Jan. 10, 2023
In the early aughts, when Filomena May submitted her resume into the then mysterious job-posting site known as Workopolis, she was shocked when a human being actually called her for an interview. The position was for a financial advisor and seeing that May’s University of Calgary degree was in leisure tourism and society she didn’t think she stood a chance.
“Honestly,” laughs May, now an international speaker, podcast speaker, founder of Filo Financial Solutions (with Raymond James Ltd.), who has an ever-growing staff. “I didn’t even know what a financial advisor was, but I was so determined, and desperate, I worked night and day for a month in order to pass the exams.”
Her second break came in the form of managerial advice. “I was so lucky to be hired by a manager who was really dedicated to helping me succeed,” she recalls. “Early on, he told me ‘learn this financial planning software. This will be your edge as these old guys don’t know how to use it.’”
And so, May did exactly that. In fact, staying ahead of the curve has become her MO which is why May completed the rigorous Chartered Investment Manager (CIM) designation last year; another feather in the cap she wears as Senior Wealth Advisor. The industry is vastly changing, and, in fact, this year the two Canadian self-regulatory organizations that oversee all investment dealers switch from two bodies to one which will be the Investment Industry Regulatory Organization of Canada (IIROC). It’s precisely this future-focused mindset that May tries to bring to her clients.
When it comes to smart financial planning, we asked May to give us one — just one — golden rule. Courtesy of May [and countless other financial wizards] this is it: spend less than you make. Sure, this foundational block has become a cliché, but without it, there can be no saving, investing or financial planning. Easy enough to say, but how exactly do you put that into practice?
The Importance of a Plan
“Having a goal is great,” says May, “but how will you achieve it? Most people need a solid plan or their goal will go the way of so many New Year’s resolutions.”
For example, if you want to make more money, what are the steps you need to take to do that and how much extra income would you need to hit your goal? If you’re employed, is overtime a possibility or are you aiming for a promotion? Do you need to go back to school to learn a different set of skills? The more you dissect your goal, the easier it is to break it into actionable steps.
It's precisely these “steps” that a financial advisor or wealth advisor such as May is paid to deliver. If you haven’t worked with a professional advisor before, here’s what typically happens. The process begins with a financial snapshot which is then analyzed so all parties know what’s “coming in and going out, which, in turn, helps determine what is a ‘need’ versus a ‘want’,” explains May. Existing assets, debts, tax returns, goals, life stages, targets — these are the areas that are examined which help form a financial strategy or plan.
Of course, life stages and “traps” can also impact your financial blueprint — precisely why we asked May to take us though four decades of critical cash-flow management.
- Your twenties. Paying off student loans, buying your first car, getting married — these are the typical big-ticket items facing those in their twenties.
- Your thirties. Buying your first home, having a child, education planning for your children, perhaps taking a sabbatical from work — that’s what occupies many of us in our thirties.
- Your forties: Upgrading your first home or buying a second, child rearing, new cars, saving for your children’s post-secondary schooling — the matters that dominate our forties.
- Your fifties and sixties: Top of mind becomes retirement planning, helping a child out with a wedding, intergenerational transfer of wealth, estate planning and so forth.
Whether you’re saddled with student-loan debt or madly saving for your retirement, “what everyone should have at all stages is a budget and always know where the money is going,” May adds. A budget is not meant to be a straitjacket. It should be a guideline. Think of it like a diet. You know if you’ve overindulged but if you’ve been building good habits over time, you’ll be headed in the right direction.
When it comes to a budget, you don’t have to clock every cup of coffee you spend in a spreadsheet, but here are a few considerations suggests May: (1) Always have an emergency fund (sock away three to six months’ worth of your expenses in case there’s job loss, an accident or something unexpected happens); (2) Understand your tax situation, especially key for business owners or those who are self-employed who don’t want to be surprised come tax time; (3) Contribute to RRSPs, TFSAs and/or non-registered investments, depending on your tax bracket and overall goals. Get a clear understanding of the tax implications which change with your investments over time.
“The closer you get to retirement,” adds May, “the more questions you need to ask yourself about tax deductions and implications when you withdraw money. All pension plans are taxable, so you need to ensure you’re accumulating with a balanced approach and in suitable accounts. You need to work out a balance.”
As for new grads, anxious to pay off their student loans, May still recommends, “before they do that, they should first set up an emergency fund or if they have credit-card debt, pay that off first. Examine the interest rates and start paying off your debts with the highest interest rates. Sometimes you may be better off putting money aside to make more money that can then help with your debts, especially if those debts are tax deductible or at a lower interest rate.”
Be savvy about your taxes. Here’s what’s new for Canadians in 2023: (1) a multi-generation home renovation credit of up to $7,500 when the reno is for the purpose of establishing a secondary suite for a senior or an adult with a disability; (2) a new Tax-Free First Home Savings Account that blends the benefits of both RRSPs and TFSAs. The maximum amount is $40,000 which can be accumulated for up to 15 years with the annual contribution limit set at $8,000 a year; (3) the new limit for TFSAs has jumped from $6,000 to $6,500 a year.
Money Management Advice
Two other smart-money tips are aimed at those at various life stages: Purchase critical illness insurance, advises May, “when you’re young so that it’s cheap.” In the past decade, May has paid out more critical illness claims than life insurance and it’s primarily been to those in their 40s. “Get a permanent plan so the price stays the same and you’ll be covered when and if you need it,” she adds. “There’s no point in getting a 20-year term when you’re 19 years old as you likely won’t use it. Go for something longer.” Unlike long-term disability, critical illness insurance is not dependent on your ability to work. This system pays out a tax-free lump sum which can be used for whatever matters most, whether it’s “additional treatments at a Mayo Clinic in the US or your mortgage,” explains May.
Not a tip per se but more of a psychological shift, pertains to seniors. “With more people living longer, and with seniors having a more sophisticated concept of money management we’re seeing more people retiring with somewhat of a mortgage,” May explains. “More of us now understand how we can actually make money if we’re paying a lower interest rate on a mortgage and accumulating more in an investment that is typically appreciating in value and generating more cashflow.”
As for setting some financial goals in 2023, Charles Duhigg, the author of The Power of Habit, a book that explores the science of habit formation, suggests “Start small. Pick some small goal that you almost know you’re going to accomplish. Your brain gets a win and that win releases all these positive neurochemicals. And then we want to do it again.”
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Filomena May, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.