Market and Investment Insights

2020 was a year to remember, filled with hardship for many, and silver linings for some. As we begin a new year, it’s a time to reflect on the past year to consider what went well and what could be improved upon.

Here’s a Financial Checklist to help you and your family start the year down the right path financially.

Complete your Annual Financial Inventory

Take stock of all your household assets and debts to get a sense of your overall financial Net Worth. When you complete this annually, you have a point of reference to compare year over year. This becomes an important gauge to ensure you’re moving in the right direction financially.

Has your income increased since last year? Take this one step further and calculate what percentage of your income is going towards savings and what percentage is going towards debt. Have a goal to increase that percentage from last year. Evaluate the positive impact those extra savings will have on your long-term goals for extra motivation.

Taxes Payable

Estimate your total income for 2020 and pay special attention to taxes payable. This may have been an unusual year income-wise for some due to COVID-19. If you collected the Canadian Emergency Response Benefit (CERB) or other benefits during 2020, this is especially important. Canadians who collected CERB may have received up to $14,000. This was paid without any taxes withheld and depending on your other sources of income throughout the year, this could lead to an unexpected tax bill in April if not properly planned for.

Contribute to your RRSP

Now’s the time to reduce your 2020 taxes payable by making a contribution to your RRSP. Don’t wait until the RRSP deadline of March 1st, 2021.

If you have a regular savings plan set up, and your income has increased from last year, review and increase your RRSP (and other savings) as well. Unless specified, most retirement income plans assume that your contributions will increase each year with inflation. You need to make sure your regular contributions increase in real life as well, to keep up with that plan.

If you don’t have a monthly (or biweekly) automatic savings set up, consider starting one for 2021. Not only do you pay yourself first, but you also make sure that enough of your income is saved for your important goals before monthly expenses and discretionary spending can begin. Also, setting up a systematic investment plan into an equity position employs a strategy called Dollar-Cost Averaging, where you can reduce the impact of volatility on your investment returns.

Contribute to your TFSA

A Tax-Free Savings Account is one of the best vehicles in Canada to save when your objective is long term growth.  Higher rates of return associated with growth investments compounded over many years can lead to a significant asset in retirement where you can draw a tax-free source of income.  Make sure you’re making the most out of this account.

For 2021, the TFSA contribution room remains at $6,000. If you were eligible to contribute to a TFSA since it was introduced in 2009, the cumulative room since then is $75,500.

Contribute to an RESP

The government provides 20% matching grant on contributions up to $2,500 per child per year. That can amount to $7,200 of “free” money per child if they attend a qualified post-secondary school. If you’ve missed out on grant money, make a plan to catch up before your child turns 18. To all the grandparents out there, what a thoughtful and meaningful way to help your children and grandchildren at the same time.

Review your budget

If you don’t have one, you need to make one. This is the foundation of any successful financial plan. A budget, which includes regular savings and debt repayment plans, gives you peace of mind that your hard-earned resources are being allocated to the best places possible to benefit you and your family now and long into the future.

At the beginning of each year look back at your spending from the previous year. Was it in line with your values and what’s important for your family? How much did you save towards your goals? Was it enough? Too much?

Review all your automatic payments and expenses, make sure they’re all relevant, and that you still have the best plans for your household. Review your mortgage, lines of credit and all debts; can you consolidate and/or renegotiate. Review all your utilities, all your insurance, subscriptions, investment management fees, and banking packages.

Review your investment portfolio and review the criteria for rebalancing

Asset allocation is extremely important, and it requires regular review and discipline. Over the course of the past year your percentage allocations to equities, bonds, and alternatives assets most likely has shifted away from your Strategic Asset Allocation. This is the ideal mix of assets that are aligned with your portfolio objectives. You may unknowingly be overweight risk assets and underweight safety which could have undesired consequences if left unattended.  Take some time to review and make necessary adjustments.

Annual Review of your Employer Benefits, your Annual Pension/Group RRSP

Review and re-enroll (if necessary) for your company’s Employee Benefit plan. Your overall circumstances can change a lot over the course of a year (birth of a child, increased debt by buying a vacation property, upsizing or downsizing a home, marriage, divorce, etc.), so you should review your insurance needs and make sure you have enough or aren’t overpaying for too much.

Employer Annual Pension statements are usually produced in January or February, so review and update your retirement income plan to see if there are any income gaps or shortfalls that you may need to plan for.

If you have a company-sponsored Group RRSP, review the returns, the investment decisions, and asset allocation to make sure they’re sound and appropriate.  Make sure you are taking full advantage of company matching programs.

If you have any questions or require some guidance or assistance as you work through this list, please don’t hesitate to reach out to us. If you know someone that may benefit from this information, please pass it along, and remember we’re here to help the people that are important to you.