Being financially well means taking an active role in your finances, no matter how old you are or how much money you have. What matters is where you are in your financial life, and what your goals are; immediate, short-term, and long-term. While no two people are the same, there are four general financial life stages with specific priorities.
Stage 1: The Foundation Years
It is an exciting time as you are likely recently graduated, entering the workforce, or newly married. Even though you may be earning just enough to meet your monthly expenses, this is the time to start building good money habits and learning how money and financial products work. Learning to manage your cash flow, budgeting, and building savings towards an emergency fund or other purchases (vacations, a car, down payment on your first home) are essential steps in improving your financial capability and health.
YOUR ACTION PLAN:
- Starting to pay back student loans if you have any
- Establishing credit through a car loan or low balance credit cards
- Starting your retirement fund that you may later use to purchase your new home or to further your education
- Saving for your first home
Stage 2: The Accumulation Years
In this stage, your income has improved enough that you can now cover more than the basic expenses you worried about in your foundation years. What you focus on is dependent on your family situation because that impacts the type and amount of expenses and your saving needs. If you are single, you will want to start setting aside a portion of your earnings in tax-favoured accumulation vehicles such as RRSPs and TFSAs and expand your investment horizon. Now is the time to understand your risk tolerance to be comfortable in your investments.
It is more difficult to save if you have started a family as you have additional expenses, but it remains a priority. While your income will likely improve over time, your need to save for the future also increases.
YOUR ACTION PLAN:
- Pay down any debt you accumulated when you first started out
- Pay off student loans if you have any
- If applicable, continue paying your mortgage to build equity
- Continue contributions to your RRSP
- If applicable, start an RESP for your children to prepare for post-secondary school expenses
- Review all your insurance needs to ensure you have sufficient coverage
Stage 3: The Preservation Years
Your income is likely at its highest level, and daily child-related expenses are becoming a thing of the past. You may have accomplished many of your early financial goals. Your cash flow has improved, and you have paid off most of your debt. You may even have paid off your mortgage or be close to doing so, and be empty nesters if you have had children.
In this stage, it’s all about preparing for retirement and taking advantage of your financial freedom to accomplish a few of the special things you have always wanted. Maybe you want to purchase a vacation home, help your children or grandchildren get established financially, or even retire early.
YOUR ACTION PLAN:
- Top up your RRSP if necessary
- Continuing saving for retirement during the remaining time before you retire
- Diversify your portfolio to minimize risk and maximize return
- Understand your pension options
- Plan for retirement – not only your income but how you will use your income
Stage 4: The Golden Years
You’ve done it! You are now retired and ready to start putting your retirement plans into action. Ideally, you are debt-free, your finances are in order, and you have some discretionary funds to enjoy your favourite activities. You may be partially retired or be following a lifelong or newly found passion.
YOUR ACTION PLAN:
- Retaining and maximizing savings
- Estate planning for passing on your assets to your heirs
While managing each financial stage may seem daunting, you don’t have to go it alone. At Rapport, we want to make sure that our members have the financial capability to understand how to make the right decisions at every stage. Doing that means that your financial health is not compromised, no matter your financial life stage. We do that by being your financial advocate, ready to assist you whenever you are ready. We are always just a call, click, or visit away.