The best way to reach your goals faster is by making sure your money works as efficiently as possible.
Every time you choose to spend (or not spend) money, you have a chance to improve your financial well-being. For example, spending $60 a month on a membership you don’t use or subscribing to online newsletters you no longer read, are money decisions you make that can lead to what financial planners call “leakage”. It’s a term that applies to all the money that leaks out of your savings unnecessarily.
Here are four ways a financial plan can reduce leakage:
- Smarter budgeting. Every month, money flows in (income) and money flows out (expenses). Focusing on how and where you spend, can help make your money work smarter. For example, cancelling a $100/month membership you don’t use, could divert $1,200 a year toward one of your registered accounts such as an RRSP, TFSA, RDSP, or RESP. Over time, your contributions to these accounts can grow faster due to tax-deferred or tax-free growth, just by stopping one leak.
- Minimize taxes. You should pay your required taxes. But not taking advantage of every available tax credit and planning opportunity is equivalent to giving money away. For many established families, a detailed tax plan can reveal leakage caused by not maximizing credits and refunds or not taking advantage of alternatives such as income splitting or trusts.
- Plan for and manage debt. A financial plan sets out a series of steps that reduces leakage to debt and interest payments each month. For example, when you consolidate debt at a lower interest rate you can either pay it off faster or use the savings to invest in longer-term goals such as retirement.
- Protect yourself now and in the future. Life, critical illness, and disability insurance are all designed to financially support you or your beneficiaries in case of an unexpected event. In effect, they replace the money and/or income that would otherwise leak out of your savings due to one-time or ongoing costs.
No one is expected to find the perfect balance of savings, investments, and protection on their own. A financial consultant has the tools, experience, and knowledge you need to create a truly synchronized plan that stops the leaks and helps you take advantage of all life’s opportunities.
Jeff Somers, BA, RRC, CFP, works at Investors Group in Charlottetown. This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own adviser for specific advice about your circumstances. For more information on this topic please contact your Investors Group consultant.