Breadcrumb trail connects personal finance
Three Money Destroyers to Keep in Mind When Analyzing Your New Financial Situation
Published on March 17, 2023 • Last updated 1 hour ago • Read 4 minutes
There are costs that will reduce your overall wealth when you invest or borrow money. Photo by Getty Images / iStockphoto
Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn commissions associated with purchases made through links on this page.
article content
by Julie Cazin and Alan Norman
Advertisement 2
This ad hasn’t loaded yet, but your article continues below.
This content is reserved for subscribers only
Subscribe now to read the latest news in your city and across Canada.
Unlimited online access to articles from across Canada with one account Get exclusive access to the National Post ePaper, an electronic replica of the print edition that you can share, download and read with insight and behind-the-scenes analysis from our award-winning can enjoy. Journalists Support local reporters and the next generation of journalists Daily puzzles including the New York Times crossword Subscribe to unlock more articles
Subscribe now to read the latest news in your city and across Canada.
Unlimited online access to articles from across Canada with one account Get exclusive access to the National Post ePaper, an electronic replica of the print edition that you can share, download and read with insight and behind-the-scenes analysis from our award-winning can enjoy. Journalists Support the next generation of local reporters and journalists Daily puzzles including The New York Times crossword Register to unlock more articles
Create an account or sign in to continue your reading experience.
Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Receive email updates from your favorite authors Article content
Q: I am 73 years old, recently widowed and struggling with how to set up my investments and at the same time minimize taxes on a fixed income. I would love some tips on how to organize things as well as who to look for for help. Any suggestions? – Style
Financial Post Top Stories
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You can unsubscribe at any time by clicking on the unsubscribe link at the bottom of our email or any newsletter. postmedia network inc. , 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300 Thanks for signing up!
article content
FP replies: Shelly, I am sorry to hear of your loss. I’m assuming that you’ve made immediate decisions like contacting the Canada Revenue Agency (CRA), reorganizing your banking, reviewing the title on your home, arranging your bill payments, and updating your will and power of attorney. Necessary financial things have been completed. , which is why you are asking now about investing, staying organized and keeping a check on taxes.
Probably the best place to start is with the big picture and then work down to the details. You can do this by preparing and analyzing your current and projected net-worth and cash-flow statements. After you have done this analysis for your new financial situation, it is time to set up your investments.
article content advertising 3
This ad hasn’t loaded yet, but your article continues below.
article content
As you do your analysis, keep three wealth destroyers in mind: taxes, inflation and the cost of using the money — namely fees and interest. I’ll explore three wealth destroyers so you can look for areas of improvement as you analyze your net worth and cash flow.
taxes
Personal income tax will likely be the single largest expense of your lifetime. However, you are allowed to arrange your affairs to reduce the amount of tax you pay. Think about how you can apply these next three ideas to improve your situation:
Don’t overpay your taxes just to get a refund at the end of the year.
Keep the first dollar you earn as long as you can. This often means using tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs), and sometimes permanent life insurance.
Advertisement 4
This ad hasn’t loaded yet, but your article continues below.
article content
Use the power of the economic family unit to reduce taxes on income and property over time. For example, does it make sense to gift money to children now?
Also, consider whether there are ways to improve your situation by reducing your taxes and their impact on government pensions, credits and benefits, and your net worth.
inflation
Perhaps the best description of inflation I’ve heard is to think of it as a rising tide. When you are working, you are in a life raft that rises with the tide and you are not affected. This is because it is expected that wage growth will keep pace with inflation, even though there may be some adjustment period. Once you are retired, you are standing on a buoy anchored to the bottom of the ocean. As the tide rises, you slowly see water at your feet, then at your knees, and you begin to wonder if you’ll survive.
Advertisement 5
This ad hasn’t loaded yet, but your article continues below.
article content
Do you have a balanced investment program that protects your capital while earning income and provides enough growth to shield you from the effects of inflation?
cost of use of funds
There are costs that will reduce your overall wealth when you invest or borrow money. Costs cannot be avoided, but they can either be minimized or considered acceptable depending on the product and services provided.
Now, let’s move on to your current and projected net worth and cash flow. As you look through your statements, consider which assets are liquid (cashable) and which are not. Also, think about the tax features of each asset when you hold it as well as when it is sold. How will that tax affect your taxable income? Which assets do you own that can protect you from inflation and are the fees on those assets reasonable?
Advertisement 6
This ad hasn’t loaded yet, but your article continues below.
article content
Even if you don’t know the answers to those questions right away, they will start to come naturally just from documenting and thinking about your assets, liabilities and cash flow.
Your current and projected net-worth statement is an indication of your wealth and your financial stability. The statements include a detailed list of all your assets and liabilities (debts). Assets can include properties, vehicles, investments (TFSA, RRSP, etc.) and art work, while liabilities can include mortgages, credit lines, credit cards and vehicle loans.
Should I hold or diversify my large portfolio of preferred stocks? 
When should I add GICs or bonds to my portfolio mix? php answer 
Why the Bank of Canada lost $522 million in three months
This ad hasn’t loaded yet, but your article continues below.
article content
The cash-flow statement works in conjunction with your net-worth statement and highlights your income sources and expenses, including taxes, and how they may change over time.
You must have noticed that now as a single person, you can no longer split the pension. As a result, your personal taxes may increase, and you may be subject to restrictions on the Age Credit as well as Old Age Security payments.
Shelly, what are your net-worth and cash-flow statements telling you? Do you have enough money to maintain your lifestyle? Is it enough, more than enough, or not enough? Each scenario has its own issues to resolve, but, again, if you’re open enough to see the big picture then you can start working on a solution.
Alan Norman Atlantis Financial Inc. Provides fee-only certified financial planning services through and Allied Capital Partners Inc. (ACPI) provides investment advisory services. The ACPI is regulated by the Investment Industry Regulatory Organization of Canada (IIROC.ca). Alan can be contacted at [email protected]
,
If you liked this story, sign up for the FP Investor newsletter.
,
Share this article in your social network comments
Postmedia is committed to maintaining a lively but civil forum for discussion and encourages all readers to share their thoughts on our articles. Moderation may take up to an hour before comments are displayed on the site. We ask that you keep your comments relevant and respectful. We’ve enabled email notifications—you’ll now receive an email if you get a reply to your comment, an update to a comment thread you follow or if you follow comments by a user . Visit our Community Guidelines for more information and details on how to adjust your email settings.
join the conversation
Source link