By Alison Stafford, CFP®
Money questions often appear straight forward, for example: should I pay down my mortgage or contribute to an RSP? But rarely, if ever, is one decision about money not impacted or influenced by your complete financial situation. And it goes far beyond the numbers, some of the biggest factors to consider don’t involve numbers at all; they are your goals for next week, next month, next year, five years and on into retirement.
Part of my role as a Money Coach is to help people create a plan that encompasses their entire life. Their needs for retirement don’t stand in isolation from their dream to send their kids to university, or even to send them to summer hockey camp; it all has to be managed from the same income.
Returning to the “straight forward” question; should I pay down my mortgage or contribute to an RSP?, I would want to know a lot more about your current situation: What’s your mortgage rate? Are there penalties to prepay? How would you invest your RSP? What is your risk tolerance? What fees are you paying? Are there other goals you should be addressing first? Such as; paying down credit card debt or saving for your children’s RESPs? Are you considering home renovations? Are you thinking of selling soon? When is your mortgage due? Even very personal circumstances, such as; are you considering a divorce? may have an impact on determining the right answer for you.
We’re inundated with financial advice in the media that makes it appear that there are simple best practices that everyone should follow. This may lead you to seek quick solutions without investing in the planning services of a Money Coach. I don’t believe in one-size-fits-all stock answers. I use a holistic approach to money management that allows me to give advice that is tailored to your personal situation. I want to know what your short, medium and long term goals are. If you aren’t sure, let’s work together to establish some.
I would also want to establish if you are prepared for emergencies; such as life and/or disability insurance, an emergency savings fund. I would want to know if you have investments. If so, how are they structured? Are they tax efficient? Are they appropriate for your risk tolerance, for your timeline and your goals?
The answer to the quick question, “should I withdraw from my RSP to pay down debt?” has so many dependent factors: your tax bracket, possible withdrawal penalties, what taxes would be owed, how will it affect your retirement? And the very important question, is this an easy out for an underlying money management situation? Perhaps the reason for the debt is where the focus needs to be.
Quick answers to quick questions usually only address short term situations, and may not be what’s best in the medium or long term. As tempting as it is to take short-cuts, the only way to achieve lasting financial well-being is to get serious about your goals, to make a plan and hold yourself accountable to it. A money coach will help you identify your goals and make smart financial decisions.
For a free consultation about your money and your goals, contact a Money Coach today.