Young Money

How the Rich Get Richer

2010-04-11T19:44:00.000-07:00

"Capital is that part of wealth which is devoted to obtaining further wealth." - Alfred Marshall.

We have all heard the saying, the rich get richer. It is commonly understood that it is easier to make money when you have money. Capital assets make investment growth possible and
accumulating wealth takes time and discipline. You need to start investing as young as possible.
In a previous blog I wrote about the magic of compound interest. To illustrate how wealth can build I will use the example of Bill Gates.
Current stats indicate that Bill Gates net worth is currently around 58 billion dollars. A balanced investment approach should be able to provide a rate of return of at least 6% as a ten-year average. If Bill Gates had his entire net worth invested in a balanced fund which produced a 6% rate of return, he would grow his investment by 3.48 billion dollars a year. By the way the .48 is 480 million, just in case you are keeping track.
So what does this mean to a 20 year old with a student loan, rental payments, and credit card debt? It means you need to setup a pre-authorized investment plan as early as possible, especially while interest rates remain low.
6% of $100 is only 6 bucks, but eventually over time the magic of compounding will build that nest egg. Pretty soon 6% becomes $60 on $1,000, $600 on $10,000, $6,000 on $100,000 and even $60,000 on $1,000,000. Wouldn't it be nice to have $60,000 of income each year without even spending your capital savings? Start young and you can.

Cheers,

Brett Elmgren, - Financial Broker
Cherry Financial Services, Saskatoon
350-3rd Avenue South, Saskatoon S7K 4X3
(306) 653-2313 - Work
(306) 341-2738 - Cell
belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the financial advisors association of Canada.

Things to Consider When Planning Your Retirement Savings.

2010-03-28T17:32:00.000-07:00

"The challenge of retirement is how to spend time without spending money." ~Author Unknown

How much money should you be putting aside for your retirement?

It depends...

How is that for a definitive answer?

selecting the right number to put aside for retirement at a young age can be tricky. The good news is that if you start young, you will have a lot of opportunity to make adjustments. Things to consider are the following;

- Your age

- Your estimated retirement age

- Your current savings

- Your current and future income

- Your employment pension plan (if applicable)

- Your desired standard of living in retirement

- Your investment risk tolerance

A qualified advisor can help make sense of these factors. The key to retirement savings success if to start young, be disciplined, and get good advice.

A fun illustration tool which can provide you with some insight in regards to how much you can expect to have in retirement can be found on Fidelity's website at;

http://www.fidelity.ca/cs/Satellite/en/public/education_planning/calculators/snapshot

Simply follow along to see how much money your existing savings plan will work out to be down the road. If you have questions, please feel free to call me and we can determine the right number for you.

- Cheers

Brett Elmgren, - Financial Broker
Cherry Financial Services, Saskatoon
350-3rd Avenue South, Saskatoon S7K 4X3
(306) 653-2313 - Work
(306) 341-2738 - Cell
belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the financial advisors association of Canada.

The Cost of Child Education

2010-03-21T18:50:00.000-07:00

"Children are the world's most valuable resource and its best hope for the future."

-JFK

Are you recently married and considering having children in the near future?

If so, a discussion with your spouse regarding your future children's education costs would be time well spent.

It would be good to discuss whether or not you will give consideration to partly or wholly funding your children's tuition. Tuition is a growing expense which can hit a family's budget hard when the time for higher education comes.

So how much does it cost to put a child through 4-years of university?

Based on information received from Human Resource and Skill Development Canada, four-years of tuition at a Canadian University will cost a child born in 2010 about $85,000. This also does not incorporate cost of residence or rent if your child is attending school away from home.

With tuition costs rising on average of 5.69% (stats canada), you can expect to foot a pretty major bill to send your tots through college.

Now comes the good news. To encourage parents to save for their children's education, they will supply you with a 20% grant on every $2,500 of annual contributions into a "registered education savings plan." If you maximize your RESP contributions you could stand to gain $7,200 of free grant money/per child from the Government of Canada.

So what is the best strategy to save for your child's education?

Start young and if possible get help. Many grandparents want to leave a legacy to their grandchildren by assisting in their future education savings. Don't wait to have this conversation with your parents. Ask them today if they would be interested in helping fund an RESP. Once this conversation has taken place, speak to a financial advisor about the best plan options for you. An advisor will help determine a monthly contribution schedule and a strategy to ensure you maximize your grants. An ideal plan would be to deposit as much as you can in year 1 to maximize your compound interest. Following your initial deposit, stagger your payments to maximize your grants over time.

If you would like to discuss RESP's and how they work, please contact me at the information listed below.

Cheers.

RRSP vs TFSA

2010-03-08T18:03:00.000-08:00

One of the most common questions facing Canadian investors is the following;

Should I invest my money in an RRSP or a TFSA?

Unfortunately the answer isn't so simple. It entirely depends on your situation.

General practice supports the following advice.

If your annual income is higher than $41,000/year, you would benefit from the tax deduction associated with an RRSP investment. If you earn under $41,000/year, you fall within the lowest taxable income bracket. This means that the tax deduction received from investing in an RRSP will have its lowest possible impact. In this case you get better bang for your buck by investing in a TFSA.

But what if you have an employee pension plan at your work?

Employer sponsored pension plans are valuable, but can drastically eat away at your available RRSP contribution room. If you belong to an employer sponsored pension plan, I would suggest supplementing your RSP pension contributions with a TFSA, even if your income exceeds $41,000. This will allow you to have an additional Tax-Free nest egg to draw upon in retirement.

A nice strategy which I have encouraged young investors to embrace is to utilize the TFSA in the early years of your career. As you age, typically your annual income will increase. Over time we can look at moving your Tax-Free wealth into your RRSP when your tax brackets are at their highest. This will allow you to have tax-free growth in your early years, while benefiting from tax deductions when they have the greatest impact.

Anyway to avoid paying the taxman is alright with me.

Because each situation is unique it is best to contact a qualified advisor to discuss the best options for you.

Cheers.

Pay Yourself First

2010-02-23T19:14:00.000-08:00

How many times have you told yourself, "If I have money left over at the end of the month I will put it towards my savings?"

How many times does it actually happen?

One of the simplest and most effective strategies to building wealth is the concept of paying yourself first. Each month you have bills, possibly a mortgage, and unexpected expenses. By the time you have exhausted your monthly income to satisfy these expenses you have little left over. If anything is left, we most oftenly reward ourselves by spending it.

Spending all of your income is much like the Fuddruckers cheese dispenser. Great in the short-term, but painful in the long-run.

So how do you pay yourself first? To begin, it takes dedication and a change in mentality. You need to start viewing your investment savings as a bill just as important as your mortgage. Every month on the month it must be paid, and paid on time. Start with something small which you know you can afford. I would recommend 5% of your monthly income. Slowly this amount should build along with your income. Once you have chosen the amount, talk to your financial advisor about setting up a monthly pre-authorized payment schedule for the first of each month. It will take time to adjust, but pretty soon your contributions will be more like the organic food aisle at the supermarket. Painful in the short-term but healthy in the long-run.

The pay yourself first strategy is easiest to adopt at a young age. If we could all go back in time and take 10% off from our very first paycheque, we would be well on our way to wealth and far from the McDonalds drive-thru...

If you would like to talk to an advisor about setting up a monthly contribution schedule or if you would like to review your financial diet, please contact me at the information listed below.

- Cheers

Protect your Income with Disability Insurance

2010-02-16T15:08:00.000-08:00

Here is a simple question with a not so simple answer.
What is your largest financial asset? Most Canadians say their home, some say their vehicle, others their savings.

Although these answers are understandable, they are false. Your single greatest asset is your ability to earn income. Simply put, if you can't work you cannot afford a home, a vehicle, or save for retirement. Throughout your life your income will determine what secondary assets you can afford. Yet most Canadians remain hesitant when it comes to insuring their income.

Great West Life Assurance recently released some shocking statistics regarding disabilities in the workforce. The average 25 year old Canadian has a 56% chance of experiencing a disability causing them to be away from work for a period of longer than 90 days before their 65th birthday. Of those who experience a disability lasting longer than 3 months, the average length of disability is 2.8 years. Now ask yourself, what would happen to your financial plan if you couldn't work for 2.8 years?

Most large companies have been proactive and made long-term disability benefits a mandatory part of their benefits package. If you are not lucky enough to belong to one of these plans you should give serious consideration to enrolling. The younger you are the cheaper they get.

For further information contact a financial advisor or call me at the number listed below.

Brett Elmgren, - Financial Broker
Cherry Financial Services, Saskatoon
350-3rd Avenue South, Saskatoon S7K 4X3
(306) 653-2313 - Work
(306) 341-2738 - Cell
belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the financial advisors association of Canada.

Don't Delay Your TFSA

2010-02-09T06:25:00.000-08:00

"The budget is balanced, taxes have been cut. And Canadians will now have a powerful new incentive to save money, tax-free: The Tax Free Savings Account." - Jim Flaherty (Finance Minister of Canada.)

Last week we looked at the power of compound interest. The same theme applies when deciding on your TFSA contributions. In their simplest form, a Tax Free Savings Account is a vehicle in which any Canadian over the age of 18 can invest up to five thousand dollars/year with all investment growth withdrawn completely tax free upon redemption.

Unlike an RRSP which provides you with a tax deduction in the year of contribution and is taxed upon redemption, TFSA's allow you to pull your money out without paying any tax. In doing so, you also will not receive a tax deduction for your contribution.

The TFSA annual contribution schedule works on the calendar year. This means that as of January 1, 2010 you are eligible to contribute up to five thousand dollars for 2010.

The key to building TFSA wealth is to invest in the right fund and to make your contribution as early in the year as possible. Most contributors put things off until the end of the year. This can prove very costly over time.

To give you an illustration, if you take a 25 year old who was able to contribute $5,000/year into a TFSA and gained 6% interest over 40 years, that investor would end up with over $46,000 dollars more upon withdrawal had they contributed on Jan 1st every year as opposed to dec 31st.

It's simple. By investing at the start of the year you gain 364 more days of compound interest on your investment than if you wait to the end of the year. The early bird in this situation can buy a lot more worms.

Cheers.

For more information on the benefits of TFSA's read, "The Ultimate TFSA Guide: Strategies for Building a Tax-Free Fortune." by Gordon Pape. (2010).

Brett Elmgren, - Financial Broker

Cherry Financial Services, Saskatoon

350 -3rd Avenue South, Saskatoon, S7K 4X3

(306) 653-2313 - Work

(306) 341-2738 - Cell

belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the Financial Advisors Association of Canada.

The Power of Compound Interest

2010-01-31T15:17:00.000-08:00

"The Most Powerful Force in the Universe is Compound Interest." - Albert Einstein

If you have taken the time to read any book regarding personal finances you should be familiar with the term, "compound interest". Compounding is the same as building a snowman. You start with something small, such as a snowball, and the bigger it gets the faster it grows.

The key to building wealth through compound interest is to start as young as possible. Take for example a 25 year old who has decided to invest $250/month into an RRSP. Based on a 5% rate of return on investment, by the time our 25 year old reaches 65, her contributions have grown to $380,519.29. Had she started at age 40 instead of 25, her RRSP would only be worth $150,340.36. After deducting $45,000 of missed contributions, we can calculate that by starting at age 25 instead of 40, our client would have earned $185,178.93 more for retirement.

That's a nice looking snowman.

Recently I met with a client in her late 20's who was trying to quit smoking. We estimated that this client was spending about $400/month on cigarettes. We took a look at how compounding could build wealth if she quit smoking and put $400/month towards an investment in a Tax Free Savings Account. Based on a 5% rate of return we calculated that by simply quitting smoking she would earn over $600,000 by age 65. Not a bad reward for kicking the habit.

Start young, contribute often and watch your wealth build.

To discuss these or any other financial options please contact me anytime at the information listed below.

Cheers,

Brett Elmgren, - Financial Broker

Cherry Financial Services, Saskatoon

350 -3rd Avenue South, Saskatoon, S7K 4X3

(306) 653-2313 - Work

(306) 341-2738 - Cell

belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the Financial Advisors Association of Canada.

Welcome to a world of financial clarity

2010-01-23T19:35:00.000-08:00

"The safe way to double your money is to fold it over once and put it in your pocket." ~Frank Hubbard

If you are like most Canadians you are intimidated by financial planning. I don't blame you. With most of us just trying to keep our heads above water in a rapidly changing world there is very little time left over for financial planning. Add on the lack of education and training and we have been left to fend for ourselves.

As a recently licensed financial broker I empathize with most Canadians who feel overwhelmed, and frankly, uninterested in the topic of financial planning. With terms such as, RRSP's, RRIF's, TFSA's, MER's, and MTAR just to name a few, how could anybody get excited about money?

I have started this blog for two reasons. To provide straight-forward simple advice to help put you on the path towards financial clarity, and to reassure you that your personal net worth will never be measured in dollars and cents. To put it best, "The real measure of your wealth is how much you'd be worth if you lost all your money." ~Author Unknown

So follow me if you will as I will provide weekly financial tips every Monday and we can work together towards achieving financial clarity.

Cheers,

Brett Elmgren, - Financial Broker

Cherry Financial Services, Saskatoon

350 -3rd Avenue South, Saskatoon, S7K 4X3

(306)-341-2738

belmgren@cherryinsurance.net

Brett Elmgren is a member of Advocis, the Financial Advisors Association of Canada.