It’s never easy dealing with a financial slump – especially if it’s an unexpected one driven by the COVID-19 pandemic. But with every setback, there’s often an opportunity to bounce back and make better plans for the future.
For many Canadians, the New Year can feel like a fresh start and an ideal time to reboot their goals. According to a recent Sun Life survey,1 43% of Canadians have set goals for 2021. What’s more, more than half of these Canadians have set financial goals.
If you’re thinking of sorting out your financial goals this year, remember to go at your own pace. See it as a marathon, not a race and remember that great goals can take time to accomplish. With that in mind, here are a few short- and long-term goals that could be just within your reach.
3 short-term financial goals to try in 2021
1. Start saving more money – as much or as little as your budget allows
Is your New Year’s resolution to save more and spend less? You can start by using a budget calculator to find out where your money goes. Use that calculator to see what’s making you fall short, break even or come out ahead.
With a clear understanding of your monthly spending habits, you can figure out where you can cut back. You might see that your electricity bill is creeping up, and you could look into ways to rein it in. You may even find that you’ve been saving more money by not going out as much due to the pandemic.
You can start small, by putting away $5, $10 or $15 every week or month. It doesn’t have to be a lot and you can adjust the amount to suit your budget.
Once you’ve formed the habit of saving regularly, you might be wondering how best to handle the money you’ve set aside every month. Depending on your financial priorities, you may consider aiming for one of the following financial goals.
2. Use a TFSA to save for a milestone
Got a milestone coming up this year, like a wedding, a new baby or a new home? Growing your money in a tax-free savings account (TFSA) is ideal for short-term goals like these.
How do TFSAs work? Here’s the gist: A TFSA can hold a variety of investments, including GICs, mutual funds, segregated funds, stocks, bonds, etc. You put after-tax money in your TFSA, and any investments you hold inside your account grow tax-free.
Plus, you’re free to take your money out at any time, for any reason. So, you could use your TFSA money to meet any of your financial goals, whether it’s:
- planning for a big expense,
- putting money aside to help finance a parental leave,
- paying off credit card debt,
- paying down your mortgage, or
- building up an additional source of retirement income.
You can even use your TFSA funds to cover any additional costs related to COVID-19.
How much can you contribute to your TFSA? Keep an eye out for the yearly contribution limit, which is $6,000 for 2021.
But what if you’ve never opened a TFSA before? Then you can contribute up to $75,500 today. That’s provided you were at least 18 years of age in 2009 (when TFSAs were first introduced). And, you can re-contribute any withdrawals in the following year.
- 5 things you may not know about TFSAs
- How to avoid these 4 common TFSA mistakes
- 6 really useful things you can do with your TFSA
3. Build an emergency fund
No matter how hard you try to save, life has a way of throwing unexpected financial demands your way. While you can’t usually predict a financial emergency, you can prepare for one.
An ideal contingency plan lets you:
- save and grow your money during good times and
- have easy access to it when hard times come along.
For such cases, you may consider putting some of your spare cash in a high-interest savings account. You can’t hold investments in them, but they do pay slightly more interest than an ordinary savings account. And, you can withdraw funds right away, whenever you need it.
You can also use your TFSA as an emergency fund. But keep in mind that there may be restrictions on the investments you hold in a TFSA. This means it may take a few days to withdraw your money from a TFSA.
3 long-term financial goals to try in 2021
1. Save up for retirement
Did you have to dip in to your savings to cover COVID-19-related expenses last year? Now’s the time to get your savings back on track.
Making the most of your registered retirement savings plan (RRSP) is one of the best ways to secure your financial future.
How do RRSPs work? An RRSP can hold various investments, including stocks, bonds, mutual funds, segregated funds, etc. Any investments you have growing in an RRSP are tax-free until you take them out.
As an example, let’s say you wait until you’re retired (at age 65) to withdraw funds from your RRSP. In this case, you’re more likely to be in a lower tax bracket than you were when you put the money in during your working years.
Along with growing your retirement income for the future, your RRSP contributions also help you now. How? By giving you deductions that can reduce your tax bill.
You can also carry forward unused contribution room in an RRSP from previous years and your contributions will be tax-deductible next year.
Just remember that RRSPs are usually better for long-term savings, not short-term savings. Why? Because early withdrawals from your RRSP can increase your annual income and are subject to a number of tax penalties.*
- How much can you contribute to an RRSP?
- Are you saving enough in your RRSP? Try this RRSP calculator to find out.
- 6 things you may not know you can do with your RRSP
- The top 5 RRSP mistakes and how to avoid them
2. Get the right life insurance
Having an emergency fund can help see you and your family through a short-term crises. But what about the long-term challenges your family could face if you were to die? This is where life insurance plays a starring role.
No matter your age or current financial situation, you likely have people who rely on you financially. Perhaps you have a mortgage with your partner to pay off, debts and loans that others have co-signed for or kids to raise. These financial obligations don’t die with you. Instead, they’re passed along to someone else.
With the right life insurance policy, your family or other beneficiaries can use the money from the death benefit* to cover any expenses or debts that they had relied on you to pay for.
(*The death benefit refers to the money that’s given to your beneficiaries when after you die.)
- Here’s a comparison of 4 main types of life insurance — term, permanent, participating and universal. The best solution for you could even be more than one type.
Life insurance was designed to help your family cope with the financial impact of your death. And while you’re still alive and healthy, it can bring you peace of mind. You’ll know that the people you love will be financially protected when you’re no longer around.
- How much life insurance do you need? Try our life insurance calculator to find out.
- How to choose the right type of life insurance
- What your family should know about your life insurance policy
3. Take steps to plan your estate
If you have life insurance, you’re already doing a lot to protect the people you cherish. But you may also want to make sure all of your assets go to the right people after your death. And, you’ll want this to happen with as little stress as possible.
Begin by listing all your assets, including:
- bank accounts,
- registered savings plans,
- real estate, etc.
Then ask yourself two things:
- who do you want to leave your assets to and
- who do you want to be your executor (the person who carries out the terms of your will after your death).
Then you’ll be ready to see a lawyer or legal professional about writing your will.
What if you die intestate or without a will? Then the law decides how your assets will be divided. This means your money and valuables might end up in the wrong hands.
How often do you have to update a will? Estate planning is a long-term goal, not a one-time task. Once you’ve written your will, you need to update it regularly. Why? Because change is a natural part of life and significant events can affect your estate. This includes events like illness, divorce, marital separation or having children.
Maybe you’ve had a falling-out with someone and don’t want to include them in your will. Or perhaps you now have grandchildren you want to add as beneficiaries. Or, your adult children tell you they don’t want to be executors of your estate. Whenever your circumstances change, think of it as a sign to spruce up your will.
Review your finances with an advisor
Feeling a little overwhelmed? Sorting through your finances can be intimidating if you’re new at it. But you don’t have to do it alone. An advisor can help.
The recent Sun Life survey2 found that a growing number of Canadians aged 18 to 34 are seeking support through an advisor.
How can you benefit from an advisor? An advisor can:
- walk you through all your options,
- check off everything you need to address,
- help you make good financial decisions and
- help you build a plan that suits all your needs and goals.
They can also answer questions or address any financial concerns you may have. For convenience and health safety, most advisors now offer to meet Clients virtually by video chat. Find an advisor today.
- Important questions to ask an advisor you’re just meeting
- 3 ways an advisor can help you during COVID-19
1,2 The survey is based on findings of an Ipsos poll conducted between November 12-15, 2020.
This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.