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Value of advice: when it comes to balancing financial priorities

They say that opposites attract, but what happens when those differing points of view revolve around money.

Take our clients Joe and Sue, for example.

Joe works for a local university as an instructor and his wife is a driver for Voyago, a school bussing company. Recently, they fell into some money when Joe’s mom passed away—and like most couples, they had contrasting ideas as to how they should go about spending it.

Between the two, Joe considers himself ‘the dreamer’, while Sue is more of a planner.

Joe’s wish list included home renovations, buying a hot tub, and going on a big family trip once a year. Sue, on the other hand, preferred to be more cautious with those funds. After all, they have three growing kids (two of them rapidly approaching their post-secondary years); so it was more important to her that there was enough money for tomorrow.

With very different ideas on how to spend the inheritance, Joe and Sue needed a third opinion.

“That’s where we came into the picture,” says Educators Certified Financial Planner Nadeen Israel. “Money matters tend to be one of the most common points of contention between couples, yet believe it or not, finding common ground is usually pretty simple. It’s all about finding balance. I bet you thought I was going to say compromise—and yes, that’s important too.”

In order to get that balance right, Nadeen helped Joe and Sue to prioritize their combined needs and wants.

Nadeen goes on to explain, “Dreams are a wonderful thing, especially when you come into some money. But it’s when you’re faced with the prospect of instantly being able to make those dreams a reality that it’s a good idea to press pause on those spending thoughts for a second or two. This is where I was able to successfully advise Joe and Sue to hold off on making any big spending decisions pertaining to the inheritance money. At least until they could figure out what dreams and goals were the priority and which ones could wait.”

Tips for setting goals:

  • They should be specific (e.g., buying a hot tub, making a down payment on a home, supplementing income during a deferred salary leave, building an emergency fund, creating a financial cushion to add to your pension income in retirement, etc.)
  • Review and then prioritize those goals by importance (e.g., the must-haves vs. the nice-to-haves, just in case your inheritance and/or budget doesn’t afford the ability to achieve them all)
  • One they’ve been prioritized, determine how much money you want to allocate toward each goal (in the case of an inheritance) or save (if you don’t have a financial windfall to fall back on)
  • Finally, set the timeline in which you want to realize each goal (to keep you on track)

When it comes to receiving an inheritance or planning for any future goal, Nadeen recommends reaching out for professional (educator-specific) financial advice as early as possible.

“This is especially important the moment you know that you’ll be receiving an inheritance,” continues Nadeen. “Because the day that cheque comes in, you’ll already have a focused plan in place, which will help you to avoid spending that money frivolously. Besides, what better way to honour the memory of the person that gifted you the inheritance than by making those funds work even harder towards achieving your dreams and goals.”

In addition to making plans for receiving an inheritance, it’s also a good idea to think about giving down the line—as in your own estate planning needs.

“At the very least, ensure that you have an up-to-date will and power of attorney,” advises Nadeen. “Far too many people don’t, which then leaves loved ones vulnerable to tax liabilities—particularly when it comes to registered investments.”

To help emphasize Nadeen’s point, here are some of the costs associated with not having a will:

  • Not having any listed beneficiaries will add delays and probate fees calculated at $15 per $1,000 in estate assets over $50,000
  • You won’t have any tax strategies in place when it comes to capital gains from the sale of any investments and property, which could have a severe financial impact on your estate assets
  • Registered Retirement Saving Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and other registered accounts often present the biggest tax liabilities if you die without a will because all of their assets are considered fully taxable upon death (in Ontario, this means the combined federal and provincial taxes can be as much as 49.53% on registered investment income exceeding $220,000)

Did you know? If you die without a will, your estate will be distributed in accordance with Ontario’s Succession Law Reform Act and someone (in your family) would need to apply to the court to request authority to administer your estate.

As an education member, creating and updating your will is easier than you may think.

“It’s all thanks to a wonderful thing called Edvantage,” states Nadeen. “Loaded with special offers exclusively for education members, Edvantage also provides a discount on an online will-creation tool called Willful. As it happens, my husband and I recently used the platform and found it quite easy to use.”

Besides having an updated will in place, Nadeen offers a crucial tip to those with investments.

“As part of your estate planning process, be sure to review your investment portfolio with your advisor so that it’s as tax-efficiently set up as possible,” notes Nadeen. “Little things such as adding a successor to your TFSA can ensure certain tax-saving strategies are in place to help your beneficiaries keep as much money in their pockets as possible.”

As for how Joe and Sue ended up divvying up their inheritance pie.

“The hot tub seemed to be fairly high on the priority list,” laughs Nadeen. “Although, Joe did eventually agree to curb his annual travel spending goals after our discussions, as he realized they were probably unrealistic from a financial standpoint. That’s not to say those goals are totally off the table. It just means they may have to change the frequency (of those trips) to every other year, when he and Sue can plan to have a little more saved up.”

That’s where investments can help to bolster those savings—which also factors in Sue’s goals.

“Naturally, any earnings Joe and Sue draw from all depend on market fluctuations,” says Nadeen in closing. “For that reason, we came up with a conservative number to aim for in order to maximize their chances for success over the long-term when it comes to achieving their hopes and dreams. And ultimately that’s what it’s all about. Giving them the freedom to not only dream, but make those dreams a reality.”

Whether you’re expecting an inheritance or simply want to save up to achieve your own dreams and goals, count on Educators Financial Group every step of the way.

Since 1975, we’ve been helping education members to make their financial dreams a reality. From pay grids to pension plans, our knowledge of your pay structure during your working years and in retirement means we can offer you educator-specific strategies to help you plan and prepare for every stage of life.

Let’s start working on your plan, right now.

Plus be sure to check out more articles on the Value of Advice when it comes to:

Realizing your financial goals
Paying down debt and building up savings
Buying a home early in your career
The sudden passing of a spouse

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