Income does not equal to wealth’
Ask yourself this- If you could choose, would you be comfortable leaving yourself in charge of managing your own finances? More than half of the women do not– they let their spouses manage and make long-term decisions instead.
On September 28th, Immigrant and International Women in Science(IWS) organization hosted a webinar with two expert financial advisors, Aimee Sehwoererand Larina Bouwman, who shared their personal experiences and professional expertise on financial help from a Canadian perspective. If you missed our event, we got you covered! In this blog we highlight some salient insights our experts had to offer.
Why should you care?
Adulting is not easy- thanks to the many stresses we juggle throughout the financial circus of life. Household expenses, educational debts, housing loans, mortgages, living paycheck to paycheck, struggling to save money for short- and long-term goals, and dealing with unexpected expenses- the list is interminable. Adding to these stresses, worry-free retirement is a thing of the past. Evidently, Canadian retirees struggle to manage their financial challenges in their golden years. Intelligent financial planning can make your present more organized and less worrisome, while securing your future, post- retirement.
Physical, Mental and Financial make up a good team!
Five Steps to Boost your financial health
1. Asses your situation
Invest your time and energy to be ‘financial’ savvy. Ask yourself the following questions:
- How much money would you have available in the case of an emergency?
- Do you spend more than you earn?
- How healthy are your finances?
- How much are you saving for retirement?
- Do you know what your net worth is?
In a poll conducted during our webinar, we observed that while our IWS members in attendance were mostly willing to have better financial planning, only less than half were aware of the tools or were working towards it. Learning how to manage your own finances is not only ideal, but a crucial step to organize your entire life. Having a personal financial advisor, who could help you in consolidating debt and monthly planning of the budget, is also a smart move. See that as a personal trainer at your finances “gym”!s with any habit, saving money takes a while for any of us to get used to, but, once you follow these effective methods to save, you will be a pro-saver in no time.
2. Create goals
Make short and long-term goals with your priorities defined. In 2012, the Financial Planning Standard council surveyed and found that 63% of people said they worry less about money and observed an improved emotional health after having their goals set.
Pro tip: Work your goals around your usual expenses. Emergencies and retirement plans are also important.
3. Make a budget:
Reverse budgeting is one good strategy to bring you in peace with your finances. This can be done by recording everything you spent on. This way you are aware of where your hard-earned dollar goes to and if you are spending more than you earn. A monthly budget worksheet could be a good start to ease things up.
4. Act on your plan
Actions speak louder than words. Planning and budgeting will be fruitful only when they are practiced. Payroll deduction and pre-authorized withdrawal are some of the smart strategies that make life stress free while limiting your over expenditure on receiving your paycheck. How do you assimilate your bonus/salary raise in your lifestyle? Do you reward yourself by spending more on luxuries or do you invest in your future with better savings plans? Life is an outcome of the choices we make. Choose wisely!
‘Make saving money a part of your new dream‘
5. Build an emergency fund and Keep them in a separate account
It is recommended to save and maintain around 3 to 6 months’ worth of emergency funds readily available. For this, it is important to set a realistic goal and start a small (either weekly or monthly) saving plan by automated transfer from your chequing account or paychecks.
Don’t rely on credit cards and start saving for the future
Tools you should know and be using for a better financial health:
There are mainly two types of investment to start. Registered and Non-registered Investments.
Registered investments, like RRSP, TFSA, RRIF, and RESP are pooled investment vehicles, similar to mutual funds used by individuals. They offer tax sheltering on your investment and are governed by the policies of the CRA (Canada Revenue Agency).
Non-Registered Investments, more commonly known as open/investment accounts, enable the investors to unlimitedly invest with exposure throughout the world, while not being registered with the Canadian federal government.
Benefitting from Tax-Deferred Investments:
A. Registered Retirement Savings Plan (RRSP):
This is a retirement saving/investing vehicle for employees and self-employed Canadians registered with CRA. It allows you to save for retirement on a tax-deferred basis. Along with taxes deferred other advantages are the convenience of payroll deduction and access to a wide range of investments. This is an account with rules and limits attached to it, so it is easier for regular plan savings. There is more to it, like spousal RRSP for income splitting purposes and home buyer plans which can be used to buy a qualified home that is worth exploring for a first-time homebuyer or building your dream home.
Lifelong learning plan (LLP) is yet another RRSP plan, which enables you to withdraw funds to aid in full-time training or education for you or your spouse/common-law partner.
Saving just got a whole lot easier with the beginning of TFSA program in 2009:
B. Tax-free saving account (TFSA):
The TFSA allows Canadian residents who are 18 and older holding a valid Social Insurance Number to save tax-free money aside throughout their life.
*The maximum tax-free saving contribution is capped at $6,000 for the years 2019 & 2020.
These tools help you reach saving goals by providing tax advantages. It is recommended to contribute to both TFSA and RRSP if affordable for you. Aside from being a good strategy, you can seek advisors’ help to decide on whether to use RRSP or TFSA for your retirement plan after looking into your taxes.
‘Someone is sitting in the shade today because someone planted a long time ago’ – Warren Buffett
Government Pension Plans are getting scarce – So start acting on your own!
There are many sources of income in your retirement, such as CPP/QPP, OAS and GIS. These Government pensions are not automatic, therefore you must apply at least 6 months before you are eligible to receive them.
How much am I entitled to receive?
With a Service Canada Account, you will be able to find vital information regarding your tax-free saving account or the estimated amount you are entitled to receive with CPP. While the maximum benefit you can receive in Canada is around $1,200 per month, the average Canadian receives $700 per month. As the pension plans depend on your contribution along with your employer, invested into these plans from an early age is a smart strategy.
Time is your greatest asset in long-term savings
Pro tip: Start visualizing how you want your retirement life to be and how much you need annually to maintain (or achieve) it. Remember, being proactive can help reduce stress and make you financially healthy. You got this!
Credit rating
A credit report reflects every loan you have taken out in the last 6 years. This includes credit cards, mortgages, lines of credit and car loans. Credit bureaus like Transunion and Equifax provide these reports, so make sure to be up to date with your credit status. Bad credits ratings can affect your ability to get the best interest and mortgage rates. So it is advisable to pay your bills on time to maintain a good credit rating.
Securing your finances after you are gone
Not a comfortable topic to discuss, but certainly important. Define your assets in your will and revise it every 3-5 years. The advantage of proactively deciding what happens to your assets after you die not only helps the people in charge of your assets to execute it as you wished, but also prevents unnecessary legal hassles for the family. Simple will is inexpensive too, so talk to your personal advisor and plan wisely.
Business Finances: A short introduction to discover the entrepreneur inside you!
We all have what it takes to be an entrepreneur
Whether you dream of a side job or crave for a more independent source of primary income, creating a business of your own is not that difficult as many would assume. Based on your needs, you could register your business as Sole proprietorship, or an Incorporation.
Sole proprietorship
Simplest form of business, less paperwork, and you are your own boss. Could we ask for more?
Here, you bear full liability and the taxes are paid as personal tax (T1). All you have to do is register as a Sole proprietorship business (40$) and get a municipal business license ($155, optional). Easy does it!
Incorporation:
Incorporation business is slightly more complicated, but comes with its own advantages. It operates as a separate entity, has a business name, and is separate from your personal assets, so there is limited liability. Here, you can defer the income and be remunerated as the owner/CEO of your own company. You could pay yourself in dividends or salary (or both). The taxes (T2) are paid through a dedicated provincial and/or federal tax account (CRA). Creating an incorporation business involves reserving a name for your business (Inc., $30), registering it with a Canadian province ($350) and/or at federal level ($200), creating the articles of incorporation and shares ($1). Following this, you need to set up a business bank account (~$6/month) and get a municipal business license ($155, optional), and there you are done! The amounts provided are to give an estimate of the cost, they vary depending on the province and the city.
We wish it was that easy! More paperwork as you go, but not bad for a start!
Knowledge is power
One practical way to improve your financial health is to gain as much knowledge and skills as possible. They will help you in making a solid decision. 9 out of 10 women will be required to play the role of a sole financial decision-maker at some point in their lives, while only 3 in 10 women consider themselves to be financially knowledgeable. So how to gain financial skills? Books and online courses are a woman’s best friend, we say! Apart from that, attend workshops on various topics on budgeting, building emergency funds, and planning for retirement! Don’t miss out on any chance as one cannot overlearn this topic. Here are some of the resources that helped us-
● https://www.sunlife.ca/tools
● http://www.ressourcesentreprises.org (Québec)
● https://www.womensenterprise.ca Women Enterprise Center (Canada), mentorship program
● https://www.bdc.ca Business loans, for women, for immigrant, for young, for indigenous entrepreneur
● https://www.mentorworks.ca/blog/government-funding/small-business-grants-canada/ Grants
● https://www.thebalancesmb.com/sr-ed-tax-credit-2948636 The Scientific Research and Experimental Development (SRED) Tax Credit Program
● https://www.avalonaccounting.ca/blog/should-i-incorporate-my-business
We hope these can also help you!
Learn more about managing finances through this video
Written and edited by: Aniesha, Pooja Shree, Nicole, and Clarisse from the IWS network