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It's Your Money  

Stop money leaks

Every time you choose to spend (or not spend) money, you have a chance to improve your financial well-being.

For example, spending $60 a month on a membership you don’t use or subscribing to online newsletters you no longer read, are money decisions you make that can lead to what financial planners call “leakage. “

It’s a term that applies to all the money that leaks out of your savings unnecessarily, and it is more important now than ever to be aware of leakage due to the impact of COVID-19.

What can you do to reduce leakage? Simply being aware is a good starting point but if you want to really get ahead, a full holistic financial plan is the best way to beat it.

Here’s four examples of how a financial plan can help:

Smarter budgeting

Every month, money flows in (income) and money flows out (expenses). Focusing on how and where you spend, can help make your money work smarter.

For example, cancelling a $100/month membership you don’t use, could divert $1,200 a year toward one of your registered accounts such as an RRSP, TFSA, RDSP or RESP.

Over time, your contributions to these accounts can grow faster due to tax-deferred or tax-free growth, just by stopping one leak. 

$1,200 invested into your RRSP for the next 20 years and earning a six per cent per year average rate of return would put an extra $46,104 into your retirement nest egg!

Minimize taxes

Not taking advantage of every available tax credit and planning opportunity is equivalent to giving money away.

For many established families, a detailed tax plan can reveal leakage caused by not maximizing credits and refunds or not taking advantage of alternatives such as income splitting or trusts.

A proper financial plan will show how to minimize taxes and why these savings are every bit as valuable as returns made on investments or other forms of income.   

Plan for and manage debt

A good financial plan sets out a series of steps that reduces leakage to debt and interest payments each month.

For example, when you consolidate debt at a lower interest rate you can either pay it off faster or use the savings to invest in longer-term goals such as retirement.

Paying extra interest that you don’t have to is the most painful of all types of financial leakage. Sometimes all it takes is a little bit of restructuring to wipe out five or 10 years on a debt repayment schedule.

Protect yourself now and in the future

Life, critical illness, and disability insurance are all designed to financially support you or your beneficiaries in case of an unexpected event. In effect, they replace the money and/or income that would otherwise leak out of your savings due to one-time or ongoing costs.

Failure to setup proper protection for you and your family can lead to leakage so large that it can be devastating to your financial future.

I would be willing to bet that most (if not all) Canadians have some level of financial leakage in their lives.

You need to be aware of it and stem the flow! For those that don’t know where to start, consider reaching out to a certified financial planner for help.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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