A Lifetime Plan For Managing Your Money

As your life changes, so do your money needs.  The best way for you to save money, reduce your taxes, and get credit will depend on whether you’re just out of school, have extra income to invest or are planning for your children’s education.

Here’s a money plan you can use every step of the way.

First job/trainee level

  • Open a savings account for emergency funds.  Build it up so that you have a balance equal to two months’ take-home pay, enough to carry you through a short-term crisis.
  • Familiarize yourself with basic tax principles and take a stab at filing your own return using tax software.
  • Buy renter’s insurance to protect your possessions from theft and fire loss.  Unless you have dependents, the life insurance you get through your employer is probably adequate.  If you’re not covered by health insurance at work buy your own policy (e.g. Blue Cross)
  • Build a credit history.  Apply for a major credit card.  If turned down, try for a department store account or gas card and reapply in a year.
  • Learn some basics about investments by taking an adult education course or reading up on it yourself (books, magazines, blogs).

Early years on the job (2-5 years)

  • Investigate no-load, low fee common stock mutual funds (e.g. TD e-series funds).  Regularly invest money you won’t need to use for at least five to ten years.
  • Find out if your employer offers flexible accounts that allow you to pay medical and dental bills with pre-tax dollars.
  • If you have children you may need additional life insurance.  Term insurance is usually the best buy.
  • If you’re married, make sure you and your spouse can collect all benefits to which you’re entitled and that you aren’t paying for double coverage where you can’t collect twice.
  • Protect your credit rating.  Even one missed payment can make it hard to get an essential loan later on.
  • Start putting money into an RRSP to combine savings with tax breaks.  Contribute even if you can only spare a minimum amount.
  • Establish a relationship with a banker who can help later on if you need a personal loan or a mortgage.

Middle-level position

  • If you have children start a registered education savings plan for them.
  • See if your bank offers personal or priority services for customers who maintain a certain minimum balance.
  • Increase RRSP contributions.
  • Review your insurance policies to make sure your coverage has kept up with any increase in your assets.
  • Write a will to make sure your assets will go where you want.
  • Now that you’re a desirable credit card customer, compare cards and switch to one that offers you the best deal on credit lines, fees, and perks.  (You are paying the entire balance monthly, right?)

Senior position

  • Make sure you’re taking advantage of TFSAs and tax deferred or exempt investments.
  • Rethink your risk tolerance.
  • Consult an accountant who can help devise a long-range tax plan for you.
  • Is the disability insurance your employer provides adequate?  If not, buy more coverage.  Increase the liability portions of car and homeowner policies.
  • If you’re buying a vacation home or starting a business look into a home equity loan.
  • Check with Service Canada every three years to make sure its record of your earnings is correct.
  • Make sure your will reflects any changes in your family and assets.

Obviously this list is not set in stone.  Some of the above points may be done earlier in your life, some later.  A lifetime plan helps to keep you on track.


4 Responses to A Lifetime Plan For Managing Your Money

  1. Marianne says:

    I love lists like this so I can make sure that I’m not overlooking anything. I did pretty well on the checklist- we have everything covered but are only just beginning to invest so I’d give myself a ‘D’ on the couple of steps having to do with that. We’re sitting at the ‘senior level position’ steps. I’ve really been wanting to do some tax planning with our financial advisor but I don’t think I’ve been able to effectively communicate that with her. Am I asking the wrong person? Is this something that I should see an accountant for?

  2. Boomer says:

    @Marianne: Congrats on what you have accomplished so far.
    Financial advisors often don’t have tax expertise. You can consult an accountant, or perhaps a fee-only financial planner for advice.

  3. Great step-by-step guide guys. You should team up with David Chilton on his next book!

  4. Roxy says:

    This reminds me. I don’t have any insurance yet! I think I fall on the mid level position already and I really have to get an insurance now. Thanks for these tips!

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