There’s a common misconception that wealth planning is an activity reserved for the wealthy. Nothing could be further from the truth. Indeed, accumulating greater wealth and financial security is the goal of wealth planning, not the prerequisite. There are an innumerable amount of good questions to ask yourself when wealth planning; here are five key questions to get you started:
When Should I Start?
This is the only question you’ll get a direct answer to – every other question about wealth planning depends on your personal financial situation. You should start wealth planning right now. You should continue wealth planning for the rest of your life. The sooner you start planning how to responsibly invest your money and pay down loans, the sooner you’ll reap the benefits. Compounding interest is one of the most important reasons to start investing early – something we’ll look at briefly in the next section.
Should I Invest or Pay Down Debts?
The answer to this question is highly variable, but ideally you’ll want to do both. Some types of debt are particularly burdensome (high interest credit card debts and payday loans are good examples). When you have high-interest debts, it’s best to pay them off first – compounding interest works both ways.
Other types of debt like mortgages and student loans tend to have lower interest rates. Better yet, these debts can come with significant financial returns. Generally, you can service these debts and invest at the same time.
How Should I Save Money?
Though there are a variety of methods you can employ to save and invest money, two of the most talked about methods in Canada are the RRSP and TFSA. You can (and often should) invest in both, maxing out contributions where you can. There are a number of differences between the two, but they both provide a number of tax benefits. The difference we’ll highlight here is liquidity: TFSAs allow you to withdraw your savings at any time while RRSPs have a number of restrictions on how they can be used until you retire. Both vehicles have contribution limits, but the limits for RRSPs are much higher.
What Strategies Should be Employed to Reduce My Tax Burden?
From pension income splitting to the use of annuities, there are a wide variety of tools and techniques you can use to reduce the amount of taxes you’ll have to pay after retirement. Before retirement, the use of tools like the TFSA can also reduce your tax burden. When it comes to reducing the tax burden on your estate, there are a number of life insurance policies that can be of tremendous use.
How Can I Leave a Legacy?
With hard work, a little luck, and sound planning, those who have been managing their wealth for decades will have more than enough left over to live out their golden years in style. When that happens, you start looking outside yourself to see how you can help others with your wealth – descendants, charities, or anyone else you want to uplift. We offer, among several other products, charitable giving insurance in Winnipeg to ensure that your legacy will stand the test of time.