Hello friends! Please forgive my absence! I didn’t mean to be gone for so long, and so suddenly. Truth be told, I didn’t expect to be gone at all. We had a software malfunction about a year ago (yikes!) and had to change our client relationships software (basically a giant electronic address book). The new software doesn’t support mass emails, so then we were going to add a blog to our website. And that led to the decision to completely redo the whole thing. During this transition my own life got a little bit more meaningful, as we welcomed a son into our family. James Ryker Balaneski was born to us June 12, 2017 at 8lbs,11oz.
Before we get into too much depth, I did want to thank everyone for the kind and thoughtful gifts. From outfits, to handmade quilts, to a 2017 silver coin, we are very blessed to be surrounded by such generosity and creativity. In Darcy’s words “your clients are too nice.” Most days James is a fine little office baby, so while I apologize for being so very far behind in my planning work, and slow to return calls, our doors are open for anyone who would like to meet him.
So in a quick two paragraphs, that’s been my life for the past year. I’m happy that our family is growing, but I’m also very happy about getting back to writing again! My head is swimming with ideas, and I have so many things I’m excited to share! In addition, as a new perspective to Money Matters, a friend of mine, advisor Victor Lough, will be a guest blogger from time to time (as I will for his blog). I’ll continue to focus on advanced planning techniques as intertwined with the dear-diary saga of my life, whereas Vic specializes in the world of investment analysis, macroeconomics, and generally speaking “the markets”.
As a matter of course and a showing of love, I am dedicating my homecoming column to my new son, in a family update for you on how The Little Guy has affected our personal financials.
Like any new parents, we are weary for lack of sleep, taking a lot longer to get anywhere, and have developed an affinity for anything that rhymes. We are also unwavering in our desire to protect our Little Guy and do what's right by him. Therefore, the first thing we've done, which should come as no surprise to you, is set up a Registered Education Savings Plan (RESP). The statistics for the cost of post-secondary studies are outrageous. While tuition fees only increased an average of 3.1% over the past year, the current emphasis on a post-secondary degree or diploma for job placement means Darcy and I are erring on the side of caution. It is my fear that by the time our Little Guy reaches post-secondary studies, a 2035 Master’s degree will be the standard equivalent to a 2017 Bachelor’s degree in terms of what employers are looking for. Regardless of rates of return and the time-value cost of tuition, our goal now is simply just to do as much as we can.
Generally speaking, there are three ways that an RESP can be maximized: maximized grant per year, maximized grant over a lifetime, or maximized contributions.
The first $2,500 of contributions to an RESP are matched by a 20% government grant, so by contributing $200 per month plus $100 on his birthday, we could maximize the amount of free money we get from the government. At this rate, the grant received is $500 per year, and there is a lifetime limit of $7,200 grant, which he would reach by age 15. Alternatively, reducing monthly contributions to $167 still can maximize grant, but contributions would be needed for 18 years (ages 0 to 17). Or, finally, contributions of $231 per month would lead to the maximized lifetime contribution amount of $50,000 in the 18th year of the plan (the year he turns 17).
Mathematically speaking, contributing the lifetime maximum of $50,000 into a five month old’s RESP, at a modest rate of return, surpasses the long term results of any monthly contribution strategy, even when you consider that he’d only get one year of grant, but we just don’t have $50,000 lying around. Because it works with our cashflow, and because I am generally a fan of round numbers, we’ve chosen to contribute $200 per month, plus $100 on his birthday, with the intent of maximizing annual grant.
The second major change we’re making is the purchase of an additional critical illness insurance policy – with the Little Guy as the insured. There is nothing that can bring a family to a grinding halt as quickly as a child’s serious illness. One of the elevator-quotes about our profession I really like is “we don’t help you become rich. We make sure you don’t become poor”. The illness of a child isn’t something that a family should profit from. But it’s also not something that they should have on their minds while they are working. That includes my family too. If anything happened to the Little Guy and he got sick, there is nothing that would keep us away from his bedside - you’re not going to separate this mother bear from her sick or injured cub.
We’ve been very fortunate with health so far in our lives, but illness doesn’t discriminate, and I see way too many claims to pretend that statistics are on my side. Given the two options, I’d rather pay for an insurance policy and never make a claim a million times over before I would put my family in a position where we wish we had a policy, but instead I find myself discussing which one of us was going up to the City to be with him, because we can only afford for one of us to be off work. A robust juvenile critical illness policy should replace our family income for at least half a year, and should run around $50 per month.
The third very important change that we’ve made for the Little Guy, is to lead by example; managing our finances with purpose and intention. The hope is that we can be selective about our goals (you can have anything you want, but you can’t have everything you want), and he will learn good financial skills through osmosis. There will be more on this in a future column, but basically what happened was this:
Darcy: What do you want for your birthday this year?
Meagan: Four hours of your time to discuss our finances!
Despite his misgivings, that’s just what we did. Did Darcy hate every moment of it? You betcha! Did that make it more enjoyable for me? Yeah, I think it did.
We now do up our bills mid-month and at the end of every month, and we go through them together as a family. The Little Guy will learn to know how much we make, how much it costs to run a household, and how much we save. He’ll hear our regret over how much we’ve spent on fast food over the past month, and he’ll hear our excitement as we save more toward our next major purchase. We’ll also continue to discuss, and argue, about money in front of him. By doing this we’re letting him learn conflict resolution skills, how to come to a mutually agreeable decision when priorities differ, and that logic can, most of the time anyways, triumph over emotion. We’re doing our best to be role models for him, because if he’s anything like I was when I was growing up, once he understands what we’re saying, he’ll stop listening. We need to build a culture of saving in him before he even gets an allowance.
Which brings me to a side, but somewhat controversial subpoint, of allowances. There are many opposing schools of thought, but here our view. Darcy and I don’t believe in requiring chore completion for allowance. Chores are something that our family does, and that each member is expected to contribute to. It is not something that, number one, is a choice, or, number two, deserves a reward. So just as we are building a culture of savings, so too are we focused on building a culture of helping out, for the pure sake of helping out. And then on the financial side, we all get allowances – even Darcy and I – and the Little Guy can see us save it, donate to charitable organizations, or just spend it recklessly when the mood strikes us. Emphasis here is that he’s already seen us pay our bills, and understands that we do our savings first. Whereas the mantra “pay yourself first” may suggest that your savings rate is fixed, and you can spend the rest, in our household, the allowances are a fixed weekly amount (about 6% of our take-home), and everything else is either a need (groceries, mortgage), or is saved.
We’re learning quickly that for the littlest guys, consistency is key. So for our little guy, we’re starting young, working with purpose, and beginning as we mean to end.
Written by Meagan S. Balaneski, CFP, R.F.P, CLU
CERTIFIED FINANCIAL PLANNER®
Advantage Insurance & Investment Advisors
Investment Funds Representative
Manulife Securities Investment Services Inc.
The opinions expressed are those of Meagan S. Balaneski and may not necessarily reflect the views of Manulife Securities Investment Services Inc.
Meagan S. Balaneski can be reached at firstname.lastname@example.org