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NEW YEAR! NEW APPROACH!

By: Michael Lutes CFP, CLU

Certified Financial Planner

It’s a brand spankin’ new year, (2023 baby!). The calendar has turned, the slate is wiped clean, you’re at mile zero! You have twelve whole months to kick some butt when it comes to managing your money and financial planning! (Wow, I’m getting energized just writing this!!)

Perhaps you’ve already begun brainstorming ways to improve your finances in 2023. Maybe you’re hunting for new tax-efficient planning strategies. Or you think your investment portfolio could use a revamp. Or, after spending time with loved ones over the holidays, you’re inspired to audit your insurance and estate plans.

Or, like so many of us, you truly don’t know where to start.

Here’s a tip…

Start with your values. Let those values motivate your goals, life objectives, dreams. Whatever you want to call them, start there.

So, what are your values? Seriously, yours, what are they? Take a moment, take a minute, take whatever time you need…

No, no, no, not THOSE values…. those are the values you think you should have. The ones your brother incepted inside of you when you were chatting over the holidays. Or maybe those values are the ones your Instagram feed is telling you to have – fancy cars, fancy food, fancy vacations, fancy clothes, fancy blah blah blah.

Not those.

I’m talking about YOUR values. The ones that truly reflect the deepest sense of what cultivates happiness in you. The ones that make you feel authentically happy to just be. The ones that when you’re living in alignment with them you are at your most satisfied, most at peace, most content, and most fulfilled.

THOSE are your values.

(Ummm, I thought this was a financial planning blog…no?)

How does this apply to financial planning?

While considering all the calculator stuff – tax, investment returns, insurance, etc. – the best financial planning is done in a space where decisions of how to use your money – or capital (more on capital later) – are in alignment with your values. This is where financial confidence builds. This is where the real financial planning magic happens.

In this space, you stop obsessing over moves in the stock market, you don’t really care what shows up in the daily financial news, you can genuinely listen to your neighbor’s stock tip from their cousin who “worked on wall street” and effortlessly separate opinion from truth and move on.

This is the space where you can be totally and completely confident and fulfilled in your financial decision making, because you know it aligns to your values and your life objectives.

So, when it comes to financial planning this year, start with your values – dig deep, be real, be honest, be reflective – and let your values motivate your goals that ultimately drive your decision making.

Do this, and you’ll be kicking butt in 2023!

And if you’re one of us who, like most, need help uncovering their values and articulating their goals, we recommend talking to a trusted advisor who can help you through the process. If you don’t have a trusted advisor, schedule some time with us – we love to help!

Financial Planning Checklist

It is always a good day to review your financial plan! Knowing what you have and haven’t accomplished is vital to reaching both your long and short-term goals. Below is a list of financial planning priorities that should be reviewed regularly.

What You Need to Know

Insurance

  • Did you buy a new house?
  • Did you have a baby or add to your family?
  • Did you get married?
  • Did you take on new debt?
  • Did you get a new job or have a change in income?
  • Did you experience a marriage breakdown or divorce?

Liabilities (new or changed)

  • Mortgage
  • Business Loan
  • Student Loan
  • Line of Credit
  • Credit Card Debt
  • Car Loan
  • Any other liabilities?

Assets (new or changed)

  • Art
  • Jewelry
  • Cash
  • Real Estate
  • Land
  • Stocks
  • Bond
  • Life Insurance Policies

Short Term Goals (New or Changed)

  • Save for a House
  • Save for Vacation
  • Pay off High Interest Debt
  • Start Emergency Fund
  • Major House Repair or Renovation

Long Term Goals

  • Retirement Dates
  • Education Savings
  • Mortgage Elimination

Investments

  • Adjusting Risk Tolerance
  • Reviewing Asset Allocation
  • Savings Strategies
  • TFSA
  • RRSP
  • RESP
  • RDSP
  • Un-Registered Accounts

Accounting for Big Changes

  • Did You Move?
  • Did You Sell Major Assets?
  • Did You Change Jobs?
  • Did You Take on More Debt?
  • Did Your Family Grow?
  • Did You Lose a Loved One?
  • Is There a Critical Illness in the Family?
  • Did You Receive a Gift or Inheritance?
  • Was Someone in Your Family Diagnosed with a Disability?

The Bottom Line

Your advisor is here to help you and guide you through each step of the financial planning process. The above list should be used as a starting point to address basic financial planning needs.

Book an Appointment with us today – CLICK HERE

What’s the Difference between Universal and Whole Life

Financial terminology is crystal clear for those folks who work in and are exposed to the financial industry on a regular basis; everyone else finds the definitions and implications difficult to understand. “Universal” and “Whole Life” life insurance is not exempt from this reality.

What you need to Know

Whole Life

Whole Life Insurance is also called ‘permanent’ as it provides a lifetime of coverage. As long as the premiums are paid, the insurance stays in-place permanently. At the beginning of the Whole Life policy the death benefit and premiums are usually guaranteed, and remain fixed.

Whole life policies pay the death benefit when the insured person passes away. They can also accumulate additional cash value inside of the policy. The invested premiums fund the death benefit, and whenever excess premiums occur they are then invested by the insurance company on your behalf and create a Cash Value.

Typically, Whole Life insurance is less expensive to purchase than Universal Life, and is the ideal option for those people who desire level premiums and a predetermined death benefit.

Universal Life

Universal Life Insurance is a slightly more complicated financial solution as it is considered both a Whole Life policy and a tax-preferred savings account, combined together. At the beginning the death benefit is set, and then any premium payments above what the life insurance policy requires can be used to increase the death benefit or be held in a tax-preferred savings account.

This last point is important for those people who may have maximized allowed RRSP contributions and are looking for additional ways to shelter income and wealth from taxation.

The Bottom Line

To understand the differences between Whole Life and Universal Life Insurances be sure to consult with your Advisor.

Click HERE to book an appointment with us today!

A Step-by-Step Guide to Conducting a Life Insurance Audit

Many people tend to neglect the insurance part of their portfolio, but it is one of the most important tools you can have as a part of a financial plan.  Just like your investments or other assets it should be reviewed regularly to ensure it is still protecting you in the ways that you need it to. The steps below will help you get started on your own life insurance audit.

What You Need to Know

Step 1: What is the Purpose of My Current Coverage?

Ask yourself what purpose the life insurance serves you and your family. Your insurance could be used for any of the following purposes:

  • Debt Elimination
  • To Fund an Estate Strategy
  • Income for a Survivor or Dependent
  • To Fund a Buy Sell Agreement Between Business Partners
  • Investment
  • Charitable Donation

It is essential that the type of insurance you own is compatible with your plan for its proceeds. For example, if your intent is to leave the insurance proceeds to a charity upon your death, a term policy would not make sense as it’s possible the term would be expired years before your death. This should be the first part of your review. A trusted financial advisor can help you determine if your current coverage is suitable, and if it is not, what options are available that could better carry out your last wishes.

Step 2: Do My Beneficiaries Need to be Updated?

Beneficiaries are typically named when a life insurance is purchased, and they determine who will be eligible to receive the proceeds of the policy upon your death. Therefore, it is important to regularly review who your named beneficiary is.  Marriage, divorce, and death of a loved one are all reasons to do a review of your beneficiary and potentially assign a new one if necessary. Beneficiaries can be individuals, a corporation, business partners, a registered charity, or your estate.

Step 3: Have I Experience Any Major Life Changes?

Insurance needs change as life changes. Major life events warrant a total insurance review. Examples of life changes can affect your insurance needs:

  • Marriage
  • Divorce
  • Purchasing a Home
  • Birth of a Child
  • Owning a Business
  • Death of a Partner
  • Gaining custody of a dependent
  • Taking on significant debt

You may find your insurance need is greater than when you initially purchased your life

insurance policy.

Step 4: Have I Reached Any Financial Milestones?

Have you paid off your mortgage? Paid off your business loan? You may not require the same amount or type of insurance policy.  Reaching a big milestone like this could mean you could be better served by different type of policy. For example, if your $5 million business loan was covered by a term policy of the same amount, you may no longer require such a high face value. It may be more beneficial to convert the policy for a smaller amount (i.e… $1 million) to a more permanent policy.

Step 5: Have My Premiums Changed?

This is particularly relevant when it comes to term policies. At the end of a term, a term life insurance policy automatically reviews. This can drastically increase the premium. Since policies renew automatically, it is possible your premium has increased since purchasing the policy.

The Bottom Line

As a rule, you should do a life insurance review every 2-3 years.  You may be surprised at how much your life has changed!  Your life insurance advisor can help you review your policies and make recommendations based on your ever-changing situation.

Book an appointment to discuss your insurance needs – Click Here

Why Your Advisor Should Be Your Go To Person

A recent study, Understanding and Managing the Risks of Retirement, by the Society of Actuaries has shown that only 52% of pre-retirees and only 44% of retirees are consulting a Financial Advisor. That means that roughly half of the population is seeking financial advice outside of a financial professional, whether that be friends, family, colleagues, or Google. We live in a time where we turn to technology for everything. We can quickly search anything we want to know, and as a result, we are inundated with information. When it comes to dealing with our finances, this approach can be confusing and overwhelming. By making your financial advisor your first point of contact, you know that you are being provided with knowledge that is relevant to your financial situation.

What you Need to Know

Working regularly with your financial advisor can bring incredible value to your financial plan. A study by Morningstar found that investors who consistently work with an advisor generate returns that are 1.82% higher than those who do not. Their research also found that investors that actively seek out advice from their advisor accumulate 29% more wealth for retirement than those investors who do not.

A Financial advisor can provide you with the kind of expertise and guidance you deserve. You work hard for your money, and while seeking advice from the internet or advice from friends can be convenient, you can’t always trust that it is accurate or relevant. Every investor has specific needs, and there is no one size fits all when it comes to investing. Inaccurate or irrelevant information can lead you to make costly decisions. By talking to your advisor, they can act as a sounding board for the information you read or hear about. An advisor can offer guidance on whether a new concept or product could benefit your portfolio, or if it’s just a trend that offers you no value.

One of the greatest risks to your financial plan is making uninformed decisions during a downturn in the markets. In bearish markets, we are flooded with market information and down-right bad news. Before turning to potentially unreliable sources, consult with your advisor first. Research by the Investment Fund Institute of Canada has shown that individuals who have worked with a financial advisor and have a customized plan are twice as likely to rebalance appropriately during a downturn. Making your advisor you first contact will allow you to filter out the panic and allow you to see the facts, therefore keeping your goals on track!

The Bottom Line

By getting in the habit of talking to your financial advisor before looking for advice elsewhere, you can reduce the risk of falling prey to inaccurate and irrelevant information. If you trust in the expertise that your advisor can provide, you can reap the benefits of higher returns and higher level of wealth in retirement. In other words, you can reach your financial potential!

Click HERE to book an appointment with us today!

What to Expect When You Are Expecting

Building a home is not for the faint-hearted. A lot of sacrifices and planning are required, especially on the financial side. You do not want to bring your children into the world without proper financial plans. It is even advisable to start planning for kids long before they come. Before having children, you should try as much as possible to settle all debts, budget for child care and support, and apply for tax breaks and other benefits that may be available for children. A lot of questions pop up when trying to plan for your kids and with enough research, you can get adequate answers. We would try as much as possible to answer some of these questions for you.

How Much Insurance Should You Carry On Your Life Once You Have A Family?

When it comes to the type of insurance you should do once you have a family, experts advise that your coverage should be 7 to 10 times your annual income for adequate cover for your family. Surveys show that 74% of Canadians have a life insurance policy but 70% majority are worried that their life insurance is not adequate to take care of their family in the event of their death. Determining what will be considered as enough for life insurance is almost an impossible task because families differ but there is a general formula you can use. This formula is known as DIME – Debts, Income, Mortgage, and Education. DIME is the total sum of:

  • All your current and future debts;
  • The multiplication of the number of years your family will need your income with your current annual income;
  • What you owe on your mortgage and any expense on renovation or expansion; and
  • How much will cost to send your kids to school up until the level you wish.

What you want in your life insurance cover depends on what you want to leave behind for them. Life insurance is not for you but your family.

 Do You Need A Living Will?

A living Will, also known as Personal/Advance Directive is a document that contains your preference and wishes for your personal and medical needs for when you are unable to make such decisions. The document takes care of your end-of-life affairs whilst still alive. You need a living Will to take care of things for when you can’t make key decisions. It also spares your family from making difficult decisions in your absence. A living Will protects you and your family, just like insurance. Anything could happen at any time, it could be a ski accident, stroke, or bike crash that may incapacitate you, with a living Will in place, you are still in control of your life. A living Will must include who to make medical and financial decisions on your behalf, the level of their authority, your medical wishes, and the welfare of your family if you are incapacitated. Ensure you find out the laws that govern a living Will in your province.

How Early Do You Need To Begin Estate Planning To Ensure That Your Child Is Given Your Inheritance?

Estate planning is an important decision you need to make so as to adequately provide for your family. It is a detailed plan on how you want your assets to be distributed when you depart. It has its tax benefits, and it helps you structure and manages your finances both when you are alive and after you are gone. You can engage the services of a lawyer or use estate planning kits, apps, and websites with estate planning templates. If you choose the latter, it is advisable to give a lawyer to review for you. Estate planning involves documents like a Will, power of attorney, and a living Will. which is why you may need to consult, lawyers, tax experts, and financial planners when you want to come up with an estate plan.

There is no rule of thumb that states the exact time you should start your estate plan. Experts will say once you cross the threshold of being a minor, you can start your estate planning while some people choose to come up with an estate plan when they clock 40 or are diagnosed with a terminal disease. This means that you could start as early as when you clock 18 or when you are close to the great beyond of which you must still have the legal capacity to come up with an estate plan. it does not really matter when you begin your estate planning as long as you meet the legal requirements of making and your plans and wishes are clearly articulated. You should also make sure you update your estate plan every 3 to five years.

Click HERE to book an appointment with us today!

Why I bought Millions of Dollars in Life Insurance (and an absolutely incredible disability policy)

I’ve been reading a lot of material in the past few weeks about posting content on Linked In. The last few articles that I have written, have been received with moderate success from the financial planning community. I absolutely love getting onto a topic that I’m passionate about, and helping people connect with what might be a new way of looking at things! Ottawa local and Linked In guru Michaela Alexis preaches vulnerability in her article 5 Must Read Tips for Writing a Killer Linked In Article If you haven’t had a chance to read this article – and are interested in writing content – it’s a really great start.

So let me be vulnerable.

In May 2011 on a day long ATV ride ride with some friends, colleagues and clients in the Calabogie area – I had a terrible accident. It was probably our fourth or fifth annual ride with about ten riders. I had just spotted a beautiful long hill in a sandy field, and I was determined to drive my ATV up to the top to have a look. Half way up this rolling hill the ground just ended – it was a cliff. With absolutely no time to react – I went over the side of the tall cliff first (large unforgiving 800lb ATV came second), and the ATV fell with me landing hard right on top of my back. Immediately, I knew I was badly injured. At the end of the day – I had broken 5 vertebrae, 3 ribs, and split my liver.

So I’ve gotten the accident out of the way, and this helps with the setup of this article. I’m really trying to let you in on what was happening for me the moments after that accident. I was absolutely terrified. Not only was I worried that I may not survive this incredible accident, I was worried as I had a family that I wanted to get back to. I had three kids to raise, and when my beautiful girlfriend (now my amazing wife) walked in the hospital room – it gave me all the energy I needed to get charged up to start my mending!

Once the dust settled, and I had days and days of lying and healing – there were a few things that I really had on my mind;

  • If I end up not being able to walk again – will I have enough income from my group and disability plans?
  • Was my will set up the way that I wanted it? Does it contain my last set of instructions in the way that I really intended?
  • What would I change about my life insurance and risk plan if I could?
  • Would I be able to climb Mt Kilimanjaro with my girlfriend? (we had just made plans and booked our trip)

Months later – I had healed and made a recovery.

So I’ll be honest with you – I didn’t have enough set up for my disability plan (and would have probably had to live a life I wouldn’t have enjoyed), and my will and life insurance program needed some tweaking. Sometimes, we get a good bounce in life – and this was my second chance.

I’m going to share with you the reasons why I reviewed these questions, and set up a robust insurance program after my accident;

  1. I have a family that I absolutely love. My wife and my kids are what gets me up in the morning, and what keeps me inspired every single day. Sometimes we’re busy, sometimes we’re laughing and goofy, and sometimes we’re all doing separate activities (especially as the kids get older). At the end of the day – what we have in our home is my entire life.
  2. It’s the best way to have a couple Million dollars sitting on the sidelines when you need it. I once had a client ask me to build him a financial plan – “but please don’t use life insurance – I don’t like it. So I did. I built a beautiful financial plan – and it showed a need to save $17,000 / month for five years (and assumed that he didn’t get sick or die for that period). It wasn’t a hit. He ended up liking the insurance in the plan – and it ended up saving him a lot of money. I enjoy having knowledge that when I need it – regardless of how much I’ve saved, or where I am at in my life cycle – the money will be there.
  3. I don’t like spending money when I don’t have to. Structuring my plan right made it cash flow neutral. It may be a monthly expense – but having return of premiums or some cash value features allowed me to have a plan that returns this to me later on. A typical 35 yr old could easily spend $20,000 – $30,000 on premiums between now and retirement age (as an net negative expense) or they can re-arrange what they are doing and make this neutral, or an treat it like an investment, and come out with thousands in savings, and a nest egg.
  4. I’m a business owner. I like risk, and growing my business. Some elements of my world I can’t afford risk. My business, and my income is one of them. Walt Disney wouldn’t have been able to keep trucking on his Disneyland idea without it – a good read here What? Walt Disney used Life Insurance?
  5. I enjoy travelling, having goals, and just simply not worrying about uncertainty. It’s incredibly re-assuring to be able to book that scuba dive trip, or take a hike on a beautiful Caribbean island without worrying about mortality.

6. It’s immediate. Sometimes you just don’t get that second chance. It’s the ATV day with your pals, or it’s that golf game with your friends. It may just feel like another day, and give you no second thoughts. Sometimes and somewhere – your day doesn’t end the way you wanted. On an average, we are supposed to be here until 85 yrs of age, but sometimes we get sick, a medical result comes back we didn’t expect, or someone runs into our car. It can be totally unplanned, unexpected, and change of world forever. It might mean your income ends, or it could mean you don’t go home (ever). Having an insurance plans allows me to know that (a) the money is all there (b) every person that I love has something I wanted them to have (c) if I live through whatever terrible day I’ve had – I’m going to have an income (and then I can start with my game plan on recovery and overcoming whatever has just happened)

By the time I was done healing I had renewed my insurance strategy. I talk about this day with my clients – because sometimes people have a hard time imagining something terrible happening to themselves. I don’t mind sharing my story – it has a good ending. I made some great changes – and I also was also able to climb that mountain with Michele!

I’m excited about my life and the future adventures coming, and excited about knowing that I have a strong plan to support me. Think about your plan, and make those changes you’ve been thinking about. It’s one of the best steps you could take (and then consider travelling to Africa and hiking Mt Kilimanjaro – it’s incredible! “Go Climb a Mountain: – my buddy said. Click here to get this on your bucketlist.

Just my thoughts for the day,