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Financial planning tips

April 11, 2013

How many financial services accounts do you need?

I thought our finances were simple until I realized we had 27 accounts. How many bank, RRSP, TFSA, pension plan and credit card accounts are too many?

Do you know how many bank, investment, credit, and insurance accounts you have? If you add them up, I bet you’ll be in for a shock. I just made a list of the accounts my wife and I have and it’s mind-boggling — we have 27 accounts!

Maybe your financial life is even more complicated than ours. We don’t keep our finances separate. We cashed in the kids’ registered education savings plans (RESPs) years ago. We have just one car to insure. My wife doesn’t have a company pension. She hasn’t contributed to an RRSP herself, because as a stay-at-home mom, she hasn’t had employment income in decades.

On the other hand, 27 accounts seemed excessive for our two-person household, so we decided it was time to review everything we have:

  • Nine bank accounts. Two are chequing accounts. Two are high-interest savings accounts (one for deferred property taxes on our new house, one to pay for our new driveway) and two are regular-interest savings accounts (one for gift-buying, one for car repairs and other surprises). And we have three foreign currency accounts to make travelling easier and cheaper.

We’ve decided to eliminate three of those accounts: We’ve finished the driveway and are caught up on property taxes, so that eliminates the need for two accounts. And because I don’t have biweekly employment income, we can eliminate one chequing account. Closing accounts is a bit of a hassle, but it’s nice to declutter!

  • Five registered retirement savings plans (RRSPs). Three are locked-in RRSPs from the defined-contribution (DC) pension plans provided by former employers. One of these is federally registered and can’t be combined with the other two, which are provincially registered. I could combine those two, but I’m keeping them separate to give me the flexibility to start drawing retirement income from each one at different times. There’s also a spousal RRSP in my wife’s name that I contributed to, and a non-spousal one in my name.

While five RRSPs seem like a lot, I think we’re in good shape here, with no advantage in consolidating.

  • Three defined-benefit (DB) pension plans. This is the kind that is guaranteed to pay for life. But don’t get too envious — each is a small pension and I can’t consolidate them.
  • One non-registered investment account. Like a regular savings account, interest we earn is taxable. But we also hold mutual funds and stocks in this account, so capital gains and dividends are taxable, too.

We can’t close this account - it’s where most of our current income is coming from!

  • Two tax-free savings accounts (TFSAs).One for each of us and we’re not closing either of these. I love these because anything we earn inside (interest, dividends or capital gains) is tax-free and we can withdraw money tax-free, too.
  • One home-equity line of credit. We have this for emergency use only. It entitles us to borrow money using our home as collateral, which provides us with a lower interest rate than we could obtain with an unsecured loan.

Since we haven’t borrowed anything against this line of credit, we aren’t paying interest and plan to keep it.

  • Two credit cards. We have a main credit card and a backup card with a different bank. We plan to keep our second card in case our main bank’s computer system goes down or they temporarily freeze our account if our pattern of spending changes, as happened twice in the past year. (Note to bank: It’s not odd to travel to Quebec on a long weekend!)
  • Four insurance policies. We have home insurance and car insurance, health insurance and life insurance.

We plan to keep all our insurance policies. The health insurance we have is for extended health benefits, which is great as it covers medical costs not covered by our provincial health care plan.

Obviously, my wife and I lead very complicated financial lives. But we have most of our business at one institution, which makes it easier to move money around or to get a deal based on the size of our overall relationship.

We could probably save more money if we consolidated a few more accounts, but having special-purpose accounts motivates my wife and me. For example, we love seeing British pounds sitting in a savings account, because that tells us we can afford to visit our daughter in Scotland. And if we’re falling behind on saving for any of those goals, having a dedicated account lets us see it easily.

Advisors are professionals, so I don’t worry about ours being able to make sense of our financial situation. But I do worry about how a living will trustee or an executor would eventually be able to make sense of 27 accounts, in case something happens to my wife or me.

So, after reviewing our current situation, we’ve closed three accounts. We’re down to 24 and maybe we can close more when our needs change.

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