SPENDING HABITS: There’s no question that 2020 threw us a curve ball. And for a lot of people that meant changes to both money in and money out. If you managed to stay within your means, or reduce your spending, that’s great. If it was a year where your income went down or stopped, how did you deal with it? If it meant dipping into an emergency fund, do you have plans to build it back up? If you did experience change in your income or expenses, it this something that will continue as we move out of the pandemic? There are many things to take away from this past year to help better prioritize your spending and savings strategies going forward. Taking a deep dive on your cash-flow will help you plan for 2021 and beyond.


3. REVIEW THE OWNERSHIP OF YOUR ACCOUNTS: Account ownership often occurs haphazardly – an individual opens a bank or brokerage account, meets Mr. or Ms. Right, they live together or get married and so on. But down the line it can result in problems. If one partner dies and their accounts are still titled only in the original holder’s name, those assets can’t be readily accessed by the survivor. The solution may be as straightforward as changing to joint accounts, but it’s not always that simple. In fact, ownership has implications across a wide range of estate planning issues, as well as other situations such as special needs qualifications and borrowing power, to mention just a few. Account ownership is more than just using the right form – it can also be a tool for estate planning. Review your account ownership and determine if that’s still the arrangement you want.


4. DESIGNATE AND UPDATE YOUR BENEFICIARIES: If you don’t correctly document and update your beneficiary designations, who gets what may be determined not according to your wishes, but by federal or provincial law, or by the default plan document used in your retirement accounts. When did you last update your beneficiary designations? Has something changed in your life (divorce, remarriage, birth, death) that necessitates changing your beneficiaries? You should review/update beneficiary information on items such as wills, life insurance, annuities, RRSPs, RRIFs and TFSAs to ensure your assets end up where you want them. Have you provided for the possibility that your primary beneficiary may die before you, or for the simultaneous death of you and your spouse? If you have questions, it’s a good idea to speak with your financial advisor or meet with an estate planner.


5. EVALUATE YOUR EMERGENCY FUND: Everyone should have a certain amount of their assets set aside in cash that can be quickly and easily accessed. Six or more months of living expenses is a common rule of thumb. Having cash in an emergency fund means that if you do find yourself in an unexpected situation like a medical emergency, an out-of-the-blue home repair, or losing a job, you won’t have to worry about how you’re going to manage expenses and it will prevent you from going into debt to cover costs. If 2020 has taught us anything, it’s to be prepared for the unexpected.


6. REVISIT YOUR PORTFOLIO’S ASSET ALLOCATION: Let’s talk about risk. I am a firm believer in time in the market vs. timing the market. But if you follow the markets closely, which I don’t advise, then you’ll recall how much they went down in February and March. From that point onwards, we saw a major bounce back. Those who panicked and sold investments when it fell were unfortunately focused on the short-term and likely regret their decision. That said, many investment professionals believe that market volatility is here to stay. If it is, are you comfortable with the level of risk in your portfolio? Risk tolerance isn’t static – it changes based on your net worth, age, income needs, financial goals and other considerations. As much as I and other wealth managers might say, don’t look at your investments day-to-day, you’re the one who needs to be comfortable with your risk level. Review your holdings and your overall asset allocation and make whatever adjustments are indicated.


7. EVALUATE YOUR SOURCES OF RETIREMENT INCOME: This is an important exercise if you’re within 10 years of retirement, or already in retirement. Most retirees have several sources of income such as the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP), Old Age Security, employer-sponsored pension plans, retirement portfolios, rental properties, inheritances, etc. Everyone’s picture is different. Think about how secure each source is. For example, can you really count on that inheritance? Could vacancies in your properties interrupt the cash flow? The point is to know which income sources are reliable and which are less certain, and how much of your total income each category represents. If too much of your retirement income is from sources you consider less than solid, it may be time to reposition your assets.


8. MINIMIZE TAX ON YOUR INVESTMENTS: To start, look at government registered accounts. RRSPs, TFSAs, pensions, RESPs, RRIFs. They can all play important roles when it comes to keeping your taxes low. Which ones make the most sense for you depend on a lot of factors and your financial advisor can help you figure it out. It’s also important to understand how different types of investments are taxed. Capital gains, interest income and dividends are all dealt with differently and knowing the differences can make a significant impact on your after tax Remember, it’s not what you make, it’s what you keep. Strategies like tax loss selling and donating investments that have capital gains are also great ways to reduce your taxes. But tax rules can be complex, so get proper guidance. As a reminder I’m not an accountant so any tax-oriented strategies should be reviewed with your tax specialist to make sure it makes sense for you.


9. CHECK TO SEE IF YOUR OVERALL RETIREMENT PLAN IS ON TRACK: The past year may have derailed and/or delayed the retirement plans of many investors. The important thing is to respond and determine – promptly and realistically – what changes might be needed. In evaluating the current state of your plan, don’t fixate solely on a number – “We’ll be fine when our retirement portfolio is worth $X.” Instead, drill down into what types of assets you have, what your cash flow situation is and is going to be, what your contingency plans are, what rate of return you’re assuming, what inflation rate you’re assuming, your time horizon, and all the other important details that go into achieving a successful retirement. The truth is, retirement has a lot of moving parts that must be monitored and managed on an ongoing basis. Don’t be afraid to seek professional advice to ensure you’re on track.


10. MAKE THE COMMITMENT: Like any resolution or goal, the most important thing is to commit. Whether it’s saving more money, building an emergency fund or reviewing your estate plan, once you determine the steps you need to take to improve your fiscal health, if you commit to taking the steps needed to achieve your goals, you’ll have a much better chance at succeeding.

Here’s to a happy, healthy and successful 2021!

Mark Shimkovitz is a financial advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This eBook is for information only. Insurance offered through Raymond James Financial Planning Ltd., not a member-Canadian Investor Protection Fund. Raymond James Ltd. member of Canadian Investor Protection Fund.