In my workshops to help improve your personal finances, I have always preached that the best idea in the world is the implemented idea.  It is better to have done something and failed than to have done nothing.  We’ve all heard the saying “If you always do what you’ve always done, you’ll always get what you’ve always got.”

Is financial education the problem?

Many people and organizations have argued that we have a real problem when it comes to financial education and financial literacy.  Although financial education is my business, I’m not convinced that lack of education is the problem.  There is no shortage of information on how to become richer, how to have less debt, how to prepare for retirement, how to invest better or hoe to improve your personal finances.  Information is abundant.  As much as knowledge is important remember that you can have lots of knowledge stored in your head but if you do nothing with that information then what good is it to have the information.

Doing creates results

Reading is good.  Researching is good.  Discussing is good but doing is great because it is what creates results.  Here’s a list of things you can do to improve your personal finances:

1. Figure out your net worth.  This is so simple and yet not enough people know their net worth.  All you have to do is take a piece of paper and on one side write down everything you own and on the other side write down everything you owe.  How can you get ahead financially if you have no idea how much you are worth.  Start with the basics and refine it later.  To learn more details about your net worth, here’s an article with a downloadable spreadsheet to how I track my own net worth – Calculate your net worth

2. Track your expenses.  Knowing how much you spend is a key determinant of financial success.  Too many people are living paycheque to paycheque or even worse spending beyond their means.  How would you know if you have a spending problem or not if you had no idea how much you were spending? Here’s another article I wrote sharing some different ways to track your spending – Know your spending

3. Take control of your investments.  Nobody cares about your money more than you care.  Start doing by simply taking stock of your investments and determine why you own what you do. Here’s an article on how to review your RRSP portfolio if you have not done so in a long time.  If you are working with a financial advisor give him/her a call and book an appointment for a review.  Walk into that meeting with a list of questions because you care about your money.

4. Get a will done.

   Not only should you get your will done but you should also get a power of attorney and a personal directive done as well. In my 20 years in the financial industry I can’t count the number of times I’ve seen people without these key documents and the result is problems, costs, delays and conflicts.

5. Get the right bank account.  A bank account is something we use everyday and in today’s world, not all bank accounts are created equal.  My suggestion is to look into high interest bank account options because they are the types of accounts that work in your favour because they pay interest and charge no monthly service fees.  I am very passionate about getting the right bank account so here’s a few articles on getting the right bank account:

• Have you reviewed your bank account lately?
• Every penny counts in banking.
• Keeping a minimum balance in your bank account

6. Start an automatic savings plan.  For many saving money does not come naturally.  Saving money is one of the four key disciplines to financial success.  Putting away money for the future is so much harder when you don’t automate it. Doing is simply a matter of going to your financial advisor or institution and asking them to start a regular withdrawal from your bank account into a Tax Free Savings account  (TFSA) or Registered Retirement Savings Plan (RRSP).  If your employer has an option to take it off your paycheque, that’s even better.  If your employer is willing to match your contributions that’s the best.  If you need help saving money, here are my principles of saving money.

This list is far from complete. There are so many things you can be doing.  I think this list forms some of the basic skills needed for tour financial health.  If you have done these things then keep doing something else.  There’s always room for improvement.  Doing something is better than nothing.  It’s never to late to start doing something.  I think Nike said it best “Just do it!”

What kinds of things are you doing to improve your personal finances?  What things are you planning to do?

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The Art of Doing Something with Your Money originally appeared on Canadian Finance Blog on September 27, 2011.

Will

The most important of your estate planning documents is your Will.  A Will says what happens with all your worldly goods after your death.  A Will may include trusts for your loved ones.  A Will is used to appoint guardians for your minor children. Be careful about the consequences of dying without a will.

In its most basic form, a Will is a document that defines four important groups of people in your estate plan.

1. Beneficiaries.  Not only does the Will say who will get your assets after your death, but also specifically which assets each beneficiary will get and how and when your beneficiaries should get those assets.
2. Executor.  The Will must appoint someone who has the responsibility to settle your estate.  Choosing the right executor is not as easy a task as you might think.  This person has a lot of responsibility and should be someone who can handle a difficult task.  Your executor should be someone who has some financial experience.  Ultimately, your executor should be someone you trust.
3. Trustee.  If you are planning to have any trusts set up in your Will, then you will need to appoint a trustee to manage the trusts.
4. Guardians.  If you have minor children, it is crucial that you appoint guardians for those children.  This, too, is a big responsibility.  Obviously, you should ask permission before you appoint someone as a guardian in your Will.

You can write your own will or use a will kit but be careful as a Will must be written and signed according to very specific rules that are different in every province.  While this may seem insignificant, there are many stories about people who did not follow these rules and thereby caused problems in the estate settlement process.

Enduring Power of Attorney

The second formal document in an estate plan is the Enduring Power of Attorney.  The Enduring Power of Attorney appoints someone to manage your financial affairs if you are alive but not capable of making financial decisions for yourself.  It also sets out that person’s powers.  The person you appoint is called your attorney.

Personal Directive

The third document essential to an estate plan is the Personal Directive which appoints someone to make health care decisions for you if you are alive but cannot do so yourself.  It may also set out your wishes.  The person you appoint is called your agent.

Other Things To Do

Although these documents are crucially important, there are other strategies for estate planning outside these formal documents.  Other strategies include owning things jointly with other people or naming direct beneficiaries on certain assets like RRSPs, RRIFs and life insurance policies.  It may also mean giving away assets during your lifetime or creating trusts before you die.

As part of the estate planning process, start with these three documents and the rest of your plan will follow accordingly.

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• Backup Your Important Documents And Files
• Book Review – Smart Tips For Estate Planning
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The Three Legal Documents Of An Estate Plan originally appeared on Canadian Finance Blog on June 21, 2011.

Short-term goals versus long-term habits

It’s that time of year when people make new years resolutions.  For a lot of people, resolutions are nothing more than short-term goals.  There’s nothing wrong with short-term goals but far too often resolutions are too temporary in nature.  We often see this in the health industry, where there is no shortage of ‘diets’ to help people lose weight.  The problem is that although many people can lose weight on diets, the weight loss is often not sustainable over the long term.  The only way to sustain weight loss over the long term is to change your lifestyle and develop good long-term healthy habits of eating right and exercising regularly.

Financial success is no different.  You can have short-term successes but unless you change your bad financial habits for good ones, those successes are often temporary.  For example, I’ve seen people’s credit card balance ‘yo-yo’ just like people’s weight.  They get focused “for a while” on paying down debts they should not have had in the first place, only to find that they ramp up spending and get into debt trouble again somewhere down the road.  Real success comes from changing your lifestyle or your habits of spending so that you do not fall into old patterns again.  Long-term success comes from permanently changing long-term habits.

Take control of your money

One of my popular workshops called “Take Control of Your Money” focuses on helping people develop good healthy financial habits.  For those of you who want to improve your finances but are not sure where to start, here’s a few key habits that will put you on the path to financial freedom.

1. Know your worth. If you don’t know how much you are worth, then how can you possibly know if you are moving in the right direction?  Develop a regular habit (at least once per year) of putting together your net worth statement.
2. Manage your debt. Debt is a big cause of financial stress.  When debt becomes unmanageable, stress increases exponentially and affects all aspect of your life.  Manage your debt and you manage your stress.  Know the difference between good debt, bad debt and no debt.
3. Live within your means. Because of access to debt, it is so easy to live beyond your means.  There is no magic pill in personal finance.  You can only spend what you make.  If you continue spend more, you will be in trouble.  We live in a society that loves to spend. We live in a world of delayed consequence over delayed gratification and many are facing those consequences today.
4. Know where your money is invested. I run into too many people that have no clue what they are invested in.  Many have financial advisors that look after their investments.  I don’t care if you have an advisor or not.  You have to know what you are invested in.  Managing your assets and your wealth is a big part of financial success.  Take some time to review your statements and learn about your investments.  Nobody cares about your money more than you!
5. Peace of mind with three financial documents. Insurance is not the only way to protect your financial affairs.  It’s also important to review your will, power of attorney and personal directives.  These are three legal documents you cannot go without!   Together, they form the foundation of estate planning.
6. Protect your financial life with insurance. Review your insurance and make sure you have protected yourself against certain risks.  Review your life insurance, disability insurance and other types of insurance coverage.

This list can create opportunities for anyone looking to improve their financial situation and may not know where to start.  Financial resolutions create the opportunity for change.  That change can be temporary or permanent.  Whatever your resolutions are, my hope is that the New Year helps you start the process to developing great long term habits towards true financial independence.  Happy New Year and Good Luck!

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6 Financial Habits to Take Control of Your Money originally appeared on Canadian Finance Blog on January 11, 2011.

Many people die without ever having written a Will.  When that happens, provincial laws and the courts decide who will settle the estate and who will benefit from the estate.  The provincial laws usually divide the estate between the deceased’s closest family.  In theory, this can sound like a good thing.  In practice it may produce quite undesirable outcomes.

When you die without a Will, you are said to die “intestate”.  That means provincial legislation governs your estate. This legislation has a very limited scope of action, and its standard provisions may be unacceptable for your personal needs and peace of mind.  This may cause potential problems and is very risky for the loved ones you leave behind. Plus, there is no executor appointed, which leads to costs, delays, and frustration.

9 consequences of dying without a Will

If you don’t believe just how important it is to have a Will, then think about these 9 consequences of dying without one:

1.      Without a Will, you do not have an executor. Therefore, someone must be appointed to act as an administrator of your estate. This means potential delay, expense, frustration, and even losses to your estate.

2.      There is no opportunity to select guardians for any minor children you may have. This means that the Public Guardian (the government) may be involved in your children’s personal lives. Any parent knows how important it is to make sure that your children are in the hands of someone you know and trust.

3.      Your children may not receive the inheritance you want them to receive, and there is no opportunity to provide a trust for them. If your children are minors when you die, this also means that when they reach the age of majority they will receive their entire inheritance in one lump-sum rather than spread out over a reasonable period of time.

4.      The Public Trustee is involved in the administration of your children’s share if they are minors. This means the government will decide your child’s financial future. The government will also take a portion of their inheritance as the government’s fee.

5.      In the event of a disaster where your entire immediate family dies, your estate may go to a relative that you may have never spoken to, or don’t even like.  Instead, with a Will, you may make provisions to create a legacy through charitable giving in the case of a common disaster, or choose another suitable beneficiary.

6.      Without a Will, there could be more problems for people who were in common-law and same-sex relationships.  Provincial laws have not kept up with the ever-expanding variety of relationships.  It is especially important for people in non-traditional relationships to have a Will to protect their loved ones.

7.      You are unable to take advantage of tax savings and save money on lawyers and court costs following your death. The cost of drafting a Will is so much lower than paying legal fees when there is no Will.

8.      Do you want your estate to go to your grandchildren if their parent (your child) predeceases you? Only a Will can ensure your wishes are carried out in the event a family member dies.

9.      Without a Will, a family business or family heirloom may not be kept in your family. When you own something of significant value – like a business or other unique asset – it is very important to plan ahead to avoid potential conflicts, and avoid a forced liquidation of your assets.

Ultimately, without a Will, you are unable to exclude or include various people as your beneficiaries.  Without a Will, your family and loved ones are left to the mercy of the law, the government and the courts.

This book was written by Financial Expert Jim Yih.  To buy the book, visit his website WealthWebGurus or through Amazon.ca.

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Dying Without A Will originally appeared on Canadian Finance Blog on September 25, 2010.

The story of John and his 4 grandchildren

John was very proud of his four grandchildren: Sam, Jay, Phil and Jennifer.  John wanted to set some money aside for his grandkids’ future and set aside some money as a legacy of sorts.  His daughter Sara had already started a RESP for each of the kids so John’s financial advisor suggested opening up four separate in-trust accounts for each of the grandkids.  This seemed like a great idea because the funds did not have to be used for education only.  The advisor said the money could be used for pretty much anything.  John certainly hoped the money would be used productively, such as for buying a home, or starting a business, or – best of all – invested for the future.  Was opening up the in-trust accounts really a good idea?

When Sam reached the age of 18, he had already dropped out of school and developed a drug problem.  John was still obligated to give him the in-trust money on Sam’s 18th birthday, which was eventually used to buy more drugs.

When Jay turned 18, he used his in-trust money to take a year off and travel around the world . . . and pay for his girlfriend to go with him.  They broke up three months later.

Phil took his in-trust money and invested it into a nightclub business venture that one of his friends started.  The venture went sour and Phil lost everything.

Jennifer went to university.  She paid for tuition using the RESP that her parents set up.  In fact, she got all the RESPs because none of her brothers went to university and the RESPs were transferred to her.  As a result, she used the in-trust money from her grandfather to buy a car and some furniture.

John was disappointed with how his legacy for his grandkids was used, except for Jennifer’s share.  He consoled himself by thinking that one out of four is better than none out of four.

In retrospect, John would have been better off setting aside money for his grandkids in an account in his own name.  That way he could have retained complete control of that money.  Although he would have lost some tax benefits of having the capital gains taxed in the hands of the grandkids, the loss of tax savings was a small price to pay for having more control and say over the use of the funds.  He would have had the ability to give the grandkids the money from that account whenever he wanted to – rather than on their 18th birthdays.

If John wanted the grandkids to get the money when he died, then he could have said so in his Will.  The in-trust accounts did John and his grandchildren no favours.

This story was originally written in Jim’s book Smart Tips for Estate Planning. Jim is also the creator of My Estate Organizer, a tool to help people organize, diarize and share their estate information with the people they love. It is a tool designed to help beneficiaries and executors.

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Setting Up In-Trust Accounts For The Grandchildren originally appeared on Canadian Finance Blog on September 7, 2010.

Good kids are not always good executors

Sabrina is a widowed mother with two adult children.  Both children are employed, well-educated, live nearby, and are equal beneficiaries of the estate.   While neither of the children is in desperate need of money, they could both use their inheritances to pay debts and maintain their homes and vehicles.  In her Will, Sabrina decided to name her children joint executors of her estate.

After Sabrina died, her children were faced with a few assets:  the family home and its contents, a car, the RRIF, and two other investment accounts.  A year later, nothing had been done.  By comparison, a responsible executor would likely have done many significant things in the subsequent year like obtained probate, insured the property as a vacant home, cleaned out the home, distributed the contents, sold the home, changed registration on the car, collapsed and distributed the RRIF, collapsed the investment accounts into an estate account, and filed the terminal tax return.

Why hadn’t anything been done by the children?  The reasons were numerous.  Neither child had any experience settling an estate.  Both children were busy and uninterested in settling the estate.  Each child wanted the other one to take the lead.  Both children were intimidated about meeting with a lawyer and fearful of the cost of a lawyer.

By their inaction, the children are increasing their risk of loss (by failing to properly insure the home and re-register the car), increasing their tax bill (by failing to pay tax on the RRIF and file the terminal tax return), and incurring the ongoing costs of owing the home (utility bills and property taxes).

These risks and costs will continue until the children decide to act.  In the meantime, no one has any power to compel or encourage the children to carry out their legal obligation to settle their mother’s estate.  Choosing the wrong executor of a will can mean your life savings are simply wasted away.

Other relevant articles

Being the executor for the estate

Misconceptions of Estate Planning

Dying without a will

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Choosing The Right Executor Is Important originally appeared on Canadian Finance Blog on June 1, 2010.

Image by Kristian D.

First, is taking a realistic look at your compatibility in relation to money. A long term relationship is for better or worse, and that can often be linked to the financial side of your lives. While this process looks differently for everyone, a few key aspects include:

Be honest and objective about how you work, or don’t work together;

Consider big lifestyle issues like career goals, lifestyle expectations, opinions about debt and spending, interest in kids and what your financial approach to having them would be;
Take into account your family backgrounds, past money experiences, and the baggage that can come along with both.
Another, often dicey, subject to consider is whether or not to establish a pre-nuptial agreement. People’s opinions vary greatly, but at the end of the day, an agreement helps you to establish what you feel comfortable with and allows you to talk through many of the compatibility issues that are important. If you can’t work out a pre-nuptial agreement, there is likely something else underlying.

Next, discuss and establish joint goals. This is really the start of building your finances together. Working together toward joint goals is essential to integrating your finances. You can have all of your bank accounts linked, or none of them, but unless you are working together towards financial success, the rest is just administrative.

Decide whether to manage your accounts together or separate, or some combination thereof. This is a very personalized decision that must work for both partners. Back to point one, don’t just assume that you both have the same opinions on this. You may have strong feelings one way or another, which may or may not align, and you’ll have to work this out.

Some of the administrative details for married couples will make a big impact on your financial bottom line as a couple. Consider the tax implications of being married, how to make the most of employer benefits by comparing benefits such as retirement, extended medical coverage, etc. It is also good to consider the need for disability or life insurance in the case of worst case scenarios. Make sure that you have updated wills, no matter your age, and you might reconsider beneficiaries who are listed for investments or life insurance.

Remember, integration is a continual process. You might be married for years and still sorting out how to manage your differences. This is life. Make the effort and you’ll be glad you did so.

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Integrating Finances As A Couple originally appeared on Canadian Finance Blog on December 10, 2009.

Fee-only financial planners get their income from you, at $100-$250 an hour, to create a financial plan suited for you. Their fees are clearly laid out so that you know exactly what you are paying for and how much.

Commission-based financial planners have an inherent conflict of interest since they might make more money selling you a mutual fund with a higher MER, which also includes a higher commission for them. Paying these higher hidden expenses could cost you more in the long run, especially if you’re not on the financial path that’s right for you.

While I’m sure there are many commission-based financial planners that do not let this sway their decisions, going with a fee-only financial planner, at the very least, gives you peace of mind that both you and your advisor are working towards the same goals… yours.

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Fee-Only Financial Planners originally appeared on Canadian Finance Blog on May 13, 2009.