1. Draw up a balance sheet and define your goals
How do you calculate your family wealth? Start by taking stock of your assets and liabilities:
- Money and assets you own (your bank accounts, investments, income, pension plans, home and valuables such as art).
- Debts you have to pay off (your mortgage, car loan, credit cards).
Think about your and your family’s goals. Certain lifestyle choices have a direct impact on your budget and the value of your assets, such as whether or not to send your children to private school, buy a chalet, travel south every winter or eat out every lunchtime.
You can choose to tackle household expenses alone, look for ways to increase your income or combine the two options.
→ Take the time to draw up a balance sheet to get a clearer picture of your personal finances.
2. Choose the right savings vehicles
Your personal financial situation as well as your family’s will change over the course of your life. As a young couple, there are often many expenses that arrive all at once: you may have celebrated your wedding, bought a primary residence, borrowed money for renovations, taken parental leave resulting in a loss of income or paid off student debts. If your funds are limited by these kinds of expenses, it’s important to choose the right savings vehicle.
Thinking of buying your first home? Save for your down payment with an FHSA. You can contribute a maximum of $8,000 per year – tax deductible – up to a lifetime maximum of $40,000.
If you have young children, consider setting aside money for their post-secondary education with an RESP. The advantage of this investment vehicle is that depending on your province of residence, it’s funded anywhere from 20% to 40% by various government grants. It also allows you to defer tax on the returns. Your child will have to declare the payments when the time comes to take advantage of them, but given their relatively low income, they’ll have little or no tax to pay on it.
Throughout your working life, it’s also a good idea to save for your retirement by contributing to an RRSP, and to set aside an emergency fund for the unexpected by contributing to a TFSA. These savings vehicles will generate returns that will grow over the years.
3. Protect your family wealth
Raising a family is a whirlwind that doesn’t leave much time to think about the future. But neither you nor your spouse are immune from accidents or death. That’s why it’s so important to protect your family wealth in case something happens to you.
Your insurance needs vary with your age. They’re not the same if you have young children or if you and your partner are about to retire. Even though life moves fast, review your insurance policies as soon as your situation changes: whether it’s a marriage, divorce, birth or the purchase of a new property. This will give you the peace of mind of knowing that you have the right insurance to protect your assets.
For the same reason, it’s a good idea to take stock of all your coverage, including that offered by your group insurance in the event of disability or critical illness. If you have no such protection, you should consider taking out individual insurance to protect your income in the event of unforeseen circumstances.
4. Talk to your spouse about money
For many couples, talking about money and succession is taboo. But talking about these issues is the best way to avoid conflict. Don’t wait until you’re at the stage of buying your first home to find out whether your partner has debts and whether their poor credit is preventing them from borrowing.
You should also be vigilant if you’re the only person looking after your joint finances. It’s a good idea to start a dialogue to avoid unpleasant surprises when you draw up your shared budget.
5. Give your children a financial education
You should also talk to your children about money and start making them responsible for their personal finances. If your child receives a large sum of money, whether it’s a gift or their first salary, take the opportunity to teach them about finances. You might want to discuss a project, a goal or financial planning in general: the important thing is to impart your experience and encourage good behaviour. These insights will stay with them throughout their lives.
6. Don’t lose sight of your goals
Your finances could be put to the test in the last 10 or 15 years of your working life. Especially if your children are still dependent on you and you have to support your own parents at the end of their lives.
If that’s the case, you may have to scale back your lifestyle, space out your outings to restaurants or even dip into your savings. But hang in there: your children will soon be on their own, your home will eventually be paid off and your income could increase if you reach the top of the pay scale.
The beginning of your fifties is a crucial time for ensuring the continuity of your wealth, since you still have the opportunity to adjust your plans. If you want to do this, you need to have a clear picture of your finances, retirement income and estate plan.
7. Plan your estate wisely
You may be wondering how to go about transferring your family wealth: gradually while you’re still alive or in full after your death. If you have a partner, the latter option would allow them to benefit from an RRSP rollover and pay less inheritance tax. That’s why it’s so important to plan the division of your family wealth.
Since there’s no such thing as a one-size-fits-all approach, it’s a good idea to work with a specialist. They can determine your estate planning objectives, taking your personal, financial and family situation into account. Would you like to help your children or grandchildren during your lifetime? Do you want to be fair to your loved ones? Do you want to defer paying tax as long as possible? These are just some of the questions you can answer when planning your estate.
Before you decide to distribute your family wealth to other people, make sure you have enough money to support yourself for the rest of your life. You can’t jeopardize your own financial health.
→ Check out our article: How do you plan for the transfer of your estate?
8. Seek the advice of a specialist
A wealth management advisor can guide you when weighing all the aspects involved in making the right decision. You can receive personalized recommendations to help you manage your money wisely and avoid risk while taking your goals into account. By developing a good savings and investment strategy, you’ll be able to maximize your family wealth and make your plans a reality.
→ Check out our article: Why discuss with a wealth management advisor?
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