Haslett Financial Inc.

Ownership in real estate can come in a variety of forms: home, vacation property, investment property (residential, commercial, industrial), etc.

Buying a home is typically the first major purchase an individual or family makes. In most cases, a property purchase is leveraged using a small downpayment with the majority of the cost financed through borrowing (a mortgage). In the early stage of your life/career your home will represent the majority of your assets, however, this will gradually change over time.

The decision to purchase other real estate is usually driven by emotion (vacation property) or financial benefit (investment property) or sometimes both. An investment of this nature should typically be done during the middle stage of your career as your exposure to non-home assets (ie. RRSPs) has increased so as to avoid over-exposure to real estate.

In this category we are referring to investments as stocks, bonds, mutual funds, GICs, etc.  In addition to choosing your investment or investments, you will also need to make a choice on the type of account used.  All investments have an associated level or risk and expected reward – typically there is an inverse relationship between the two.  Your choice of investment and the type of account used should be determined by considering the purpose/objective of the investment and the amount of risk/volatility you are willing to accept. There are numerous plans/accounts available for investment:

Registered Retirement Savings Plan (RRSP)
An RRSP is a legal trust registered with the Canada Revenue Agency and, as the name suggests, is primarily used to save for retirement.  RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn.  RRSPs provide investors the ability to (1) deduct contributions against their income and (2) grow their investments on a tax-sheltered basis.  An RRSP has the added benefit of allowing a tax-free withdrawal for a first time home purchase under the Home Buyers’ Plan or for educational purposes under the Lifelong Learning Plan.  In both cases, the funds must be repaid to the RRSP over a period of time.

Tax Free Savings Account (TFSA)
An account that does not charge taxes on any contributions, interest earned, dividends or capital gains, and can be withdrawn tax free. Tax-free savings accounts were introduced in Canada in 2009 with an initial annual contribution limit of $5,000 per year. In 2013, that limit was increased to $5,500 and has since been adjusted to $10,000 for the year 2015 and subsequently reduced back to $5,500 in 2016 under the new federal government.  Contributions to a TFSA are not taxdeductible and any unused room can be carried forward. This savings account is available to individuals aged 18 and older and can be used for any purpose.

Registered Education Savings Plan (RESP)
A savings plan sponsored by the Canadian government that encourages investing in a child’s future post-secondary education. Subscribers to an RESP make contributions that build up tax-free earnings – tax-free because subscribers cannot deduct payments made to the plan from their income. The government contributes a certain amount to plans for children under 18 under the Canada Education Savings Grant (CESG).

Non-Registered Investment Account
This type of account provides no tangible tax benefits so it is important to consider tax implications when investing in a non-registered investment account.  Primary consideration should still be on matching the investment to objectives and risk tolerance, however, a secondary strategy should include tax minimization where possible.  These types of accounts can be in the form of either a personal or corporate structure.

Term life insurance is a cost-effective way to protect your family in the early stage of your career. However, a permanent life insurance policy with an investment component should be considered later as it can provide a number of additional benefits – both to the person insured and their family. It has tremendous flexibility in terms of how it can be paid for, when you can access funds, and in the tax-efficient nature of the death benefit. It is a valuable and multi-functional financial planning tool.

An emergency fund is an integral part of your financial planning foundation. In the early stage of your career it is usually more sensible to provide this protection using a line of credit. Later in life, however, a level of cash should be maintained for this reason, and also to take advantage of investment opportunities as they present themselves.