From ‘Discovering She’ Magazine, September 2011

Sadly the relaxed days of summer are coming to an end and the glorious warm weather will soon begin to fade. However we can look forward to crisp, cool fall days, the rich fall colours and hopefully a bright sunny Indian Summer!

If you’re like me, you begin September with a sense of excitement and anticipation – lots of activities to look forward to and getting oneself and the family back into a more structured routine. Just as we discipline ourselves for school and work demands, our financial security and sense of financial empowerment requires planning, goal setting, and discipline to achieve the desired results.

As school and work routines become established in the coming months, this is also a good time to set up a financial framework to get yourself on track and keep you there. Here are my top three tips for you and a bonus tip for you to help your children.

Get a Financial Plan that establishes your financial goals and shows you how to reach them.
Work with your financial advisor to prepare a written plan that documents your short, medium and long term financial goals. The Plan should include actions to take that will help you achieve them, such as:

1) showing you how much needs to be paid on your mortgage on a bi-weekly or weekly basis to decrease your mortgage by eight years
2) how much needs to be saved for your four year old child in order to have sufficient education savings available for post-secondary education in 15 years time
3) how much annual retirement income you can expect to have in 20 years based on expected growth and contributions

If shortfalls exist in any of your goals your new financial plan will show you how much more needs to be saved and you can plan around this as best as you can.

Save for your future – for your children’s education, for a rainy day, and for your retirement.
In this age of low cost credit, it’s very easy to take on debt and borrow for homes, renovations, and other purchases. The potential exists, however, to take on too much debt. Despite how much better Canada is than the States in controlling our debt loads, Mark Carney, our Bank of Canada Governor, has been warning Canadians’ about their accumulating debt load. Unexpected job loss, rising interest rates that increase the cost of carrying debt burdensome, or disability or unexpected illness are risks that threaten to throw households off track. Saving for a rainy day by setting aside three to six months income in a liquid savings account has been replaced by living paycheque to paycheque and relying on ones’ line of credit.

Examples of saavy financial habits to promote better savings and stronger financial health include:
1) setting up an automatic monthly transfer of cash to a rainy day savings account
2) opening a Registered Education Savings Plan (RESP) for children while they are young and committing to making the minimum annual contribution of $2,500 per child to attract the maximum government grant of $500
3) arranging a monthly payroll contribution or automatic bank transfer to your RRSP. The aim should be to make your maximum allowable RRSP contribution each year.

These examples are not meant to discourage but rather to encourage you and show you a path! If you can’t achieve all of them right now, at a minimum get started on each one with whatever you can afford. This will put you further ahead than if you procrastinate or wait for a day when you have the available funds.

Control your personal and household debt.
Some of you reading the savings strategies noted above may feel overwhelmed because most of your income is going towards paying off debt such as mortgage, student loans, RRSP loans, and credit cards. This is a situation facing many Canadians because studies show that more than half the Canadian population lives paycheque to paycheque.

The ideal situation is to live within your means and not to get into debt in the first place. However, this is not always feasible or practical when one thinks of taking a student loan to advance ones’ career or buying a house or condo. The trick is to watch how much debt is absorbed and to control it and whittle it down over time. A guideline for paying off ones’ mortgage is twenty years. Student debt needs to be reduced and eliminated as soon as possible in ones’ career in order to then be able to accumulate savings to build wealth for the future.

Just like dieting where you have to eat less than the energy you expend, your household budget has to include more income than expenses. If there’s a mismatch, look for opportunities to increase your income and reduce expenses. It is difficult to reduce fixed expenses but you can look into reducing your cable or satelitte bill by selecting an alternate package and being conscious of the electricity you use by teach your family to unplug those unused items within your home. You can reduce your credit card bill by seeking out credit card companies that give you a reduced interest rate. You can also look for ways to reduce your discretionary spending such as eating out less frequently and finding ways to spend quality time with your children that does not involve spending a large amount of money. Check your local listings guide to see what free events are happening in your city or town.

Bonus: Teach your kids and the young people in your life about money.
The financial literacy of Canadians or lack there of is gaining attention among educators. Efforts are being taken across Canada to ensure that school age children get exposed to financial concepts and good practices at earlier ages. As parents and grandparents, one of the best things you can do is be a role model to your children about “good” spending and savings habits. Talk to kids early and often about money and what you’ve learned. Teach them the value of saving by helping them save for things they want and help them learn that they need to earn their savings as well. If you teach your children responsibility for their own financial future you will be inspiring and empowering the next generation!

Bev has been recently invited to join the Advisory Board for the Roger’s publication, Advisors Edge. Bev Moir, MHSA, FCSI, Scotia McLeod – Investment Advisor and Financial Planner – Serving Toronto and the Greater Toronto Area (GTA) since 1993. For a complimentary, no obligation, consultation, please call my direct line: 416-355-6364 or Toll Free 1-877-355-6340. Ask Bev what women need to know.

This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic subsidiaries. ™ Trademarks of The Bank of Nova Scotia.

Q. On November 1st, my employer will participate in the annual Take Our Kids to Work Day for high school students enrolled in Grade 9. It’s an opportunity to show my teenager where I work and to expose her to various career paths. How can I use the opportunity to teach my daughter about making informed career choices and to develop smart money savvy strategies early in her career? – Spenta K

A. From personal experience, I know the last thing on teenagers’ minds is saving for their retirement, however it’s smart to expose children to the realities of financial life. Teach them early that their retirement years will be much more comfortable and financially secure if they save more money. In fact, the most financially secure retirees will receive income from several sources. The choices they make early in their careers about their employers, their lifestyle, spending and saving habits, and their knowledge of government-sponsored plans all impact their retirement income. Knowing about various sources of retirement income allows individuals to start younger to accumulate more.

Employment – Working for an employer who offers a company-sponsored pension plan is an advantage because pension income forms the foundation of your retirement income. With most pensions, your employer matches your contributions. The maximum pension benefit is paid out retirement. Some of the better pension plans offer cost of living adjustments to pension income during retirement and pay a reduced pension to a surviving spouse.

Lifestyle and saving habits – Much has been written about living within your means and starting early to save for retirement. Starting a RSP early in your career maximizes the opportunity to reduce taxable income and allows savings to grow tax sheltered an RSP for longer. Anyone who doesn’t have a company-sponsored pension needs to save for retirement and an RSP may be the vehicle of choice. Accumulating non-registered savings provides another form of retirement income. Buying blue-chip, dividend-paying stocks in mutual funds or as direct share purchases provides dividend income during retirement or they can be sold to free up cash.

Government-sponsored plans – The government provides the Canada Pension Plan (CPP) for workers who contribute to the program over their careers. The pension amount depends on how much and for how long you have contributed. The pension can be taken as early as 60 years of age at a reduced rate, upon retirement at 65 years of age, or deferred to age 70 at an enhanced rate. The other government plan is Old Age Security (OAS). It is paid to Canadians and legal residents beginning at age 65 who have resided in Canada for at least 10 years since age 18. The maximum monthly amount is paid to those residents in Canada for 40 years after age 18. These government programs are not designed to replace RSP savings or company sponsored pension plans.

Bev Moir is a Senior Investment Executive and financial planner with The Moir Team at ScotiaMcLeod, Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member Canadian Investor Protection Fund (CIPF).

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.

Q. I am 18 years old going to college next year. I have been working this summer and have saved a large amount of my earnings. I want to set some aside to buy a new laptop and to have spending money for the year but my parents what me to save it all and buy a mutual fund. What can I do to make them happy and still keep some of my money for myself? My parents already have an RESP for me, do you have any tips on what would be the best thing to do with my money?

A. Your earned income for 2006 will be less than the basic personal amount so you will not have to pay income tax. However, it is important for you to file a tax return because the Canada Revenue Agency will record your earned income and notify you (via the Notice of Assessment) of the amount of Registered Retirement Savings Plan (RRSP) contribution room you have. This RRSP contribution room is cumulative and can be carried forward indefinitely, so there is no rush to contribute immediately. In fact, while long term investing is prudent, you will make better use of the RRSP contribution tax receipt by waiting to a time that your income places you in a higher tax bracket. Because you have short-term needs for this money, contributing to an RRSP doesn’t make sense right now as you would incur fees to withdraw it.

As the beneficiary of a Registered Education Savings Plan (RESP) established by your parents, your parents can contribute to the plan, but you cannot.

A good idea might be to develop a monthly budget for the coming school year to determine your spending needs. Take the money that is left over from the budget and, with your parents, examine what mutual fund would be best for you. Because you have reached the age of majority, you are able to open an unregistered investment account.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. A member of the Capital Improvement and Preservation Fund (CIPF) program, ScotiaMcLeod is a division of Scotia Capital Inc., part of the Scotiabank Group.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.

Clients whose teenagers or young adults are beginning summer jobs or starting post-graduation careers need to teach them about money and how to make wise financial decisions. As these young adults begin getting a taste for earning money, their parents want to provide guidance to get them off on the right foot and to teach them about achieving their lifetime goals. Here are some time-proven strategies:

Goals: Help children dream and to establish goals for themselves.

• Expose them to various opportunities and options that will encourage them to work towards their desired goals. This could include vacations, a special camp, a new bicycle, trips to Europe, saving for university, saving for an instrument or for special lessons, saving to make a down payment on their first house or condo, or retiring early.

• Help them to write down goals and quantify them to see how much is needed to save over a set time period.

Financial Habits: Help set up money-saving habits to assist in achieving their goals.

• Teach them the importance of saving regularly.
• Establish a weekly or monthly budget so they know how much to save and how much they can spend.
• Set up three savings accounts: a chequing account for day-to-day purchases; a savings account for short to mid-term savings such as school tuition or for a new computer, and a longer-term investment account (such as a diversified balanced mutual fund) for long term, growth-oriented savings.
• File annual income taxes to generate retirement savings contribution room that can be carried forward to a time they are working full-time at a higher tax bracket and can take advantage of the tax deduction.
• Talk to kids about credit cards, the interest charges associated with these cards if the balance is not paid off in full each month, and having the cash available to pay off balances each month.

Monitor Results: Help them monitor progress

• Encourage them to keep a ledger or record book of their monthly savings and withdrawals.
• On an annual or semi-annual basis, help them to track their net worth so they know how much they have (assets) versus how much they owe (liabilities).

I hear regularly from many adult clients who wish they had known these strategies and followed this advice earlier in their careers. If they had begun saving earlier in their lives, they could have taken advantage of compound growth of savings over a longer time period. At a time, where there are record low consumer savings rates and higher levels of consumer debt, let’s hope that the young adults in our lives can learn from our experience.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.

Q. A recent column dealt with the topic of saving for children’s education. While several education savings strategies were discussed, group scholarship trust plans were not included. What are the different options available for investing in RESPs for my 3 year-old daughter? – Michael S.

You’re clearly on the right page Michael! With kids out for the summer, now is an excellent time to consider saving for a child’s future education. One way of investing in your child’s education is through pooled group plans such as scholarship trusts, the other option is a self-directed Registered Education Savings Plan (RESP) administered through banks and other financial institutions.

Here are some of the differences between the two:

• Group pooled education savings plans:
These help parents save for their children’s post-secondary education by providing and administering RESPs and managing the RESP investments. Group plans offer professional money management, stable returns and guaranteed principal due to its fixed income investment strategy. The group plans for individuals and families invest using a fixed income investment strategy and they provide flexibility similar to RESPs available from other providers.

However, there are enrollment fees, depository charges, administration fees, annual trustee fees and investment counsel fees in additions to other associated conditions that you should consider before investing. Also, students enrolled in the group plan who do not pursue post-secondary education retain only their principal and forfeit the income on that principal to other qualified students. It is worthwhile for prospective clients to read the prospectus to understand how their plans work.

• Self-directed RESPs:
Self directed RESPs are designed to give the owner of the account (typically a parent or grandparent) full control over the type of investments that are held inside the RESP account. This allows the owner of the RESP to choose to invest in stocks, bonds, mutual funds and even money market instruments. The owner can decide when and how often contributions are made – and how or when withdrawals are made. An annual administration fee is typically charged and fees may also be levied on certain types of investments. Overall, flexibility is the key to these types of plans.

Another program to be aware of is available through KidsFutures. Parents enroll free of charge in the program and can earn money that may be added to their children’s RESPs by purchasing products or services from affiliated retail partners. Similar to other loyalty programs, points or rewards can be accumulated, this one is for the benefit of kid’s education! To find out more, go to www.kidsfutures.ca or call 1-877-656-6046.

I encourage anyone considering saving for a child’s education to review the information available about RESPs at the Ontario Securities Commission’s – Investor Education Fund website at: www.investored.ca

Saving for a children’s education is a concern and a priority for many of today’s parents. At the same time education costs are rising, it is paramount that our children be employable in the workplace and have competitive skills in an increasingly inter-connected global economy.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto.

This article is for information purposes only. It is recommended that individuals consult with their own financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.