It's Your Money  

Life insurance is a vital investment in your family's security

Importance of life insurance

In an ideal world, everyone would have ample life insurance coverage to protect their loved ones in the event of their passing. In reality however, financial constraints often make it challenging to prioritize insurance expenses over other competing needs.

When money is tight, ensuring you have adequate life insurance coverage becomes even more crucial. Here are some strategies to help you navigate this situation:

• Evaluate your needs—Before purchasing or adjusting your life insurance coverage, assess your current financial situation and your family's needs. Consider factors such as outstanding debts, mortgage payments, childcare costs, and the future lost income that you’re trying to replace. This evaluation will give you a clearer understanding of how much coverage is necessary to provide financial security for your loved ones.

• Understand your Options–Life insurance comes in various forms, including term life, whole life, and universal life policies. Term life insurance typically offers the most affordable premiums and provides coverage for a specific period, such as 10, 20, or 30 years. Whole life and universal life policies offer lifetime coverage but often come with higher premiums. You need to fully understand the differences between these options to choose the one that best suits your needs and budget.

• Shop around—Don't settle for the first life insurance policy you come across. Take the time to compare quotes from multiple insurance providers to find the most cost-effective option. Online comparison tools and insurance agents can help you explore different policies and premiums tailored to your budget.

• Adjust your coverage over time—Life insurance needs evolve as your circumstances change. While you may not be able to afford the optimal coverage now, you can adjust your policy as your financial situation improves. Start with a basic term policy that provides essential coverage now and increase it gradually as you can afford to do so.

• Avoid over-insuring—While having adequate coverage is essential, avoid purchasing more insurance than you need. Over-insuring can lead to unnecessarily high premiums, putting additional strain on your finances. Stick to the coverage amount that meets your family's needs without exceeding your budget.

• Take advantage of employer-sponsored coverage—Many employers offer group life insurance benefits as part of their employee benefits package. While these policies may not provide sufficient coverage on their own, they can serve as a valuable supplement to your existing coverage at little to no cost. Take advantage of these benefits if available.

• Maintain good health habits—Insurance premiums are often influenced by factors such as age, health, and lifestyle choices. While you may not be able to control all these factors, maintaining good health habits can help lower your premiums. Quitting smoking, maintaining a healthy weight, and staying active may qualify you for lower rates.

• Review and update regularly—Life changes such as marriage, the birth of a child or purchasing a home can significantly impact your insurance needs. Make it a habit to review your coverage annually or whenever a significant life event occurs. Updating your policy ensures that your coverage remains adequate as your circumstances evolve.

Adequate life insurance coverage is essential for protecting your loved ones' financial future, even when money is tight. By carefully evaluating your needs, exploring your options, and making informed decisions, you can secure the coverage you need within your budget.

Remember, life insurance is a vital investment in your family's security, so it's worth the effort to find a solution that works for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Online or accountant: What's best at tax time?

Best way to do your taxes

As tax season approaches, Canadians are faced with the perennial question, "should I use online tax filing software or hire a professional accountant?"

With the rise of technology, online tax filing software has become increasingly popular, offering convenience and affordability. However, there are instances where the expertise of a professional accountant is invaluable. Understanding when to use each option is crucial for maximizing tax efficiency and minimizing stress.

Online tax filing software has revolutionized the way individuals manage their taxes. These platforms provide user-friendly interfaces, guiding users through the process step by step. For many Canadians with straightforward tax situations, such as employees with T4 income and basic deductions, online software offers a quick and cost-effective solution.

Moreover, these platforms often integrate with financial institutions and government databases, streamlining the process of importing relevant information.

One of the primary advantages of online tax filing software is its affordability. Many platforms offer free versions for individuals with simple tax returns, making it accessible to a wide range of taxpayers.

Additionally, the automated calculations reduce the likelihood of errors, ensuring accurate filings. This can be particularly beneficial for individuals who prefer a DIY approach and have confidence in their ability to navigate the tax system.

However, there are limitations to online tax filing software, particularly when dealing with complex tax situations. Canadians with multiple sources of income, self-employment income, investment portfolios, or significant deductions may find the software inadequate. In such cases, the expertise of a professional accountant is indispensable.

Here are scenarios where Canadians should consider hiring professional help:

Self-employment income: Entrepreneurs, freelancers, and small business owners often have complex tax obligations, including business expenses, deductions, and self-employment taxes. A professional accountant can ensure compliance with tax laws and maximize deductions, ultimately reducing the tax burden.

Investment income: Individuals with diverse investment portfolios, including stocks, bonds, and real estate, face intricate tax implications. Capital gains, dividends, and rental income require careful consideration to optimize tax efficiency. A professional accountant can provide strategic advice to minimize taxes and maximize returns.

High net worth individuals: Affluent Canadians with substantial assets and complex financial holdings benefit from personalized tax planning services. Professional accountants can devise sophisticated strategies to mitigate tax liabilities, preserve wealth, and ensure compliance with intricate tax laws.

Life events: Significant life events such as marriage, divorce, inheritance, or the birth of a child can have profound tax implications. Professional accountants can offer guidance on navigating these transitions and leveraging tax credits and deductions available to individuals in different life stages.

Tax audits or disputes: Facing a tax audit or dispute with the Canada Revenue Agency (CRA) can be daunting. Professional accountants have experience in representing clients during audits and negotiations with tax authorities, ensuring fair treatment and favourable outcomes.

While online tax filing software offers convenience and affordability for many Canadians, there are instances where the complexity of one's financial situation necessitates the expertise of a professional accountant.

I’m all for saving money where you can but sometimes, spending on professional services can save you far more than it costs and avoid potential headaches. By taking the time to genuinely look at your own situation and understand the nuances of each option, you can make an informed decision on which path is right for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Preparing your portfolio for dropping interest rates

Ready for rates to drop?

With the high likelihood of interest rates decreasing in the foreseeable future, Canadian investors are faced with a pivotal moment in their investment journey.

While declining rates may present opportunities for certain asset classes, they also pose challenges and require careful consideration.

Here are some key investment considerations that investors should be contemplating for their portfolios as they navigate the shifting economic landscape:

Diversification across asset classes: As interest rates decline, traditional fixed-income investments such as bonds may experience lower yields. In response, investors should consider diversifying their portfolios across a range of asset classes to mitigate risk and capitalize on opportunities. This may include allocating a portion of their portfolio to equities, real estate investment trusts (REITs), commodities, and alternative investments such as infrastructure or private equity.

Reassessment of fixed-income holdings: While declining rates may lead to capital appreciation for existing bond holdings, future returns are likely to be lower as yields decrease. Investors should reassess their fixed-income allocations and consider adjusting their duration exposure and credit quality to optimize their risk-return profile. Additionally, exploring alternative fixed-income strategies may offer potential avenues for enhanced yield in a lower-interest-rate environment.

Consider dividend-paying stocks: With the prospect of lower bond yields, dividend-paying stocks may become increasingly attractive to income-oriented investors seeking alternative sources of yield. Companies with a track record of stable dividends and strong fundamentals may provide a reliable stream of income and potential for capital appreciation over the long term. However, investors should exercise caution and conduct thorough due diligence to ensure the sustainability of dividend payments and the resilience of the underlying businesses. And more importantly, don’t become “blinded” by a dividend yield without considering the overall stock’s performance.

Opportunities in growth-oriented sectors: Declining interest rates may also create opportunities in growth-oriented sectors such as technology, healthcare, and consumer discretionary. These sectors tend to benefit from lower borrowing costs and may experience increased investor interest in anticipation of future earnings growth. However, investors should remain vigilant and assess valuations carefully to avoid overpaying for growth stocks amid heightened market volatility.

Consideration of inflationary pressures: While the focus may be on declining interest rates, investors should also be mindful of potential inflationary pressures in the economy. Inflation erodes the purchasing power of fixed-income investments and can have a significant impact on investment returns over time. As such, incorporating inflation-hedging strategies such as inflation-protected securities, real assets, and commodities into their portfolios may help investors preserve their wealth and maintain purchasing power in the face of rising prices.

Long-term perspective and discipline: Amidst changing market conditions and economic uncertainty, maintaining a long-term perspective and discipline is paramount for investors. Attempting to time the market or chase short-term trends can lead to suboptimal outcomes and undermine investment objectives. Instead, focus on building a well-diversified portfolio aligned with your risk tolerance, investment goals, and time horizon, and stay the course through market ups and downs.

This article is not meant to provide specific investment advice but instead to outline some of the many possible outcomes investors should consider for their portfolios with the high probability of an upcoming shift in the interest rate environment.

As interest rates potentially begin to decline, investors that take the time to consider the impacts will be well positioned for the future.

By taking the time to consider what this shift in rates could change for different asset classes, investors can navigate the changing tides of the market with confidence and resilience.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


It's never too late to start saving for retirement

Late-stage retirement saving

For those in their 40s, traditionally called “over the hill” and who haven't yet begun saving for retirement, the thought of catching up can feel daunting. Especially in the face of record-high costs of living and other financial challenges.

However, while the task may seem formidable, it's never too late to start saving for retirement. With careful planning, discipline and a proactive approach, Canadians in their 40s can take meaningful steps to secure their financial future.

Instead of feeling that it is simply too late to get on the right track, consider taking these eight steps to getting your retirement plans started:

1. Assess your current financial situation—The first step in jumpstarting retirement planning is to take stock of your current financial situation. Gather information about your income, expenses, assets, and debts to get a clear understanding of where you stand. Evaluate your spending habits and identify areas where you can cut back to free up funds for retirement savings.

2. Set clear and achievable goals—Establishing defined and realistic goals is essential for staying motivated and focused. Determine how much you need to save for retirement based on your desired lifestyle, retirement age, and expected expenses. Break down your goals into manageable milestones and track your progress regularly to stay on target.

3. Prioritize debt repayment—High-interest debt can be a significant obstacle to saving for retirement. Prioritize debt repayment to reduce interest expenses and free up funds for retirement savings. Focus on paying off high-interest debt first, such as credit card balances and personal loans, before tackling lower-interest debt such as mortgages or student loans. You should typically make minimum payments only on every debt except the one that has the highest interest rate to clear that one off first.

4. Maximize contributions to retirement accounts—Take advantage of employer-matched retirement accounts first. Then, look at tax-advantaged accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) to maximize your savings potential. Consider contributing as much as possible to these accounts, taking into account contribution limits and eligibility criteria.

5. Embrace the power of compounding—Even if you're starting later than you would have liked, the power of compounding can still work in your favor. By investing your savings wisely and allowing them to grow over time, you can harness the exponential growth potential of compound interest to accelerate your retirement savings. Start investing early and regularly to make the most of compounding returns.

6. Seek professional financial advice—Navigating retirement savings can be complex, especially if you're starting later in life. Consider seeking guidance from a qualified financial planner who can help you develop a personalized retirement savings strategy tailored to your unique financial circumstances and goals. A professional planner can provide valuable insights, recommendations, and ongoing support to help you make informed decisions about your retirement savings.

7. Embrace a flexible approach—Flexibility is key when it comes to retirement savings, especially if you're starting later in life. Be prepared to adjust your savings goals and strategies as your financial situation evolves. Stay adaptable and open to new opportunities for increasing your savings and optimizing your retirement plan.

8. Stay motivated and consistent—Saving for retirement requires discipline and perseverance, especially when starting later in life. Stay motivated by reminding yourself of the long-term benefits of retirement savings, such as financial security, independence, and peace of mind. Celebrate small victories along the way and stay consistent with your savings efforts, even during challenging times.

While starting to save for retirement later than planned may present unique challenges, it's never too late to get started. Sure, it would have been great to start 10 years ago but waiting another 10 years to figure it out is far worse. The best day to start is today!

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More It's Your Money articles

About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories