Wealth Management is a carefully designed strategy to help you meet your financial needs and goals, one of them being financial independence. The ability to live your life as you choose with a secure financial backing for you and your family is considered, by many, the ultimate success.
1. Financial Literacy
Research has shown that people who are financially literate end up with more wealth than those who are not. There is a strong monetary incentive for becoming financially sophisticated. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life. Make use of the knowledge your financial advisor provides. Financial learning and financial independence are lifelong endeavors.
2. Think Long Term
The level of your wealth should be measured by the length of time you could maintain your standard of living without an additional pay check. In other words, if you had to stop working right now, how long could you maintain your current lifestyle needs? The principles of gaining financial independence seem simple, although we all know it is in the application that we occasionally stumble. Spend less than you earn. Keep investing. It is important to take a long-view focus as you work towards your financial goals. It takes more than a few weeks to achieve financial independence.
3. Good Debt vs. Bad Debt
Consumer debt is the bane of financial independence. Borrowed money should only be used for investing, not to finance lifestyle needs. ‘Bad debt’ is used to finance consumables and other lifestyle preferences. ‘Good debt’ could be termed as strategic loans used to invest, or money used to make more money. Your gains need to be greater than your borrowing costs; borrowing to meet short-term desires is counterproductive.
Financial literacy is one of the most important skills a person can have. It is important to start acquiring financial literacy skills at a young age. There are a few simple steps parents can take to help steer their kids in the right direction.
1. Make a savings chart with rewards for hitting certain thresholds. This will keep them motivated and focused.
2. Play a game! There are many online games that teach kids about finance. Practical Money Skills has a long list of games and apps for people of all ages.
3. Create a matching goal. Once a certain goal has been reached, let’s say $100, you can match their goal by giving them $100 for their hard work.
4. Find a workshop in your neighbourhood. Money School Canada offers workshops for both parents and kids of all ages where financial literacy is taught using real life examples.
Buying life insurance for the first time can be overwhelming. Knowing your individual need for life insurance, the types of policies that are available, and how much money your family may need are all factors that will determine what type of policy you want to purchase, how much you’ll need to purchase, and even if you need to purchase life insurance at all.
Understanding your needs
A very common mistake is purchasing a policy just because it was recommended. The fact is, everyone has different financial needs, and therefore just because a certain policy works for someone, doesn’t necessarily mean it’ll work for you – you may not even need life insurance at all. The purpose of life insurance is to provide your family with financial support as if you’re no longer around to do so. If you don’t have any dependents, you probably don’t need to spend much (or anything) on life insurance. However if you’re contributing significantly to the financial well-being of someone (spouse, children, elderly dependent), you want to ensure that they’re taken care of in the event that you’re no longer around.
Understanding the policy you need
There are two basic types of life insurance policies: life and whole life. Term life insurance policies last for a specific period of time. It is less expensive than whole life as it usually expires before the benefits are used. Whole life insurance lasts from the day you purchase the policy until the day you die, no matter what. Whole life insurance is much more expensive, because the coverage could last several decades. Depending on whether you feel you need life insurance coverage for a specific period of your life or for your entire life will decide which type of policy best fits your needs.
Know how much to buy
To figure out how much life insurance you’ll need to buy, you need to understand the potential financial needs of your beneficiaries. Don’t follow any “rule of thumb” guidelines because, again, not everyone’s financial needs are the same. To calculate how much money your dependents will need, you need to figure out the number of years of support each dependent requires, and the amount each dependent would need per year. Add those up, and you have a good idea of how much life insurance you should be purchasing.
Purchasing life insurance for the first time can be overwhelming. You’ll run into a lot of unfamiliar terms you may not understand at first. Here are a few tips that can help you create an organized approach towards researching life insurance so that you can find the policy that fits your needs best without any unnecessary hassle.
Choosing the policy type
There are two basic types of life insurance policies: term life and whole life. Term Life insurance policies last for a specific period of time, and are much less expensive than whole life insurance. This is because it usually expired before benefits are used.
Whole life insurance doesn’t expire; it lasts from the day you purchase the policy until the day you die, no matter what. The reason that whole life is so much more expensive than term life, is that it can last anywhere from a few years to a few decades.
Understand why you need life insurance
Life insurance is a serious investment, and shouldn’t be made lightly. Avoid purchasing a policy because you’ve been told that you should, because although you’ll see ads claiming that everyone should have life insurance, the truth is that it’s not for everyone.
The purpose of life insurance is to provide financial support for your dependants in the event that you’re no longer around to do so. But if you don’t have any dependants, there’s a chance you don’t need to spend your money on this. If you’re significantly contributing to or fully supporting someone else, you may want to think about purchasing a life insurance policy in the case that when you pass, they wouldn’t be able to maintain the lifestyle that you provide them.
How much to buy
They key to determining how much life insurance you need to purchase is understanding the needs of your beneficiaries. There aren’t any set guidelines on how much you should be purchasing, as it varies from person to person.
Your decision will be based solely on how much money your dependants need and for how long. Calculate the needs of each dependant annually, multiply that by the number of years they’d need support and that should give you a rough estimate of how much insurance you need to buy.
A will is a legal declaration, by which a person leaves instruction on what to do with their assets and personal belongings upon their death. Wills can cover instruction for a wide array of items, including but not limited your executor, how your assets will be distributed, and who will care for your minor children. Here are five important items that should be included in your will.
Your Will should specify who you wish to be your executor. An executor the person who will take over control of your assets upon your death, which is why appointing an executor is arguably one of the most important decisions you need to make regarding your will.
A trust lets you transfer ownership of your assets to certain individuals but still retain control of how those assets are distributed. If your heir has a habit of carelessly spending money, you can create a trust that gives them their inheritance over time, rather than in a lump sum.
If you want to leave a gift of personal property to certain people or establishments/organizations, it’s possible to include this in your Will. The legal term for leaving a gift is a legacy.
If you have children who are minors, you can name the person you want to have guardianship over them in the event that something happens to you or your spouse. A guardianship clause is not legally binding, but courts typically grant the request.
Distribution of Assets
Directing how your assets are distributed is the main reason for having a Will. It indicates how you want your property and assets distributed amongst those who survive you.
Not only does writing your will force you to acknowledge the inevitability of your own death, but it also forces you to plan for it. And although people find planning for death somewhat of a morbid activity, it’s crucial that you plan properly. A will is just an instruction manual for your survivors on what to do with your money, assets, and even your kids or other dependants upon your death. And although choosing who gets what seems easy enough, it’s important to be properly informed when thinking about designing a will. Here’s 3 commonly asked questions about writing a will:
When should I write my will?
There’s no set age or milestone to reach before being eligible to write a will, but if you’re an adult, own significant assets, and have dependants in your care, you should be looking into designing a will. Your will dictates to whom your assets and property will go to, and whose care your dependants are left in.
Are certain assets excluded from my will?
Not all assets can be included in your will. Wills tend to not cover any assets that you don’t own exclusively. For example, a joint bank account or a jointly owned property has a “right of survivorship”, meaning that these assets will automatically become the exclusive property of the joint survivor upon your death. Also, wills don’t apply to assets like TFSAs, life insurance, RRSPs, and RRIFs, where you’ve already assigned a beneficiary to whom these assets will go to.
Should I consult a lawyer?
There’s a guide that you can use called a will kit, which informs you of what you can and cannot include in your will. Although will kits are perfectly legal and consulting a lawyer isn’t necessarily required, it’s probably a better idea if you seek one out as there isn’t a one-size-fits-all plan to accommodate all your needs. You may (and probably do) have a unique set of circumstances, for which an example isn’t included in a will kit, that requires custom provisions from the help of a lawyer. Furthermore, you may feel more confident in the validity of your will after showing the completed document to a lawyer