12 Mar Hear from the Experts – Financial Planner Jarnael Payer with help on a down payment savings plan
As promised every month I will be showcasing a professional that is dedicated to helping you achieve your financial or real estate goals. This month I sat down with Jarnael Payer, Financial Specialist at Freedom 55 and asked him a few questions about his job, what he does to help his clients save money and how he can help you set up a down payment savings plan.
1. What do you do to help people save money?
I help my clients save money by analyzing their short, medium, and long term goals, and coming up with a savings strategy that meets these goals. Often we will start with a budget analysis, which will help determine how much can be saved comfortably each month. Then I will take some time aligning my recommendations with each of their goals.
2. What are some keys to success for young adults to save?
For young adults, one of the biggest key to saving is to commit to saving a certain amount each month. Monthly or Bi-weekly withdrawals can be set up for the same day as “pay day”, so the emotional attachment to having that money in one’s account doesn’t materialize. Often young adults will spend, spend, spend, and then save whatever is left over at the end of each pay period – this isn’t recommended, as usually the saving doesn’t end up happening.
3. How much should people be saving each month?
There is no set amount people should be saving each month, as everyone has different incomes and expenses. However, through proper budgeting, and depending on their situation, anywhere between 10-30% of monthly earnings should be manageable.
4. Any strategies you suggest for saving money for retirement?
DO IT. That’s the biggest strategy. For young adults, retirement seems like a long way off. The mentality is generally “I’ll start that in five years”. However, in five years (if not already happening), home ownership, marriage, and having children all often lead to putting off retirement savings even further. Even starting with small monthly contributions to retirement savings will go a long way in the long run.
5. What do you say to people that complain that they don’t have enough money to save?
Again, it goes back to budgeting. For example, going out for lunches and dinners is a lot of fun. But cutting down by even two meals out per month could be the difference in being able to save a few hundred dollars every month or not saving at all. Even for people who believe they are as efficient with their money as possible, a thorough budget analysis often uncovers some money for savings.
6. What is an RRSP and how can people use it to their advantage?
A Registered Retirement Savings Plan, or RRSP, is a “tax-sheltered” savings vehicle. Canadian residents are eligible to contribute 18% of their T4 income each year (up to a pre-determined maximum). This contribution will provide a tax-deduction, and the growth of money inside an RRSP is tax-deferred. In years where contributions are not maximized, the amount of unused room is built up for use in future years. An RRSP is a great strategy for high-income earners who are a) wanting to reduce their tax payable during working years, through the deductions, and b) going to be withdrawing a lower annual amount in retirement, which will be taxed at a lower tax bracket than during their working years.
7. What is a TFSA and how can people use it to their advantage?
A Tax Free Savings Account, or TFSA, is another “tax-sheltered” savings vehicle. For each year above the age of 18, Canadian residents are eligible to contribute $5,000 per year for each year from 2009-2012, and $5,500 in 2013. Unlike the RRSP, there is no tax-deduction for contributing to a TFSA, but there is also no tax on withdrawal. The growth on money inside a TFSA is tax-free. A common misconception is that it must be invested in a “savings account”, however one could hold any investment holdings they have in any other investment vehicles. A TFSA is a great strategy for anyone saving money, whether it be for the short, medium, or long term, and should be maximized before any savings in any non-registered accounts.
8. Do young adults need Life Insurance?
Life Insurance is generally an important part of a financial plan. Young people often suffer from “Superman Syndrome” (the “Oh, it won’t happen to me”). However, having had a cousin pass away at age 38 with a brain tumor, I recognize that while the chances of something happening to young adults is minimal, in situations where it does happen, it can be devastating financially, especially if the survivors have a mortgage to pay off or children to take care of. Even for young adults who have no dependants, there is a cost associated with death, and the responsibility for these costs shouldn’t not fall on their parents.
9. What is the best way for young adults to save for a down payment for a home?
Saving for a down payment takes a lot of commitment to putting money away. Depending on how much needs to be saved, it might be necessary for the budget for the “wants” in life be trimmed so that more money can be saved each month. Also, once money is put away specifically for buying a house, it can’t be touched, except in extreme circumstances. For example, if a vacation is an important goal in the next year, budget to save for that vacation separately than saving for the house, don’t dip into the house savings to go on a vacation.
10. Anything else you think people should know about savings and investing?
Savings is an important part of life. Without strategically putting money away for short, medium, and long term goals, it is unlikely that many of those goals will be accomplished. There is no right or wrong answer with saving – it’s different for everyone based on their individual situation. Sitting down with an advisor can help paint a picture about what you can accomplish.
If you have any further questions for Jarnael feel free to send him a message or give him a call. All the best!