How to become financially healthy?

Often, financial health is confused with financial stability – which is determined by income exceeding expenses, and absence of debts. However, just as health is more than the absence of diseases, financial health too is a much broader concept.

First of all, it includes a financial plan.

A financial plan is not needed for depriving yourself from all good things in life and notoriously saving, but for getting more out of the same amount of money, as well for being able to protect yourself and your family in the case of the unforeseen.

In order to draw up this plan, for a start, let’s deal with the main events that occur in the life of an average family.

Controlled events– events that are created and controlled,based on the wishes and capabilities of the family.

1. Creating anchildren educational fund

Most parents are willing to help their children with education. Many new immigrants cite the concern for their children’s future as one of their main reasons for moving to Canada. The amount for a quality education can range from $8,000 to $25,000 per year. These are not small sums. Fortunately, they can be accumulated if early enough, you begin to put away towards the children’s educational fund – the Canadian Registered Education Savings Plan registered by the government. Families investing in the RESP receive an additional 20% toward their contribution. The annual maximum deposit amount is $2,500, while the government can then add $7,200 per child over the entire period.

2. Buying property

This also applies to the section about controlled events, since only you and your family will decide when and in what financial situation to purchase a house or condominium. After choosing a property with which the real estate agent will actively assist you, the question of taking a mortgage loan from the bank and insuring this loan arises. A Mortgage Specialist can help you to compare interest rates and mortgage terms. As for the insurance of the house itself, that is, the protection of mortgage payments and your financial situation, as the owner of the house, in case of an unforeseen – we wrote about this in the April 2018 issue of our magazine, in the article “My home is my fortress”.

3. Creating a retirement plan

This is a plan which you can create in addition to government pensions. learn more about this in the article “How to provide yourself with a decent old age”, in this issue of our magazine.

4. Debt reduction

Almost all Canadians have debt of all sorts – credit cards, lines of credit, loans, mortgages, deferred payments for a certain period (for example, “buy now pay later”), and so on. A lot depends on how you and your family handle debts. Some systematically pay down the principal; while others only pay the interest. In any case, discipline and strict control are necessary here, as missed or late payments will have a negative impact on your credit history and your ability to, for example, get a mortgage.

As for credit card payments, loans, and loan repayments, most banks in Canada offer a loan refinancing and consolidation service (Debt Consolidation) – combining all debts into one, as a rule, at a lower interest rate.

5. Creating an emergency fund

Emergency cash are funds that can be used in unforeseen circumstances (on a rainy day). In Canada, a large part of one’s budget goes to fixed payments: monthly rent or mortgage & property tax; car insurance; utility bills, etc. Therefore, it is important that your emergency fund is equal to your 3-6-month income and available at any time (not tied in to any investments).

This will be a protective mechanism allowing you to pay the necessary expenses in case of job loss, business problems or other unforeseen situations.

6. Personal savings

Short-term savings and investments are another controlled part of your financial plan. To do this most effectively, assign goals by timeframe and priority. Then, evaluate your budget, analyze your income and expenses, and calculate how much money you can save per month, so that you can achieve your goals by the planned date. Consider various ways to reach your goals: taking on a second job, optimizing expenses, or taking more risks for your investments to get higher returns (consult a financial specialist).

Long-term savings and investments are the next step in family welfare, when it becomes possible to invest spare money in stock market, lending money for interest, or acquire things that value grows over time (real estate, fine art, coins, gold, etc.).

Uncontrolled events

All the above listed controlled events depend on income. If there is no income, then all plans fall through.

For such unforeseen cases there are protective measures:

Life Insurance:
Death is an event that can destroy all plans and hopes of a family, which is why insurance policies are necessary:

• to protect your family and children from financial turmoil;
• to pay off existing debts (mortgages, loans, and other debts) and not put on new ones, for example, relating to funerals;
• to support your family financially for a certain period (accommodation, meals);
• life insurance money is not counted as taxable income and your family won’t need to pay any taxes on it.

Life insurance is the key to building a financial plan and is the foundation for everything else.

Health Insurance:
The purpose of this type of insurance is financial support for a person and his family in situations where Life Insurance is powerless. For example, in case of diagnosis with a serious disease (Critical Illness Insurance) or in the case of disability (Disability Insurance).

In the case of full or temporary disability (and the ability to earn income as a result of it), various government and/or corporate insurance plans are available.

Therefore, before purchasing your individual insurance plan, you need to find out whether you’re covered by your company’s insurance policy (information on this can be found in the Benefits section of your employment contract)

Having individual disability insurance plan can be important for:

• contract or part-time workers;
• business owners or self-employed;
• professionals employed in certain industries who want to have guaranteed coverage in case of illness and loss of income (for example, truck drivers and construction workers).

Do you need health insurance? Ask yourself a simple question: “How long can you afford not to make any income?(considering that you need to pay bills, buy groceries, and so on) – A week, a month, a year?” What if you get injured or sick? This is the same thing as not working, only money is also needed for medicine.

You should have a very clear idea about if you’re not able to work what amount you will receive your employer, or a personal insurance policy how much, starting when and for how long?

Will and General Power of Attorney

General Power of Attorney allows your authorized person to perform some legal actions if you are alive but not able to make these decisions yourself. A Will expresses your wishes regarding division of your estate, and also gives your trustee the authority to perform certain legal actions in the event of your death. You will find much more about this in the article “Do you need a will? About the Inheritance Law in Canada” in this issue of our journal.

Since we have no control over events such as death and sickness, both life and health insurance are the foundation of a financial plan. We hope that the information in this article will be useful to you. Be educated and financially healthy!