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Navigating the Financial Road Ahead
By Kurt Rosentreter, CPA, CA, CFP
So much has changed during the pandemic that will affect how we plan for the future.
Work from home and online ordering are here to stay. Valuations of businesses that rely on crowds for sales (e.g. restaurants in malls) may never fully rebound. We will never look at nursing homes the same way. Charities suffered while we bought bikes and skis. The government took on massive new debt while the stock market fell and then recovered. Interest rates are at 100 year lows while real estate is at record highs. Job uncertainty could never be higher for both young professionals and their parents equally. The gap between haves and have nots widened.
You, Your Finances and the Road Ahead
The sheer scope of the pandemic has redefined everyone’s “worst case scenario”. No one was prepared for this magnitude of impact.
Knowing this, we will now plan to be ready for the next pandemic. The goal for everyone should be to build a moat around your finances that can survive a two-year pandemic as the new worst case scenario. Looking at all everything that happened in 2020, along with some trends that were already in play, below is a partial list of thinking points to consider as you revisit all of your financial strategies in this new world.
Plan for a Greater Level of Independence in Your Life
Some of the greatest challenges we saw during the pandemic were in areas that various levels of governments controlled: public school systems, hospitals and healthcare and nursing homes. Governments have a lot of people to deal with, not enough money and disagree on process. Ask yourself, what can you do to insulate yourself from needing these institutions in the future? If you have the financial where-with-all to put your own financial safety net in place, the time has come to explore this for the future. Rely on no one but yourself.
Defense Before Offense
- Keep a $100,000 unused line of credit in place for emergencies until you die.
- If you cannot easily pay the mortgage with one spouse losing their job then your mortgage is too big.
- Keep three months of cash flow on hand for emergencies.
- Save more in general. Very few people can retire on RRSPs alone. Bad signs are living paycheque to paycheque, not paying off monthly credit cards and going years without adding to your savings.
- No one needs to be 100% in the stock market with their savings. Have targets and a plan.
- Do you work in a stable industry that will be around and want you as an employee when you are age 55?
- Almost zero interest rates means you get to pay down almost pure capital with each payment on your mortgage. You can live a long time in a pandemic if you have no debt on your home. Pay it faster!
- Do not work in the same business or industry as your spouse.
- If a pandemic didn’t convince you to get your Will and Powers of Attorney prepared then I don’t know what will.
- Everyone hates insurance. But for working Canadians with kids and debt you need good life and disability insurance – and more than your weak employer provided coverage offers.
- Stay in the workforce in some capacity perhaps until age 70. Besides being mentally healthy to do so, not having to rely on investments for your food money during a stock market decline will let you sleep better at night.
Be A Planner and Think Offense Too
- Write down your goals, quantify them, set deadlines and see if the pandemic has messed up your financial math towards your goals. Adjust accordingly (savings levels, debt paydown pace, assumptions) and re-assess every three years.
- If you are going to have to support your parents in their old age, then plan for it now.
- A food pantry and huge freezer in your home seems so 1960 but if it works for you…
- Understand every investment product in your RRSP and replace anything overly risky or expensive. Get rid of all products that don’t beat the S&P500 over 5 years. And if your goal is to “buy low, sell high” with your investments, did you buy securities in March 2020 when the market was down -25% or more? Why not?
- Know your financial limits on supporting kids. At least charge them rent if they live with you in their late 20s.
- Is your rental real estate love affair over? Your Airbnb renters disappeared quickly, your international students left town for a year and your service industry tenants couldn’t pay the rent. Only government stimulus saved a massive real estate drop in 2020. Were you over-exposed? Re-think your real estate goals long term – for many of us that will mean staying in our main home longer and tying up less money in investment properties that carry demand and supply risks we no longer want to suffer through.
Conclusion
If you go back to the status quo and your old ways in 2022 then you were not paying attention. The pandemic was your wake-up call that you need a financial plan with costed out goals, transparent costs and well thought out strategies and products.
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Kurt Rosentreter, CPA, CA, CFP, is a Portfolio Manager with Manulife Securities and an instructor of personal finance topics for more than 15 years in CPA associations across Canada. He has published seven books on money matters with two Canadian best sellers and is a regular go-to expert on money topics in the nation’s newspapers and social media.
Retirement Planning Tips to Keep in Mind for 2022
As 2021 is coming to a close, there’s no better time than now to start planning about what you can do to set yourself up for financial success in the new year. Here are three quick tips to help you jump start on a financially healthy 2022.
1. It's not too late!
It is possible to start getting serious about planning for retirement later in life. In fact, if you play your cards right, you can build a significant nest-egg in as little as ten years or less.
2. Don't solely rely on the net worth statement to show an accurate snapshot of your financial affairs
You should be aware of the dangers that exist with a net worth focus. The typical net worth statement can be a misleading measure of wealth that leads to major problems. Delve into a much better strategy – The Cash Cow Strategy – that focuses on the cash flow implications of everything you acquire from now on rather than where they go on a net worth statement.
3. It is possible to retire well without investing in the stock market
The stock market crash of 2008 has proven one thing: traditional retirement planning advice is way too risky. Trusting the stock market is like gambling with your family’s future. But how does one plan for retirement without the possibility of losing up to 50 per cent of your investment value within a matter of months? The simple truth is that it is possible to retire well using guaranteed, safe fixed-income products like GICs that can never decline in value combined with government defined benefit pension plans including CPP and OAS.
Additional resources: 2021 Post COVID-19 Financial Planning for CPAs (free on-demand), How emotions can impact our financial decisions, Busting 7 common money myths, and Millennials, Gen X, and Boomers: How your generation can save for retirement
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This CPA is passionate about education and enabling practitioners with technical competencies
Named one of Practice Ignition’s Top 50 Women in Accounting, Bridget Noonan, CPA, CA, helps small to mid-size firms meet regulatory compliance requirements including annual monitoring, cyclical monitoring, engagement quality control reviews and practice review action plans.
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Bridget is an assurance partner at Clearline CPA and co-founder of Clearline Consulting and she has consulted with over 150 small firms in Western Canada assisting in areas of accounting, assurance, practice management, internal training, and succession planning.
Together with Tom Gillespie, CPA, CA, Bridget empowers CPA firms and practitioners with technical competencies, professional development, regulatory compliance, and practice management matters.
Bridget continues to be actively involved in the profession as a consultant for CPABC, a member of various CPA Canada taskforces and committees and a facilitator of professional development courses.
See what past attendees say about their seminar experience with Bridget:
“Perhaps one of the best deliveries (of assurance courses) I have seen. Real world, common sense approach to the topic is much appreciated...”
“Very good presenter! The best part is her willingness to share her experience in her practice to the group. This really adds value to the seminar.”
Hear from Bridget at the upcoming live webinar, Quality Management – Overview of CSQM 1 and 2 for Providers of Assurance Services (New Standards), where she will review the requirements of the newly issued Canadian Standard for Quality Management (CSQM1 and CSQM2) and related amendments to Canadian Auditing Standards (CAS 220) and its impact on the quality control processes for assurance practitioners.
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