So you’ve finally finished up the settlement. You know how much assets you will receive and you know what level of financial support is expected on-going. Now what?
How to budget? How to save? What will be required for my kids and for my retirement (yes, you should be thinking about that too)?
Don’t put it off any longer. It’s time for a PLAN!
You have many options:
Save
- Retirement (RRSP)
- Children’s’ Education (RESP)
- Future large purchases (Car, real estate…)
- Investment (TFSA, Open)
Pay down debt
- Credit Cards
- Mortgage
- Line of Credit
Spend
- Trip
- Gifts to adult children
- Luxury items
Liquid
- Emergency funds
Deciding how to proceed is a matter of know-how and priorities. Some general rules to follow, in order of importance are:
1. Always have 8 months of accessible funds to cover off on living expenses. This is to provide funds in case you lose your job, or you suddenly need a new roof or furnace, etc.
2. Pay off credit card debts immediately. If you don’t have available funds to do so, at a minimum consider restructuring your debt, e.g. use a line of credit with far lower interest payments.
3. Whether or not you want to pay down your mortgage or put away money for savings is dependent on your current debt levels, as well as the current interest rates. For instance, at current low mortgage rates, carrying debt at 3% and receiving 5% in a tax deferred investment (eg. RRSP, TFSA) may make sense.
4. Post-Secondary Education for your children (or grandchildren) may be coming up sooner than your retirement. In addition, taking advantage of government grants in an RESP (Registered Education Savings Plan), and investing FREE money, is very tempting. However, be sure to dispassionately consider what you are able to afford. You need to ensure that putting away money for your kids’ education won’t severely impact your retirement plans. It’s one thing to delay your retirement savings or adjust them slightly, but it’s quite another creating an under-funded retirement. This also holds true for cash gifts to children.
5. Now a look at your investments. You may not have been the spouse that took care of the investing, but now you find yourself with a sum of money that necessitates professional advice. The investments that you received in the split may have been appropriate in the past, but aren’t any longer because of your new stage in life, risk tolerance levels, or even changes in the financial markets. Your portfolio needs to be a fit for YOU!
People don’t plan to fail. They fail to plan. Make certain that you are receiving proper advice, and that you have played out all of the scenarios: both financially and emotionally.
Paul Habert is a Partner at Hanser Financial and is an Investment Advisor with Aligned Capital Partners. www.hanserfinancial.com , or [email protected], or 416-499-5565.
