How do you make important life decisions? Make and evaluate a list of pros and cons? Discuss the matter with your spouse or a close friend? Trust your intuition? Everyone has their own style, and you might use different methods depending on the issue.
Whichever method you use, you’ll probably find that many life decisions, in addition to all of the personal considerations, also involve a financial factor. Here are several scenarios that illustrate how it helps to understand the financial side of a situation.
Funding a second degree
Gordon and Fatima have a child who received their degree in social sciences a year ago—an education paid for with the couple’s Registered Education Savings Plan (RESP). Now the child wants to return to school to study law. The spouses are discussing on a personal level whether they believe they should assume responsibility for the education costs, or whether their child, now a young adult, should take out a student loan. Considering the issue of parental responsibility is one thing, but then there’s the significant financial factor—tuition is extremely high and rent will also be expensive.
The couple, with costs of tuition and accommodation in hand, talk about the financial side with their advisor. It turns out that to cover these expenses they would need to withdraw funds from accounts designated for retirement savings, which is a cause for concern. They talk about various options, and Gordon and Fatima are now considering partially funding their child’s law studies using funds from their Tax-Free Savings Accounts (TFSAs), so there won’t be tax implications.
Caring for a parent
Jocelyn and Mike are planning to retire in 15 years, when Jocelyn will be 65 and Mike will be 60. However, a situation has come up that has the couple wondering about their current retirement plans. Jocelyn’s mother, who now needs assistance with personal care and preparing meals, isn’t fond of getting help from someone she doesn’t know. Jocelyn is thinking about helping her mother on a daily basis.
She’s fairly sure her employer will allow a switch to part-time hours, but Jocelyn needs to decide if she’s up to the task of being a caregiver. Then there’s also the financial factor. Jocelyn and Mike meet with their advisor to discuss whether Jocelyn’s reduced income would affect their retirement plans. Their advisor tells them it would require an adjustment to their plans and outlines several options. They can postpone retirement, with Mike working to age 65. Or, to keep their planned retirement date, the couple could increase the amount they save and invest, or modify their desired retirement lifestyle.
Now that they understand their options, Jocelyn and Mike can consider personal and financial factors to make an informed decision.
Purchasing a vacation property
Stefan and Lydia, a recently retired couple, are thinking about purchasing a vacation home as a second property, but they’re also weighing the pros and cons of purchasing versus renting. The couple love the convenience and warm feelings of being in a place that’s their own, but also like the idea of the variety and freedom that renting offers.
First, they need to make sure that purchasing is financially feasible. The couple present their advisor with the estimated amounts of a down payment and monthly mortgage payments they received from a mortgage broker. The advisor shows Stefan and Lydia how they can afford the purchase without worrying about outliving their savings. However, the advisor cautions that they may need to budget to cover the related expenses, such as property tax, insurance, repairs and utilities. Also, they’ll eventually need a plan for one of their estates to cover any capital gains tax on the vacation property.
Stefan and Lydia now have additional pros and cons to consider, but they do have all the information they need to make a decision.
Your important life decisions may be quite different from these, but what you’ll likely have in common with the people in these scenarios is the need to explore a financial factor affecting your plans. When you do face a choice, please feel free to contact us—decision-making will be easier with our input.