When you first start out, you will likely be starting your first full-time job, gradually paying off student loans, starting to save for retirement and beginning to plan for your future.
As you reach the next life stage and start growing your family and career, you will discover that a wealth plan becomes more complex. Some of the major milestones of this pivotal time include getting married, buying a home, having children and saving for their education, and making significant advances in your career.
This life stage can be a balancing act and requires you to manage competing priorities. Therefore, it is an ideal time to ensure your wealth plan is up to date and that it can adapt to your changing lifestyle needs while helping you manage the things that matter most today and in the future.
Take advantage of third-party help
While saving money can be hard when starting out, the government has designed Registered Retirement Savings Plans (RRSPs), Tax-free Savings Accounts (TFSAs) and Retirement Education Savings Plans (RESPs) to help you save for all of your financial goals and those of your family, while offering tax advantages. Each program works differently, and most families can benefit from adding one or more of these savings vehicles to their wealth plan.
Does your employer match retirement contributions, offer a pension, or have an employee share ownership plan? If so, it is a good idea to take full advantage of any additional opportunities you have as you continue to grow your assets. Another way to take advantage of assets from a third party is through the government grants offered through RESPs when you begin saving for a child’s education.
The good news is you have many years ahead of you during this life stage, so time is on your side. Tilting your investments towards growth-oriented investments, like equities, can help grow your savings over time. Increased reward potential goes hand-in-hand with increased risk, so you should be prepared to endure some volatility in the value of your portfolio before enjoying the potential long-term rewards.
Consider your insurance needs
Insurance is an important part of your financial future and may help protect your property – from your car to your home or cottage – as well as your health. Although it might seem unusual to consider such matters at your current life stage, thinking about health and life insurance can help you manage and enjoy protection and peace of mind in unforeseen situations.
Later in this life stage, both your income and expenses tend to be higher. While it can be a difficult balancing act, this stage can be rewarding if your financial house is in order and you have a plan that reflects where your family is going and what you wish to achieve.
Focusing on your retirement
With your salary likely higher than ever before, this is the time to save as much as possible. The average household savings rate in Canada is 2.52%1, but you should aim for more than this, particularly if you saved less in your lower-earning years. Typically, the younger you are, the fewer savings are required, but in the middle stages of your career, an ideal range to aim for is between 5% and 10% of your pre-tax salary.
Saving for a rainy day is important, but in the latter part of this life stage, saving for retirement is a higher priority for many people. With an emergency fund in reserve, you should begin focusing on maximizing tax-deferred and tax-advantaged accounts like RRSPs and TFSAs to grow your nest egg while benefiting from tax deductions on your RRSP contributions and tax-free growth in your TSFA.
Maintain reasonable expectations
f you purchased a starter home earlier in life, it might feel a little small, particularly if you have a growing family. A common mistake is upgrading to a larger home that you can just barely afford. Instead, stay within a comfort zone – traditionally, no more than 30% of your household income should be spent on housing.
A robust yet nimble wealth plan is important for Canadians with growing families and careers. A focus on growth, both with your portfolio allocation and your savings rate, can lead to a more secure future. Meanwhile, a keen understanding of the costs you will face during the many stages of your life will help you and your family face the future with confidence.
For further information and guidance, please contact your Scotia Wealth Management advisor and ask about putting together your own Total Wealth Plan.