Good news at last ! You’ve landed a big promotion with a generous pay raise, or you’ve finished school and moved into a well-paying profession.
Either way, you have some extra cash. Seeking advice – or even just thinking about it – deserves praise, says Brian Himmelman, president and financial planner at Himmelman & Associates Financial Advisors in Halifax.
“It’s so easy to consider [une augmentation de salaire] like winning the lottery and thinking, “Oh, I finally want to get that Canada Goose coat, and you know what, I’m going to book a five-star vacation.” And boom, this surplus, it disappeared,” illustrates Mr. Himmelman.
Now is the time to decide what’s important to you, says Brandon Wiebe, a financial planner with Money Helps in Saskatoon.
The first step is to define short- and long-term priorities and involve spouses, where appropriate.
For starters, a Tax-Free Savings Account (TFSA) can provide flexibility for someone who wants to save and earn returns tax-free, but whose priorities might change over time , says Mr. Wiebe.
Paying off student loans and other debt is another goal to consider. “I think some of the thinking [autour de la dette] will focus on a few aspects,” explains Mr. Wiebe. “First: what is the interest rate? How does this compare to the expected return? And then, what emotions does having a student loan generate? I mean: does this concern you? »
For some, taking more time to pay off student debt with the goal of investing is the smarter decision.
Diversification of savings
Both experts are in favor of the “budget envelope” approach, according to which disposable income is allocated according to different goals such as debt repayment, investment or financing an expense.
These categories can change over time, just as priorities change throughout life. For a younger person with a certain amount of extra income each month, Himmelman says one possible avenue might include three categories: student loans, down payment savings and retirement.
Taking into account their age and goals, approximately 25% of the savings could be devoted monthly to the loan, 50% would be devoted to the plan to buy a house and the remaining 25% would be set aside for financial independence in the long term, a habit to start early.
Mr. Himmelman also recommends building an emergency fund for a few months, before saving for a down payment. Priorities will vary depending on individual circumstances.
Someone who earns less income now, but whose career offers attractive prospects for salary gains, would be better off focusing on a TFSA. Those who earn more from the start could opt for the RRSP, because of the tax deduction.
Himmelman, president and financial planner at Himmelman & Associates Financial Advisors
Although saving for a home is considered important by many young Canadians, homeownership is not the only way to acquire financial security, Mr. Wiebe adds. He prefers that clients choose home ownership for personal reasons – wanting to stay put, wanting to control their space – rather than purely financial ones. “I advise people to try to stay away from speculation, rather than feeling like there is an urgency to get into the market. »
In Mr. Himmelman’s experience, clients who have purchased and invested in real estate tend to have a higher net worth, but that doesn’t predict everyone’s future.
“ [Certains clients] They may not be cut out for homeownership, and there’s absolutely nothing wrong with that, he says. A person can create a perfectly sound long-term financial plan without becoming a homeowner. »
The last envelope should be devoted to pleasure. Once short- and long-term goals are achieved, Wiebe suggests. People who work hard should be able to benefit, whether it’s taking more trips or getting a better car. “Once they take care of the responsible party, they can pursue the financial things that bring them happiness.” »
Mr. Himmelman agrees. He notes that among his clientele, he counts thrifty people who are now in their sixties and who have more money than they could spend. Now that they are older, traveling and certain hobbies no longer have the appeal they once did.
“They were so worried about not having enough money that they overdid it,” Mr. Himmelman says.
“There is something to be said for enjoying your money while still being healthy. The goal of the game is to find a balance between taking advantage of your resources and having enough for your old age. »