Before a sky scraper can reach for the clouds, it needs a very strong foundation. Once the building is complete, the foundation is virtually unseen. The same goes for our financial plans. Following are the basics of a strong financial foundation:
Budget - Governments and businesses use budgets to properly allocate resources. It's known as good business. A budget can help you figure out where your hard earned income is going and to identify ways to cut spending or increase savings.
Ralph and Louise have seen the TV commercials featuring Gordon Pape, the financial author, as the spokesman for Canadian Home Income Plan Corp. (CHIP) reverse mortgages. They were wondering if it would be a good way to go to help ease their current financial situation.
The newspaper headlines read: 'Roller coaster stock markets have investors feeling queasy' (The Globe and Mail; 'The stock market crash: History repeating itself?' (The Calgary Herald); 'Uncertainty continues to pummel stock markets' (Sudbury Star); 'The next market boom may be a lifetime away' (Financial Times). Interestingly enough, these headlines are from November 2002. One year later, the S&P/TSX Equity Index was up 20.8%; and two years later had soared by 40.7%.
Roger and Linda are approaching their retirement. With continuing volatility in the markets, they are concerned about what effect a market downturn in the few years leading up to or just after retirement would have on their income. They also think that GIC investments would not protect their retirement income very well from inflation.
The Tax-Free Savings Account (TFSA) was introduced in the February 2008 Federal Budget and will be available January 1, 2009. It is touted by the Government of Canada as 'the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)' in 1957. As always, there are some rules: