Thursday, April 25, 2013 |
Forget about getting rich quick. But you can achieve financial security by building it up step by step, according to financial planner Frank Wiginton. He's the author of How to Eat an Elephant: Achieving Financial Success One Bite at a Time, and he shared some tips on money matters in a recent interview on The Homestretch.
"One of the big things people aren't paying attention to is the bigger picture of their overall finances," Wiginton told host Doug Dirks. "I think they need to be thinking not just about next day, they need to be thinking about the bigger picture."
Much of Wiginton's book is devoted to taxes. Though year to year, tax credits and benefits don't add up to a lot, long-term planning can result in substantial savings. "People can be saving tens of thousands of dollars by making sure that they're putting the proper money in the proper place," he said. He recommends putting money in a tax-free savings account (TFSA) and an RRSP (Registered Retirement Savings Plan).
Wiginton calls TFSAs "the most powerful tax-planning tool the government has given us" and "a great way to transition savings to the next generation" for most people. He said they're particularly effective for those with an income of less than $60,000, and recommends that anyone in this situation put money into a TFSA, and not into RRSPs. "You end up with a lot lower taxes in retirement, so you don't need as much money saved," he explained.
Wiginton acknowledged that contributing to an RRSP is a way of ensuring you get a tax refund, which is "instant gratification." But if you're carrying credit card debt, which has high interest rates, you're better off paying off as much of that as you can instead, he pointed out.
When asked if paying off a mortgage as quickly as possible is generally the best strategy, Wiginton said no, because mortgage rates are relatively low. It makes sense to put what money you can into paying off credit card debt or car loans, which have higher interest rates. "Let's get rid of that [debt] first, and let's not worry about a two or three percent mortgage."
When it comes to overall financial planning, "the big issue is that people really don't know where to start," Wiginton said. His advice? "Don't try to do it all in one day...you're just going to stress yourself out, and basically deter yourself from getting it done." He suggests taking it "one bite at a time, four hours, one day each month...it really becomes a lot easier to do."
Wiginton also had advice for people doing estate planning with the aim of ensuring that as much money as possible goes to their children, not the government, when they die. He suggested putting as much cash as possible into a TFSA. "You can just name your child as a beneficiary and that transfers directly to them. Name beneficiaries on your life insurance policies so the money's not going into your estate. And by all means, shrink those RSPs as quickly [and] as much as possible." Lastly, you can give gifts of money to your children while you're still alive "if you know you're not going to need it," he said. "That's where the power of doing proper financial planning can help."