Financial Recovery Articles
Living the Good Life: Spend Wisely Today & Plan for Tomorrow
Alive Magazine
Eric Putnam
Oh those ads! Golfing. Sailing. Travelling. What a life those 65-going-on-25-year-old-retirees are living!
Will we be able to have that kind of retirement lifestyle – enjoying life and doing the things we love to do?
For many of us, that day seems too distant to even contemplate. The earlier planning begins, however, the better the chances of having financial security and freedom at retirement. Whatever your age, preparing now will enable you to live your future dreams: launching your own business, paying for your grandkids’ college education, or buying a vacation home.
Here’s how you can make your retirement dreams come true.
Visualize your future. Write down goals for the next year or two, as well as for the medium term (two to 10 years) and long term. This will help you focus on what’s important to you and to measure your progress.
Have a plan. You need a clear picture of your current financial situation and strategies to take you from where you are today to where you want to be. A financial expert can provide objective advice and help you create a net worth statement outlining what you own and owe, and a spending plan to achieve your goals.
Pay down debts, especially those with high interest rates. If you’re tempted to spend money instead, try investing in Canada Savings Bonds through your employer’s payroll savings program or arrange for monthly RRSP contribution withholdings.
Start an RRSP to reduce taxes, save for retirement, and participate in the Home Buyers Plan. This plan allows you to withdraw, tax-free, up to $20,000 from your RRSP to purchase your first home.
Limit the size of any mortgage you assume. Don’t rely on a lender to determine what you can afford. Calculate not just fees, principal and interest payments, but all the other costs of home ownership: insurance, property tax, maintenance, utilities, furnishings, etc. Always allow enough “wiggle room” so you can manage your mortgage payments should interest rates rise.
Establish an emergency fund to cover your bills for at least six months. The tax-free savings account (TFSA) recently introduced by the federal government is a great way to do this. The TFSA enables you to contribute up to $5000; the interest these funds earn is not taxable and you can withdraw funds whenever you need them - tax-free.
Finally, don’t count on your parents or the lottery to finance your future. More parents are living into their second century and the odds of winning $1 million in a lottery are less than one in a million. Your best bet for living the retirement of your dreams? Spend wisely today and plan for tomorrow.
Eric Putnam, AMP, RQIC, is a senior advisor with BDO New Beginnings (www.bdonewbeginnings.ca), a service of BDO Dunwoody LLP (www.bdo.ca) that helps Canadians resolve their financial problems.
