Take stock!
With the end of the year fast approaching, your priority right now is probably to do your holiday shopping. Be aware, though, that for your financial plan, the end of December and the first two months of the following year are also important times.
It must be said that with the pandemic, the lockdown and the restrictions on outings, your financial situation may have been very different this year compared to 2019.
We therefore offer you some food for thought regarding your financial plan and some points that you could discuss with your advisor at a future meeting.
Your ally: the RRSP
In the financial world, the first two months of the year are often referred to as RRSP season. This is because, during the first sixty days of the new year, you can make a contribution to your RRSP that could apply to the previous year.
Even if you had a little more or a little less income than expected this year, take the time to speak to your advisor to find out if it’s worth contributing to your RRSP for the year 2020 and also to determine the amount that will give you the most advantageous tax deduction.
- If your income is relatively stable and you’re well established in your practice, ask your advisor to set up monthly contributions to your RRSP in the form of pre-authorized payments withdrawn from your bank account. These payments will help your savings grow and can be included in your budget without creating a major constraint.
- If you want to take advantage of the very low interest rates we have today to buy your first home this spring, you can use the Home Buyers’ Plan (HBP) for your down payment. Note, however, that your RRSP contribution must have been made at least 90 days before the planned withdrawal from your account. So plan your contribution accordingly.
For the unexpected: the TFSA
If the pandemic has taught us only one financial lesson, it’s the importance of having a little money set aside for the unexpected. In case of a complete loss of income as some have experienced, having some savings will give you some peace of mind and an opportunity to reorganize.
The TFSA is a good tool for building a safety net. It can also allow you to save money for taxes or, in the longer term, for future projects or even retirement. For the year 2021, your contribution room is $6,000. Know that your unused contribution room accumulates, which means that if you did not contribute in 2020, you could put $12,000 into your TFSA in 2021.
Based on the goals you have set, discuss the investment choices you can make with your advisor and invest: because the TFSA is a tax-free savings account, it will enable you to build your savings faster.
Don’t forget the taxman
The beginning of the year is also the time to start thinking about the taxes you’ll have to pay. If you received government financial support such as CERB or CESB payments, you’ll have to pay tax on the money you received. If you haven’t already done so, start putting some money aside for this. Your advisor, together with your accountant, can help you estimate the amount you’ll have to pay. The same goes if you are in your first years of practice or if your income varied this year. By determining in advance the amounts you’ll have to pay, you’ll avoid a nasty surprise and it will be easier for you to set aside the necessary funds.
If you’re incorporated, the start of the year is also a good time to review and optimize your tax situation. Corporate taxation rules change regularly, according to federal and provincial legislation and budgets. It’s important to review the latest changes with your advisor to ensure that you are fully aware of the rules in force and to maximize your income and your tax deductions.
Don’t neglect insurance
Lastly, make sure you’re well protected. Review your disability insurance, especially if you’re just starting out and your income has increased considerably.
Being well protected also means having your legal documents in order. Meet with a notary to make a will and a protection mandate. You can also seek advice or ask questions of one of our fdp notaries.
Once your various legal and insurance protections are in place, you won’t have to think about it for a few years. You can also rest assured that, whatever happens, your wishes will be respected.
Our financial intelligence at your service
In the early years of your career there seems to be a lot of things to think about and a lot of steps to take, both personally and professionally. Let me reassure you: have a good talk with your advisor and you’ll see that most of your concerns will be resolved. Contact him now to set up a meeting at the start of the year and take advantage of his skills and experience to optimize your situation.
Happy Holidays!
Marie-Hélène Gagnon, B. Com., Fin. Pl.
Wealth Management Advisor
