Way, way back at the beginning of the Common Era, Epictetus offered some advice that remains relevant today:
“It's not what happens to you, but how you react to it that matters.”
In 2020, a lot has changed – and Canadians are reacting. We’re adapting to pandemic conditions, hoping for economic improvement, positioning for financial market uncertainty, and coping with our individual stressors on top of everything else.
One way to address stress is to take positive action by conducting a year-end review of your financial plan. That may not sound like it will reduce your stress but taking control of something you can control helps a lot more than you initially think. You’ll be able to start the new year with confidence, knowing exactly what you need to do to protect your financial health today and tomorrow.
These four steps can help you get started:
1. Assess your work and income situation
Coronavirus has rapidly changed the business landscape. Some companies are at a standstill while others are busier than ever.
Think about your industry and your company. Will coronavirus have a short- or longer-term impact? How could your income be affected? If it could be affected, are there steps you need take to reduce income risk? What are they? By truly evaluating these elements, we’re better able to position ourselves for what may lie ahead in our future.
2. Review your spending and expenses
The end of the year is a good time to review spending and expenses, and make sure your spending plan is ready for the new year. If your income will be significantly different in the new year, your spending plan may change.
Typically, a spending plan keeps spending and saving aligned with income. If your income will be lower next year, you may need to reduce the amount you spend and save. If your income increases, you may be able to increase the amount you spend and save.
If you cannot find a way to align income and spending, taking a distribution from a retirement plan may be an option. Though the consequences of doing so should be fully understood beforehand.
3. Evaluate your financial plans
It’s important to review your current financial plan to see whether and how progress toward your financial goals will be affected by changes in spending and saving. Sometimes, looking at current spending and saving decisions through the lens of your financial goals can help you decide how to modify your plans.
For instance, when income falls, some people choose to save less, knowing it will push their financial goals further into the future. Others decide to spend less so they stay on track to reach their goals. Often, people decide on a combination of reduced spending and reduced saving.
The choices you make depend on your circumstances. A family with students in university may not be able to significantly reduce spending, although more abundant financial aid may become available to them.
If you decide to pull funds that were allocated for retirement, consider how it will affect your retirement goals. Do you have enough time before retirement to rebuild your savings? Will you need to retire later? Will you need to spend less in retirement? The answers to these questions may help you decide whether to take a distribution and, if you do take one, how much to withdraw.
4. Conduct year-end tax planning
Sound tax planning can help you reduce the amount you owe in taxes. This year, there may be additional considerations given the number of government relief programs made available to individuals and businesses as the pandemic wore on.
I have included a link to Tax and Estate planning specialist Jamie Golombek’s annual year-end tax tips post (2020 year end tax tips: COVID-19 edition) which highlights several tax considerations, including those that pertain to COVID relief programs. Having a discussion with your tax or financial professional is a worthwhile exercise, especially if you have utilized any of the relief programs made available to you.
2020 has been a year for the record books, often in unwelcome ways. The way you react to what has happened may significantly affect your financial health and well-being over the short-term and your ability to reach your financial goals over the long-term.
If you would like help understanding how 2020 has impacted your plans along with guidance on how to move froward for 2021, please don’t hesitate to reach out.
- Brandt Butt, Investment Advisor, CIM®
Brandt Butt is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Brandt Butt who is an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.