Recovering from a financial setback

IN LIFE, EVERYONE EXPERIENCES SETBACKS. These can run the gamut from losing a job to going through a divorce, to recovering from a serious illness. Then there are the unexpected expenses life throws your way. They happen all the time. A leaky roof, a flooded basement, a car breakdown – any one of these may cost thousands of dollars to fix, with the money required right away.

Sometimes, more than one of these difficult situations occur at once. It goes without saying that challenging circumstances can affect your finances – but just how do you recover and get back on track? Here are some tips.

1. Get professional advice

Whether a financial setback is big or small, a professional perspective can be invaluable. Your advisor can work with you to assess the impact on your short-term and long-term plans, to adjust or create goals, and to develop a plan of action that helps lead to recovery. Getting advice early can help you avoid making rash decisions – for instance, racking up a large credit card balance – that could be difficult to unwind after the fact. Your advisor should make you feel comfortable and offer constructive ideas on how to address your problem.

2. Tighten your budget

Any budget usually has some slack. Whether your income has dropped or your expenses have risen, it’s time to eliminate that slack to get your budget back in balance. Take a hard look at your discretionary (or non-essential) costs – everything from entertainment to travel. Are there free or lower-cost alternatives, such as books, magazines and videos from the library, activities in a local park or at a community centre, or a staycation instead of a vacation? You may even be able to negotiate a better deal on certain products and services (think bulk purchases and bundled discounts) without cutting back.

3. Explore big-ticket cost savings

If the financial setback looks as if it could last a long time, and cost a great deal, you may need to make significant lifestyle changes – changes that go beyond trimming. Examine the biggest line items in your budget. Can you move to a smaller home in your area, or a similar-sized home in a more affordable area? If you have two cars, can you make do with one and sell the other? Such changes are difficult to make, but they may be essential to help protect your future financial well-being.

4. Earn extra income

Can you bring any more money into your household? Perhaps you can sell something of value – art, antiques, collectibles. Or maybe you can work more hours (for example, moving from part-time to full-time) or even take a second job. Of course, if you’re caring for children or a family member and would have to make alternative arrangements so you can work more, run the numbers to ensure your after-tax income will more than pay for those costs.

5. Talk to your mortgage provider

If you have a mortgage, you may be able to reduce your monthly costs by negotiating more manageable terms with your mortgage provider. For example, you could switch from accelerated to standard payments, reducing the annual amount you have to pay towards your mortgage. If you were on an accelerated payment schedule, or if you’ve made lump-sum prepayments in the past, your provider may even be willing to give you a short-term holiday from payments. You may also want to ask about lengthening your mortgage’s amortization and adding any payments you’ve missed to your mortgage balance so you can pay those amounts gradually.

6. Talk to other creditors

Rather than letting bills slide, call your creditors, explain your situation and ask if it’s possible to lower your interest rate, reduce your payments or defer your payments for a period of time. This can give you breathing room to get through the worst of a setback and help to protect your credit rating – which will suffer if you simply stop making required payments. Another option to explore with your advisor is debt consolidation, which brings all your debts into one lower-interest-rate account with a single payment due every month.

7. Borrow sensibly

If you can’t find ways to spend less or earn more, and you’ve run through your emergency fund, take the time to research the lowest-cost sources of borrowed money in order to secure some extra funds. For homeowners, this is usually a secured line of credit. In some cases, a personal loan may be a good choice because it requires repayment according to a set schedule – so you know when you’ll be free of that particular debt. Your advisor can help you identify the best solution for your personal situation.

Look beyond the immediate problem

Recovering from a financial setback is a journey. It may take many months or even years to return to a place where you’re as comfortable financially as you used to be. But, in many cases, it can be done. What it takes is determination, patience and good planning.

As your financial situation starts to improve, try to stick to a streamlined budget so you can put extra money towards your debts. Gradually, start building a substantial emergency fund so you have resources available the next time you run into a financial setback.

Once you are in a stronger position, with more of a surplus, look at other ways to help protect yourself from future shocks to your finances, such as health and dental, critical illness and/or disability insurance.

Set some money aside for the future once you are able to take a longer-term view. That may include saving in a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP) and/or non-registered account.

When you have enough distance from the event, look back and consider if you might have done anything differently to soften the effects of the setback. Your goal should be to learn from the experience, without assigning blame to either yourself or your partner. What happened, happened. The key is to make sure you’re in a stronger financial position in case another difficult situation occurs.

How to hand down your cottage while keeping the peace and saving money

By Penny Caldwell

Nothing is sure but death and taxes. Ben Franklin said it centuries ago, but it’s never been more relevant than now for the aging cohort of cottagers preparing to transfer ownership to the next generation. “If you’ve got time and some creativity, and you are dealing with advisors who have done it before, then it’s straightforward,” says Jamie Golombek, the managing director, tax and estate planning with CIBC Financial Planning and Advice. “The problem is if you haven’t done any planning, and someone dies, then there’s a tax bill to pay right away. Where’s the money going to come from?”

Where indeed? But finding the money for taxes is only one part of a sound succession strategy. With planning, you can also ensure that the cottage stays in the family and that it goes to the children who really want it. You can lessen the capital gains tax hit or even postpone it for generations. You can reduce or avoid costs such as the estate administration tax (also known as probate fees). And you can protect the cottage from financial or marital claims, a concern that’s top of mind for many parents. Finally, and perhaps most important, you can put a cottage sharing agreement in place that provides a framework for solving multi-owner conflicts.

Where to start? The good news is that there’s at least one neat, novel trust technique for keeping the cottage in the family. But hold that thought. To understand the benefit of planning, you first need to understand all the ugly issues around cottage succession, because the best option may be a combination of strategies. Ready? Here we go.

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Managing your money

6 tips for reducing debt

Debt is one of the biggest financial buzzwords to hit the headlines. But don’t fret: There are ways to cut it down. Consider these six options.

Are you struggling to pay your bills each month? You’re not alone. According to a recent report from Statistics Canada, Canadians owe $1.78 for every dollar they make. That includes credit-card debt, mortgages and other loans.

So, what can we do to dig our way out of this debt hole? Here are six small steps you can take towards ultimately becoming debt-free:

1. Consolidate your debt

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How to avoid these 4 common TFSA mistakes

A tax-free savings account (TFSA) is a great tool for hitting your savings goals. Make the most of yours by sidestepping these easy-to-make errors.

It’s been 10 years since the federal government introduced it, and the tax-free savings account (TFSA) is as popular as ever. According to Statistics Canada, 13.5 million Canadians had opened one of these flexible investment tools by the end of 2016.

It’s easy to see why. As the name says, any investment you hold inside your TFSA grows tax-free. Plus, you can withdraw from these accounts whenever you want. You can use your TFSA to help pay for a new homeyour children’s education or even retirement. And you’re not taxed when you take the money out, either.

How much can you contribute to your TFSA?

For 2019, you can contribute up to $6,000 to your TFSA, and you can carry forward unused contribution room from previous years.

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Do you need mortgage insurance?

Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you?

Canadians owe $2.17 trillion in household debt, according to the Bank of Canada. More than 70% of that is residential mortgage debt. To protect these mortgages, homeowners have a couple of options. You can buy mortgage insurance from a financial institution. Or you can get mortgage protection with life insurance and critical illness insurance from an insurance company.

  • Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.
  • Mortgage protection, on the other hand, uses a combination of insurance policies to protect you:
    • Term life insurance covers you for a set period, such as 10, 15, 20 or 30 years. It can be suitable if you’re looking for low-cost insurance. While the premium may be low for the first term, the cost will increase when it’s time to renew. Buying coverage for a long enough term to match your mortgage term – 30 years, for example – will keep the cost steady. (Read more: Is term life insurance right for you?)
    • Permanent life insurance can be more expensive at first, but it covers you for life. The amount you pay can either be guaranteed to stay the same or vary over time, depending on the type of plan you choose. (Read more: Is permanent life insurance right for you?)
    • Critical illness insurance gives you a one-time payment if you are diagnosed with a serious illness that’s covered under the policy (and you meet the other policy conditions). You can use the money for medical expenses, to pay off your mortgage or for anything else you wish – it’s up to you. (Find out how a serious illness could affect your finances. Try this Critical illness insurance calculator.

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Ontario cutting government-run, out-of-country travel insurance program

The Canadian press Shawn Jeffords

TORONTO — Ontario is pushing ahead with a plan to eliminate basic out-of-country travel insurance, saying the program is very costly and does not provide value to taxpayers.

The insurance currently covers out-of-country inpatient services to a maximum of $400 per day for a higher level of care, and up to $50 per day for emergency outpatient services and doctor services.

Health Minister Christine Elliot announced the decision to scrap the program on Wednesday, following a six-day public consultation.

The province spends $2.8 million to administer approximately $9 million in claim payments through the program every year.

“We know that is not good value for Ontarians,” Elliott said. “People should be making their own plans to obtain coverage, which can be obtained quite inexpensively and provide them with full compensation if they sustain any health problems while out of the country.”

The change is expected to come into effect Oct. 1.

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When’s the best time to start collecting CPP and OAS?

You can start collecting your CPP and OAS benefits in your 60s, but is it better to hold off for another few years? Here’s what to keep in mind before you tap into these pensions.

Thinking about how you’ll support yourself after you retire? The balance in your savings account or a registered retirement savings plan (RRSP) might come to mind. That’s a great start. But when you’re planning for your retirement, don’t forget the money you could get from the government. That’s the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) and Old Age Security (OAS). These are public pensions designed for Canadians who are no longer working.

Mark Coutts is a Sun Life Financial advisor and Certified Financial Planner™ with Coutts Financial Services Inc. “People often forget that CPP and OAS will form part of their nest egg or they underestimate their value,” he says. “Once they realize that these benefits alone could potentially pay up to $20,000 per year, per person, they begin to feel a lot more enthusiastic about their financial future.”

So, how do you make sure you’re getting the most you can out of CPP and OAS? It all comes down to timing. As you approach your retirement, you’ll need to sort out whether you want to start collecting money sooner or later. “Many Canadians like to take advantage of these pensions as soon as they can,” Coutts says. “But here’s the deal: The government will pay you more if you wait.”

Before diving into the dollar amounts and advantages of delaying your CPP and OAS, let’s look at how they work.

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After death of spouse, CPP survivor’s benefit can be a shock

by Susan Noakes

Sometime in the painful days after a husband or wife’s death, the funeral home or a family member will encourage the bereaved spouse to fill out the paperwork to get the Canada Pension Plan survivor’s benefit.

It’s a moment few widows or widowers have prepared for, and it may come as a surprise how little survivors are expected to live on.

A senior couple who both get CPP benefits and Old Age Security (OAS) can live comfortably — they’ll have about $3,500 a month in income if they’re both getting the maximum benefits.

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Money mindfulness: How to reduce financial stress and reach your goals

Mindful spending can mean the difference between money stress and long-term financial joy. Here’s how it works.

Even the best budgeter can run into a bit of financial stress from time to time. But constant stress can take a significant toll on your health.

Could practising mindfulness really help you reduce that stress and build a better financial plan?

The inspiring – and perhaps surprising – answer is yes.

How mindfulness can help you with your finances

“With mindfulness, the areas of the brain associated with mind-wandering, stress and anxiety become less active,” Meg Salter says. The Toronto-based mindfulness coach is the author of Mind Your Life: How Mindfulness Can Build Resilience and Reveal Your Extraordinary. “And areas of the brain associated with cognitive control and positive mood are enhanced,” she adds.

That means that by soothing anxiety and reducing stress, practising mindfulness can help you make – and stick to – better decisions. That’s the cognitive control part. With a more positive mood, you can approach problems more confidently and calmly. And since money is one of the biggest sources of anxiety for many Canadians, mindfulness can help you feel less stressed and more in control in challenging financial situations. You may find it easier to make and follow up on good decisions about spending, saving and investing.

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Retiring unexpectedly? Here’s how your advisor can help

Instead of being years off, your retirement is suddenly happening right now. Asking your advisor these questions can help you manage the transition.

For most of our working lives, retirement can feel like a distant dream. But a sudden and unexpected change in the latter stages of your career – a department restructuring, a health issue, a buyout package – can mean that, ready or not, your retirement is happening right now. In a 2017 AARP survey, 47% of respondents reported retiring earlier than expected. Earlier research by the Ontario Securities Commission revealed similar results: Well over half the Canadians over age 50 surveyed said something outside their control had affected their retirement plans. Research by Sun Life Financial backs up this finding, with less than a third of retirees surveyed reporting they had left the workforce as expected:

For whatever reason, the thought of retiring before you had planned to can be dismaying.

But don’t panic: You’ve been getting ready for this your whole working life; it’s just the timeline that’s moved up a bit. What’s your first step? Gather all your relevant documents and book an appointment with your advisor. By asking a few key questions, your advisor can help you talk through the transition and develop a plan for moving forward.

Based on my retirement savings, how much will I have to live on?

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