Year-end tips for your financial plan

Wrap the year up with a look at your plan

As one year starts to draw to a close and a new one dawns, there’s always much to do. Holidays and celebrations aside, it’s also a critical time to review your financial plan, look at key deadlines, and think about the future. What can you do to make the new year more fiscally sound? And how can you lighten your tax burden from the year about to end? We have some useful tips.

Making financial wellness your top resolution

The end of one year and the start of another is always a busy time. Family get-togethers, shopping for gifts, the annual company party. It’s also a time to reflect on the past and plan for the future. That includes your financial goals and plans, many of which come with deadlines at or near December 31.

Have you had a good year? Did you stick to your plan? What goals might you want to focus on next? Year-end is a great time to put your mind to your financial well-being. Just as you are thinking of holiday revelry and new resolutions, you should also make a review of your financial objectives and obligations a year-end tradition.

Many of us have money on our minds during the holiday season, from gift giving to charitable donations to what you need to do in the year ahead. After the rush of the holidays, many people pledge to spend less, pay off debt, and save more.

But it can be very easy to stray from your financial resolutions. We’re here to help you stay on course with strategies for growing and protecting your wealth for the year ahead and beyond.

Growing your wealth

It’s an extremely rare thing to rapidly acquire wealth – get-rich-quick schemes don’t normally end well and your chances of winning the lottery are very slim. Building and growing true and lasting wealth takes planning, time, and discipline. Here are three simple strategies for growing your wealth.

1. Break it down

The number one reason why so many plans fail is that they’re too vague, with most people vowing simply to spend less and save more.

You have a much better chance of success if go one step further and put real and specific numbers behind your commitment. For example, resolve to put 10% of your monthly income or a specific dollar amount into your registered retirement savings plan (RRSP) or tax-free savings account (TFSA) (if you have enough contribution room).

You then know each month how much to set aside in your budget. And the effect of compounding interest plus any gains in the market – depending on how you invest the contribution – can have a dramatic effect on the overall amount you will have saved over the years.

2. Put your tax refund to work

Are you expecting a tax refund? You’ll take a big step toward hitting your new year savings goal if you invest it straight away – something all too few Canadians actually do. This way, you won’t just see your refund as a cash windfall and feel the temptation to spend it.

Your RRSP is a great place to start.

Here’s why: let’s say you receive a $2,000 refund in the spring from the previous year’s taxes. If you invest it in your RRSP, you can deduct this amount from your income in the coming tax year. That would reduce your tax owing for the next tax year, potentially increasing the size of your refund, which you’d then put back into your RRSP, reducing your tax payable in the year after that, again increasing the size of your refund, and so on.

3. Boost your mortgage payments

Greater Vancouver is home to some of the priciest real estate in the country, with a typical price for a detached home well in excess of $1 million.

That’s obviously a challenge for first-time buyers. However, the vast majority of this price appreciation has occurred in the last 10 to 15 years. If you bought a detached home a decade ago when the average price hovered around $800,000, your mortgage payments may be quite reasonable by today’s standards.

If you’re in that situation, consider increasing your monthly payments. For example, BlueShore’s fixed-rate closed mortgage lets you increase your payment by 15%, once each calendar year. The extra money will come off your mortgage principal, shortening your amortization and potentially saving you thousands.

Protecting your wealth

Nothing can throw you off your savings goals faster than a big, unexpected expense. Here are three tips for protecting what you have and building a strong base for growth the year ahead.

1. Check your credit

Your credit report is a cheap, effective tool for heading off costly surprises. Unexpected changes in your credit history can also indicate if you’ve been a victim of identity theft.

Also, are you a parent who has co-signed a loan, or perhaps set up a cellphone plan in your name while your child makes the payments? If they miss or make late payments, your credit report will be affected, so make sure to look at it every now and then.

Your credit history has two parts. The first is your credit report, which contains information on your loan and credit card accounts (including those you’ve co-signed), such as when they were opened, balances, and whether there is a history of missed or late payments.

The second is your credit score, which boils the information in your credit report down to a number ranging from 300 to 900. It also shows you how your score compares to the rest of the Canadian population. You’ll want to keep your credit in good standing and get your score up to the higher end of that scale.

You can have your credit report mailed to you for free (or provided online for a fee) from TransUnion or Equifax Canada, the two main providers. There are also ways to get your credit score for free from other companies – just be sure to do your research before providing any personal information to ensure it’s not sold to a third party or captured by fraudsters.

2. Review your insurance needs

The dawn of a new year is also a great time to review your personal insurance coverage, particularly in the areas of critical illness and disability. These policies give you a valuable income stream (either ongoing, in the case of disability insurance, or one-time, in the case of critical illness) if injury or illness keeps you off the job.

3. Match your investments to your circumstances

Is your portfolio appropriate for your current financial situation? If you’re younger with a longer time horizon, you can afford to take on more risk in your portfolio for a potentially higher return.

However, if you’re approaching or in retirement and reliant on your investment income, you have a shorter timespan to make up for any losses. Talk to your advisor about any potentially volatile investments and if you should be looking at more stable options. Now is an excellent time to check in with your advisor to ensure you have the right balance to meet your needs.

Year-end checklist

Is December 31 looming on the horizon? Here's a list of to-dos to think about and tackle before the end of the year. These could help save you money and minimize your taxes:

• TFSA contributions – If you haven't already done so, consider setting up a tax-free savings account. You can contribute up to $7,000 in 2024 with the total accumulation limit allowed currently at $95,500. If you don’t have a TFSA and you turned 18 before 2009, then you could open one and contribute a maximum of $102,500.
• RRSP contributions – Contributions to registered retirement savings plans can be made until the end of February. However, if you turned 71 this year, December 31 is the last day to make a contribution to your own RRSP.
• FHSA contributions – Consider starting an FHSA if you haven't already. Functioning much like an RRSP, the FHSA is a helpful tax-sheltered financial tool available to eligible Canadians 19 to 71 years of age looking to save towards a first home purchase. You can contribute $8,000 per calendar year, up to a lifetime $40,000 maximum. 
• RRIF extra payment – If you need to request an extra RRIF payment above the minimum withdrawal, you must submit it to the account custodian before December 31.
• Voluntary RRIF – If you are 70 or younger and want to arrange RRIF income, you must set up the RRIF and receive the payment by December 31.
• RESP contributions – Be sure to contribute to your RESP by the December 31 deadline to maximize your share of government grants. A $2,500 annual deposit by you brings with it a (maximum) $500 grant per child; this is available every year, up to a grant cap of $7,200 per child. Also, if you’re a BC resident, be sure to start the RESP early; you can apply for the $1,200 BC Training and Education Savings Plan grant any time between your child’s sixth birthday and the day before they turn nine.
• Tax loss selling – If you sold some investments at a profit in the past year, consider selling any poor performers to help offset your capital gains. You must receive the sale proceeds by December 31.
• Charitable donations – This is the season to give generously, and you can realize tax benefits if you donate currently owned securities or cash directly to charities by December 31.
• Pre-pay fees – Pay professional fees, tuition, political donations and investment-related charges that you wish to use as a tax deduction by December 31.

Let your advisor help keep you on track

When it comes to making sure you meet your financial objectives and timeframes, the best place to start with your BlueShore Financial advisor.

They’ll work with you to create a comprehensive financial plan to help you meet your goals, whether it’s saving more in the short run or building toward longer-term milestones, like retirement or saving for a child’s education.

And by setting an appointment more than once a year – say in January and in the summer – you and your advisor can regularly review your plan and make sure you’re staying on track with your goals – and making new ones!