5 Financial Milestones to Plan for in Life
Your life will have many financial twists and turns, and while it’s impossible to anticipate all of them, you can definitely prepare for some. These are five important financial milestones to plan for over the course of your life.
1) Buying a home
With the cost of housing steadily increasing nationwide, homeownership may seem like an impossible dream for many. In our own house-hunting search, we took gradual steps to get into the hot Toronto market. Looking back, I wish we’d taken some more bold chances. Happily, even the tiny condo we bought years ago has become something we can call a major asset. The cost of that bachelor condo is equal to a mid-sized house in a small town in Newfoundland. If you can do it, try to buy property any way you can without risking the financial health of your family. Have a plan and explore your safety nets. Borrowing from parents is an option many have had to resort to, but eventually they don’t usually regret the decision. A new generation of would-be homeowners are finding creative ways of breaking into the market. For example, a popular new trend is cooperative buying or “co-buying.” About a third of Canadians would consider co-buying a home, according to a recent ReMax survey. Sure, there’s a lot to consider–the prevalence of school zones, the potentiality of gentrification, commute time, etc.–but keep in mind, in a rapidly growing city like Toronto, these factors can always change.
2) Merging finances/getting married
First and foremost, when you’re considering marriage, have an open conversation with full disclosures. Do you have debt? How much? How much are your monthly payments? How will these debts be handled after marriage? When you marry, who will pay which bills? Brutally honest, full disclosures will allow you to have a greater forecast of the impact on your household budget and the amount of savings you will amass. After marriage, drawing up a budget will help, and it can be a stark reality check. In our household, we divide up the bills and have a “pick your bill” approach. Which bills were paid by which partner was dependant on how much money we were individually making at the time; there have been shifts over the years as our careers have evolved and transitioned. Finally, keeping one joint savings account can help in funnelling funds into one account for big ticket items, such as a future down payment or a yearly vacation.
3) Starting a family
Once you start a family, you’ll probably notice the huge generosity displayed by friends and family– especially grandparents–after the birth of your first child. At that point, you will have about 18 years to save up for their post-secondary tuition, which continues to skyrocket year-after-year. In the first year, many parents choose to sign up for an RESP, or Registered Education Savings Plan. It’s a tax-deferred savings plan that helps a parent save for a child’s post-secondary education, and you can make every year count with small contributions to the plan. You will be shocked at how quickly the funds can add up, but it’s important to start early and save often. RESPs got a big boost in 1998 with the introduction of the Canada Education Savings Grant (CESG). Should you qualify, this grant will match your plan contributions by 20%, to a lifetime maximum of $7,200. That’s a lot of extra money for education, so be sure to take advantage of it.
If your company offers a comprehensive pension plan, sign up for it as soon as it’s feasible. The first full-time job I had after a few years of freelancing offered a pension plan, and with my lofty ambitions, I didn’t believe I was going to stay there for more than a year, so I didn’t sign up for it. I ended up staying 12 years at that company, holding various positions that allowed me to move up within the ranks. I thought every year would be my last, until I was offered the next great opportunity. All the while, I could have been amassing a healthy pension. Don’t wait; do it right away! Get on that pension plan and buy into those company stocks if the option is there, and contribute at least a few thousand to an RRSP if you can afford to have your bank deduct a small amount from each pay cheque. You won’t regret it!
5) Estate Planning
First and foremost, if you’re over the age of 18, you should get started on drafting a will. It’s important to have a plan in place in the unlikely event of your death. Without a will in place, you will be considered “intestate,” and your family will be left to absorb the costs of estate distribution. You should also consider taking out a life insurance policy. Your bank may offer insurance when you access your line of credit, or it may be offered with your mortgage insurance or your employer. This provides your loved ones with another type of financial safety net in a worst-case scenario. You also want to put some thought into who you’ll select as an estate administrator; it should be someone you trust completely, and who is willing and able to carry out your wishes in terms of financial disbursement. Finally, if you’re a bit lost on where to start, there are some great online resources out there to help you out like Heritage’s free will kit you can download. It has pretty much everything you’ll need to draft a will the right way.
Taking on life’s many financial milestones may seem daunting at first, but careful planning can simplify things a great deal, and will help you live life on your terms. Hopefully, the advice I’ve presented above will help you get there.