Are you working with a Real or Fake Financial Planner

Are you working with a Real or Fake Financial Planner

by | Aug 2, 2023 | Financial Planning, Risk Management

March 31, 2022

I also cover this in a YouTube video. Click here to watch!

 

Now here’s a question you may have never thought of needing to ask yourself: are you really working with a Financial Planner or just somebody who calls themselves a Financial Planner?  Well, by the end of this article I’ll have supplied you with all the necessary information needed to determine if your current Financial Planner really knows what they’re talking about – and if the recommendations they’re making to you and your family are correct.

 

Right now, in so many provinces across Canada, anybody can call themselves a Financial Planner and get away with it. 

As an industry, we are asking for reforms and regulations to protect the public from rogue people who pretend to be Financial Planners – the ones whose sole pursuit is selling products, moving onto the next opportunity and leaving many mistakes behind.

When I am in need of a doctor – a specialist – I want to find a doctor that has a number of degrees and designations after their name. I am seeking out someone who has gone to school for a number of years, someone who is a real expert in their field. Ultimately, I’m looking for someone who knows what they are actually talking about.

This same practice should be used when seeking out a Financial Planner to work with. We have similar acronyms after our names that you should be looking for to ensure the person that you are sitting down with is actually a Financial Planner.

So – you want to make sure the person has a business or a math background; additionally, they should have at least their Certified Financial Planners designation (CFP), which is the gold standard when it comes to Financial Planning. The second designation you should be looking for is the Chartered Life Underwriter (CLU) designation. The CLU designation really focuses in on working with business owners and complex estate planning. Those two designations – either the CFP or the CLU – are what’s really required in order to call yourself a Financial Planner.

Starting this year, if you want to enroll in the CFP program, you must already have a university degree – just like lawyers and accountants need to have a university degree, so will Financial Planners. This is just one step of many that the industry needs to take in order to protect the public.

Currently, I am working on a number of client files and you can see during the information gathering process that many business clients have no clue if they are maximizing the effectiveness of their corporation, and whether or not they are paying way too much in taxes to Revenue Canada.

 

Just to give you an example… 

One client I dealt with had a Critical Illness Policy that they owned, but when I reviewed the documents, I noticed that the brother was listed as the beneficiary of the policy. Now, if this was a Life Insurance Policy, that might be correct, but this was a CI policy. So, I explained to the client that they were making the premium payments, but if they contracted a critical illness, the payout would be going to the brother. Boy, were they displeased when I showed them their own documents. Needless to say, they fired their previous Financial Planner since they clearly didn’t know what they were doing.

 

Life insurance is a no-brainer to have inside a corporation. Time and time again I see business owners owning life insurance policies personally instead of corporately and that is just not being wise. 

Why would you take money out of the corporation – paying 30% or 40% in personal taxes in order to pay for the life insurance premiums – when that policy could be inside the corporation?

Plus, depending on which province you are in, you’re using 11-12% corporate dollars to pay those life insurance premiums. And, if you did pass away unexpectedly, the death benefit would be paid into the corporation, at which point your accountant would prepare paperwork to declare a “Capital Dividend” and the life insurance proceeds would come out of the corporation tax-free. What I’m trying to say is: there is no downside to owning the Life Insurance Policy inside the corporation.

So, again, I ask the question: why are business owners still owning Life Insurance Policies personally? Part of the answer is that the person who “sold” them the product didn’t know what they were doing.

 

Cash flow management is key to running a successful business. However, during my analysis of many client files, I find out that their current Financial Planner has never taken the client through a Cash Flow Management exercise. Never! 

In a more recent client engagement, once we took them through a Cash Flow Management exercise, we were able to save the client $33,000 a year in personal cash flow – which meant we reduced their personal taxes by at least $10,000-$15,000 each year. If we hadn’t come into their lives, they would have continued to make Revenue Canada rich.

If you’d like to learn more about working with an actual Financial Planner, and not somebody who is just trying to sell you products, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

 

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

 

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

Ontario Dentist Magazine

Ontario Dentist Magazine

by | Aug 1, 2023 | Dentists, Financial Planning

Sean Robertson BHSc DDS

John Moakler BMath, CFP, CLU, CSC

Rick Goldring BA, CFP, CLU, ChFC

Choose Your Own Adventure: The “Perms and Combs” of Career Investing and Practice Sale Strategies

Remember those “Choose Your Own Adventure”
books in elementary school? They involved a
character who experiences a different journey
and eventual outcome based on the options
created by the author and chosen by the reader. Also
known as “Secret Path” books, the same one could yield
different journeys for their characters, even with some
of the same choices made by the reader. Based on the
number of choices, there were different permutations
and combinations that created a different story. For a
young, developing mind, these stories gave a sense that,
to some degree, the reader could control the outcome,
and that choices have consequences. Sometimes, these
consequences could be anticipated, while other times
they could not.
Then, in high school, finite math involved the study
of permutations and combinations, often abbreviated
as “perms and combs.” Permutations are mathematical
sequences where the order of the number set matters.
Combinations are sequences where order does not affect
the outcome. Perms and combs could be thought of as a
mathematical model of the choose your own adventure
books.
When we look at “real life” from a financial perspective,
there are an infinite number of choices with consequences
and benefits, and with dynamic, external
influencers. Even when we control for external influencers
and changes in the economic climate, every dollar
earned can have a different legacy based on the strategy.
In essence, the perms and combs of a financial strategy
are endless, but they matter for the lead characters
in your life. For dentists, investment strategies and practice-sale considerations have an effect on retirement
outcomes, and are influenced by the climate of the stock
market and practice marketplace.
This article will review six financial options for a dentist’s
financial “adventure.” Three are presented from
the perspective of career investing, and how different
long-range approaches can result in different retirement
savings outcomes. The other three are presented from
a practice-sale perspective, showing how different strategies
of practice-sale considerations can yield different
after-tax, take-home profits. By no means are these scenarios
exclusive or exhaustive, but they give pause for
consideration of how dentists can strategize and choose
their own path.

A career of investing
As a dentist, you are an associate or practice owner. As
a practice owner, you have both challenges and benefits.
Owning a practice requires not only investing in
your clinical skills but also investing in your team and
the practice to support patient care and meet current
standards. The investment in practice ownership can
offer a rewarding career, but it requires staying on top
of clinical technologies, administrative responsibilities,
infection prevention and control protocols, and
patient-management considerations. Continued learning
and relearning are critical for any clinician to maintain
and grow a practice. Being an entrepreneur in dental
practice ownership can be demanding, invigorating and
satisfying — sometimes all in a single day.
The early years of practice ownership often require
focus on practice growth, but some consideration should also be given to a retirement plan. A dentist retiring at
age 65 should expect that she and/or her spouse will have
at least another 30 years of life to enjoy, with the majority
of that time doing the things they want, when they
want. In essence, dentists spend the first third of their
lives preparing for a career in dentistry, the next third
practicing dentistry, and the final third in retirement.
To maximize that final third, it is critically important
to plan and prepare for retirement early on in a dental
career. There are a number of options to consider in planning
for retirement through a career of investing that can
yield vastly different outcomes; we will highlight three
theoretical options.
The first common, simple and straightforward
approach to investing is a T4 salary approach. This can
be effective in creating retirement savings but may also
require contributions to the Canada Pension Plan (CPP),
which can have a negative return on the funds contributed.
This scenario of career investing may result in an
“RRSP trap,” where the investor is forced to contribute to
RRSPs in order to reduce the tax bill during her working
years, only to find that tax is deferred to the final third
of her life.
A second option could be a blend of T4 salary and T5
dividends for the dentist’s paycheque, where one could
minimize the amount of T4 salary to coincide with any
government-support programs (child care, tax credit,
etc.). This would permit the reduction or elimination in
CPP contributions, saving up to $8,000 per year. In this
scenario, creating a portfolio of real-estate properties to
generate rental income that is then used to pay down
debt and increase wealth could be considered.
A third career-investing strategy could follow the second
option presented but use the dentist’s professional
corporation or a newly created real-estate holding company
to invest in a “Whole Life Par Policy.” This could be
designed with immediate access to cash value. Designing
such a policy would mean the policy holder would pay
the insurance premium on a Monday and on a Tuesday
a lending institution would provide the owner with 90
to 100 per cent of the premiums back at a prime rate
of interest. These borrowed premiums could be used to
reinvest in the practice or in real estate. 

This option permits attaining life insurance coverage for the client to protect her family at the cost of pennies on the dollar.
Insurance companies in Canada reward each Whole
Life Par Policy with an annual dividend. Insurers have
been paying dividends for more than 150 years, with the
current dividend at six per cent. These polices can be
designed with immediate access to cash value, which is
not common knowledge. As such, we have found many
policy holders have policies that, although they were designed for them, limit access to the cash value for at
least 10 to 14 years. A customizable approach is always
necessary to achieve the best outcome in the interest of
the client.

When it’s time to sell

The first option here considers that dental practices can be sold as shares in a dentistry professional corporation,
or sold as an “asset sale.” In the case where a dentist was
not incorporated or had already taken advantage of the
available lifetime capital gains exemption (LCGE) at the
time of sale, an asset sale may be chosen over a share
sale. If we choose the path of an unincorporated dentist
who is ready to appraise and sell her practice, we know
that the seller cannot take advantage of the LCGE as in a
share sale. In an asset sale, a seller is taxed on the various aspects of the practice, including the hard assets and the goodwill at the time of sale. For a purchaser, buying a practice as assets rather than shares presents an opportunity to depreciate the purchase according to the cost of capital allowance as set by the Canada Revenue Agency (CRA). What this means is that a buyer can “write off” the goodwill and hard assets of the purchase over decades of ownership through the allowance of depreciation that does not exist in a share purchase. Therefore, at the same valuation, an asset sale has the benefit going to the buyer and the disadvantage to the seller. Because of this, it has been argued that for a seller to end up with the same net result on an asset sale as she would with a share sale, the valuation of the practice would have to be increased by more than 30 per cent (1). Often, this can be justified by an appraiser with the consideration of allowable depreciation for the buyer. The challenge is that buyers often look at practice value as a percentage of gross revenue, and the optics of this in the marketplace can create a tougher sell. Additionally, the increase in valuation has to come from the goodwill, since the hard assets of the practice cannot change in value. In accordance with Canadian tax law, goodwill is depreciable at five per cent of the total value annually, whereas many hard assets can be depreciated at 20 per cent annually. With this in mind, and in our experience, buyers and lenders may be more reluctant in today’s climate to permit an asset sale at an inflated value. With a practice at the same valuation as a share sale, our theoretical seller could end up losing up to 30 per cent of realized profit to taxes when her practice sells as an asset sale.
In imagining a second scenario where the same practice
owner had incorporated her practice three years prior
to her appraisal and intended sale, the outcome looks
very different at the same valuation. When the practice is
sold as a share sale with a single dentist as a shareholder in her own dentistry professional corporation, the first
$883,384 is exempt from taxes due to the LCGE. At a
comparable valuation, this creates a clear advantage to
the seller. Although the buyer does not have immediate
benefit from the purchase of the share sale, they are
permitted to sell the practice down the road in the same
arrangement.
A third scenario involves incorporation with the addition
of a spouse as a shareholder. Imagine our theoretical
dentist incorporated and registered her dentistry professional corporation in 2008, when she graduated. She was
recently married and has decided to add her spouse as
a non-voting shareholder to her dentistry professional
corporation for future tax advantages. In light of the
current climate and the shut-down period attributable
to COVID-19, her practice has a three-month window
where she was unable to practice dentistry in the past
year. She has had her practice appraised; it reflects a
reduced valuation due to the effects of the pandemic on
her practice’s revenue, the reduced capacity for treatment
using aerosolizing procedures, and increased caution
in the dental practice marketplace. With the resultant
lower practice valuation, she can now add her spouse
as a shareholder to the corporation and take advantage
of the practice’s recovery moving forward. As the LCGE
increases with inflation and the practice value increases
with growth and inflation, so too does the ability for her
spouse to take full advantage of the capital gains upon
practice sale. In the year 2038 when this dentist decides
to sell her practice and retire, both she and her spouse
will be able to take advantage of the LCGE as shareholders,
which could shelter half or more of the practice value
from taxes, resulting in a significant tax advantage as
compared to the other two scenarios of sale reviewed.

A happy ending
As the adage goes, “knowledge is power.” A comprehensive,
personalized approach taking into account your
career and retirement goals should include options and
strategies that help you get where you want to go — these
are your co-authors on your financial adventure. The
scenarios presented in this article are theoretical and not
exhaustive, but are intended to emphasize the idea that it
is not what you make in your career of earning, investing
and later selling your practice, it is what you keep. OD

Financial Planning for Dentists – Part 3

Financial Planning for Dentists – Part 3

by | Aug 1, 2023 | Dentists, Financial Planning

April 26, 2022

I also cover this in a YouTube video. Click here to watch!

 

ATTENTION DENTISTS!

Do you have a comprehensive financial and retirement plan – written down – that maps out when you can afford to retire and what your retirement paycheque will look like? 

This is the third and final blog in a series of three on this important topic. 

 

Here’s a quick recap of what we’ve covered so far:

In the first blog we talked about the structure of your dental practice and when you are ready to sell the practice; we highlighted some of the key differences between selling the shares of your corporation versus selling the assets of your corporation.

The second blog talked about putting necessary bumper guards in place, to protect you and your family in the event life throws you a curveball.

 

In today’s blog, we are going to talk about how to leverage your practice to build a tax-free “personal” retirement paycheque. In addition, I’m going to explain why it is important for you to have a second corporation. 

If you remember back to the first blog, I brought up the issue of “passive assets” inside your corporation. I mentioned that if you wanted to sell the shares of your corporation down the road, then you would need to restructure – or “purify” – your corporation prior to sale, to ensure that the business qualifies for the $850K+ Lifetime Capital Gains Exemption. 

In order to “purify” your Dental Practice Corporation, you will need to open up a second corporation as part of that process – it will simply be an “Investment Corporation.” I don’t want to get too far into the weeds, but this second corporation is considered “connected” in the eyes of Revenue Canada. Meaning: the Small Business Tax Rate on the first $500K of active income will now be shared between the two corporations… But, if you do this correctly, this will not become an issue.

Now that you have this second corporation opened, we can now “loan money” from the Dental Corp to the Investment Corp and you only have to charge what is called the “Prescribed Rate of Interest” – which is currently sitting at 1%. So, you could move 99 cents on the dollar from your active Dental Corp over to the Investment Corp, you’re looking at 99 cents on the dollar to go out and purchase rental real estate. Now because this rental real estate is inside the Investment Corp, this will make it easier down the road to sell the “shares” of your Dental Corp in order to qualify for the $850K of the Lifetime Capital Gains Exemption.

Let’s change gears 

We want to build a pension plan for you that will lead to a Tax-Free Retirement Paycheque – using either your Dental Corp or your Investment Corp. If you are confident that you will be selling your Dental Corp down the road, then I would highly recommend that we implement this strategy through your Investment Corp.

The Pension Plan is called the Insured Retirement Program (or IRP); it has both an insurance component to it as well as a cash investment component.

Now some of you reading this blog may have heard of this strategy, but I guarantee you’ve probably never seen the IRP designed the way that I design it. 

Most advisors design an IRP the wrong way. How? Because they design it such that you have to wait 10, 14, or even 20 years to get access to the cash sitting inside the Whole Life Policy. In short: they have designed it for when you die and not for while you are alive.

Now I’ll let you in on a little secret: the way they designed that policy will maximize the commissions for your advisor.

In my opinion, it has not been designed for your best interest, which is what’s most important.

 

Let me explain.

With Whole Life Insurance, you have a component of the premium that is strictly paying for the death benefit and you have a component of the premium that can go into the Cash Investment Account. The design of the IRP mentioned earlier in this blog – where you have to wait 14 or more years to get access to the cash – means that most of your premium is going to pay the death benefit. 

But what if I told you that with the way that I design the IRP, you can write a cheque for the premium on Monday and we could give you access to up to 90% of the cash value inside the policy by Tuesday.

 

 

Full Disclosure – I make a lot less commission designing it this way, but typically after four or five years, you could have access to up to 100% of the money you have put into the IRP. 

So what does this all mean for you and why would I design it this way?

 

I have three key reasons –

1. Because I truly believe this design is in the best interest of you and your family.

2. If you think back to what happened when Covid-19 first hit, cash flow might have been an issue for you. What if I told you that based upon my design of the IRP, you could have taken a premium holiday in 2020, thereby conserving your cash flow?

3. I design the IRP this way because after four or five years, if you change your mind, you could still get up to all of your money back.

 

Think about it this way: if you wrote a cheque for $100K on a Monday and I told you that you could have access to $90K of that premium on by the next day… what could you do with that money?

Think about it –  the $100K premium is paying for much-needed life insurance coverage for you and your family, but now you have access to $90K of that money which could be used to purchase rental real estate or to reinvest back into your business.

Now there is a fourth key reason of why I design my IRPs this way that I haven’t shared yet…

Picture this, you are making these premium payments either out of your Dental Corp or out of your Investment Corp, it doesn’t matter… We are giving you immediate access of up to 90% of the cash value inside the policy. When you decide to retire down the road, we can take that policy to a lending institution and they can turn on a 100% tax-free retirement income.

I’d say that’s kind of like having your cake and eating it too!

 

I’ve covered a lot about financial planning for dentists in these last three videos… now just imagine what we can do for you in person.

If you are interested in developing a comprehensive written Financial & Retirement Plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

 

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

 

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

Financial Planning for Dentists – Part 2

Financial Planning for Dentists – Part 2

by | Aug 1, 2023 | Dentists, Financial Planning

April 19, 2022

I also cover this in a YouTube video. Click here to watch!

Welcome back, dentists! This blog is part two in a series of three on this very important topic: having a comprehensive, written financial and retirement plan.  My focus is on developing a financial plan for a dentist, because it is very different than developing a financial plan for a doctor.

In last week’s blog – Financial Planning for Dentists: PART ONE – we talked about the structure of the dental practice and when you are ready to sell the practice. We also walked through some of the key differences between selling the shares of your corporation versus selling the assets of your corporation.

In today’s blog, we are going to talk about putting bumper guards around you and your family in the event that life throws you a curveball. 

Here’s what I know for a fact – 

Your most important asset is your ability each and every day to get up and go to work to earn a living. And so, if something had happened to you last night and you couldn’t work today, the question I always ask is…

What is going to be your paycheque?

If the worst happened to you, the best way to address this issue is something called Disability Insurance – it will step in to become your paycheque for the rest of your working life.

Disability insurance premiums should always be paid for with personal tax dollars. Because if you are ever diagnosed with a disability, all of the income you would receive would be “tax-free income.” This is very important!

When designing a disability policy, you have to look at certain features that are “must-haves” in order to fully protect yourself.

The first feature is called “Own Occupation”. If you don’t have this feature, then after two years into the disability benefits, the insurance company can force you to do any other job you are capable of doing. BUT, if you do have the “own occupation” feature in your plan, then the insurance company can’t force you to do any other job than the job you were doing the day before you became disabled.

In addition to “own occupation,” you should also have a feature called Cost of Living Allowance (or COLA) because if you ever went on claim, you want to make sure that your monthly benefit is keeping up with inflation.

The third feature you should look into is Future Income Option (or FIO). As long as your income has gone up, this feature allows you to purchase additional monthly benefits, but you do not need to undergo any future medical underwriting.

The fourth and final feature we should look at is called the Return of Premium (or ROP).  This works like clockwork – every seven or eight years, if you haven’t filed a disability claim, then you get 50% of the premiums back that you paid and you receive this money “tax-free”. So, either you get a disability and you receive the monthly benefit, or you get 50% of your money back.

Now that we have taken care of you and your family should you get a disability, we now need to focus our attention on your dental practice. 

Most, if not ALL dentists who own a practice – which includes frontline staff as well as hygienists – will need something called “Overhead Insurance”. This type of coverage kicks in to protect your practice should you be diagnosed with a disability. It will pay for your rent, wages of your staff, etc. For more details on this, follow the coordinates at the very bottom of this article to get in touch with us.

The next bumper guard to look at in protecting you and your family is “Critical Illness” insurance. I have a number of videos on my YouTube channel that go into great depth on this subject, so I won’t repeat myself. 

Here’s what I want you to know and remember 

We design “guaranteed” Critical Illness policies for our clients – either you are going to get a covered critical illness and the policy will pay out, or once the surrender clause kicks in, you can ask for 100% of your money back. You can’t ask for more guarantee than that!

In next week’s blog – Financial Planning for Dentists: PART THREE – I will get into how to leverage your practice to build a tax-free “personal” retirement paycheque, purchase rental real estate, and offer a brief overview on why it is important for you to have a second corporation.

If you are interested in developing a comprehensive written Financial & Retirement Plan, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.

For the best life insurance advice and information, subscribe to my YouTube Channel and hit the notifications bell to be notified when we post new videos.  The channel allows me to share my passion for personal financial planning and I produce content that I would want to watch – and because of that, I promise to give you 110% effort in every video that I make.

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

The Value of Advice

The Value of Advice

by | Aug 1, 2023 | Dentists, Doctors, Financial Planning

 

The Value of Advice

Client Case Study

Dentist Age 47 & Spouse is Age 46 and they have 2 children under the age of 18

Practice had annual Gross Revenue of $1.2M and annual Net Revenue of $350,000, after operating expenses, but before they paid themselves.

 Current Strategy

  • Accountant was paying the Dentist a T4 Salary of $150,000 in order to maximize RRSPs
  • Accountant was paying the Spouse a T4 Salary of $50,000 in order to maximize CPP. Spouse worked at least 20 hours per week in the Practice
  • Annual Retained Earnings was $125,000
  • Contributing $22,500 into Spouse’s RRSP annually and $2,500 for each child for a total of $5,000 into a RESP for the children
  • Cash Flow Analysis determined that they needed $100,000 per year ($8,400/month) for lifestyle expenses since the mortgage was paid off

Recommended Strategy

  • Based upon client’s current level of Registered Assets, we recommended that we eliminate their T4 Salaries and pay each of them in Dividends – Spouse qualified given weekly hours worked
  • Based on this new payment structure of T5 Dividends, they will no longer be required to contribute to CPP, which will save them approximately $8,600 or more each year
  • Recommended that they stop contributing to their RRSP’s as they had enough registered investments and keep the money inside the Dentistry Professional Corporation (DPC) in order to build a Pension Plan that would produce a tax-free paycheque in retirement
  • Recommended they start a Corporate Insured Retirement Program (CIRP), earmarking $50K per year for 20 years

Outcome

  • Restructuring how they paid themselves increased the annual Corporate Retained Earnings by an additional $30K per year and so now they had $155K per year in retained earnings
  • The CIRP pension plan would produce a tax-free retirement paycheque of $186,000 per year starting at Age 71 for 20 years – while alive they will receive $3.72M in tax-free money
  • Reduced their overall estate tax bill by an additional $2.8M – less money sent to Ottawa
  • Their overall net estate value for their beneficiaries increased by $4.2M

  

 

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544

6 Practical Steps to Managing Your Cash Flow During A Pandemic & Beyond

6 Practical Steps to Managing Your Cash Flow During A Pandemic & Beyond

by | Aug 1, 2023 | Financial Planning, Investments

Practical Steps to Managing Your Cash Flow During A Pandemic

1.  Put away your credit card for 3 weeks

      • When was the last time you put away your credit cards and only used debit or cash to make your everyday purchases?

2.  What are you really purchasing?

    • By only using debit/cash it provides you with an awareness of what you are actually buying. By using a credit card, it can hide the fact that you are buying things you “want” versus things you “actually” needed
    • People are willing to spend much more with a credit card versus debit/cash – as much as 83% more in some cases * ( 2018 – Value Penguin – Bailey Peterson)

3. The Latte Factor – Monitor what you are purchasing over a 3-week period

    •  By tracking what you are spending you will have a better understanding of where your money actually goes. It is amazing how much we actually spend on coffee, lattes, drinks out, lunch at a restaurant, etc.

4. Develop a budget…and stick to it

    • Developing a monthly budget is probably a challenging task for most people. However, if you are capable of creating a budget and sticking to that budget, overtime, you will see that retirement will be within reach.
    • Pinpoint at least one or two expense you can decrease or slash in half
    • Review the services or products that you are purchasing each month and ask yourself the question – Do I still need it?
    • Sometimes we get into habits and continue to pay for services we no longer need or we could reduce

5. Good debt versus bad debt – restructure your bad debt into good debt – pay off debt

    • Nobody is going to knock on your door and say, I want to buy your credit card debt or I want to purchase your car loan. However, somebody will knock on your door and say I am interested in purchasing your house/condo. So, credit card debt and car loans are “bad debt” and mortgages on a house/condo is “good debt”. And most houses/condos do go up in value over time.
    • If you own a house/condo with a mortgage and you do have a car loan or you are having difficulty paying off your credit card on a monthly basis, look at consolidating your car loan/credit card debt into the mortgage payment. Interest on a car loan/credit card is compounded monthly or in some cases, daily. Interest on a mortgage is only compounded semi-annually.
    • More than 50% of the home owners who have paid off their mortgages have a Home Equity Line of Credit (HELOC) with an outstanding balance. In some cases, the outstanding balance can be in the thousands or hundreds of thousands of dollars. The interest rate on a HELOC is compounded daily….and you might get into a habit of only paying the interest each month and then you are compounded the problem even further because you are not paying down the principle. By having a mortgage instead, every payment has some portion going to pay interest but also some portion going to pay down the principle.

6. Work with a professional Certified Financial Planner (CFP) or Chartered Life Underwriter (CLU) – seek out their advice

    • Get help with developing a monthly budget. Most financial planners have developed their own tools or templates to help clients with the budgeting process.
    • Also, they will have experience with the targets when it comes to budgeting what the actual or potential monthly lifestyle expenses could or should be.

 

 

By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

info@moaklerwealthmanagement.com

1 416 840 8544