Latest / The Chiro Money Show / 028 | Financial Planning Advice We've Changed Our Minds On Over The Last Decade
Transcript
- Chris: Welcome back to the Chiro Money Show, where we're helping chiropractors make better financial decisions so they can build stability in their finances and a lifestyle that they love. your hosts, Chris Scheele and Scott Campbell, financial planners with Align Wealth. Scott: How we doing today? Chris: Yeah, doing pretty good minus the winter weather on April 15th. Scott: This has been the weirdest start to spring in Alberta. I know it's always weird in Alberta, but to see this much snow on April 15th and then also look at the forecast and see a forecasted day for plus 28 later next week is of wild, ⁓ I'm looking forward to it. Chris: Yeah, I'll believe it when I see it's God. Scott: right. Well, you are in Canada, you're getting better weather than us at the moment. Chris: Yeah, fair enough, yep. Scott: Alright, Chris. Got a fun topic today I think we can dive into. You've been doing financial planning for how long now, Chris? Chris: Almost six years. Scott: Six years for yourself. I'm going on close to 14, 15 years. So got 20 years of experience between the two of us in this world of financial planning. I was a little bit more started before you, but all that being said, what we wanted to dive in today is that we evolve over time with our takes and what we how we think about different things when it comes to financial planning and the advice that we give. I think we both could say the same. So what we wanted to touch on today was a topic of like what's changed since you since when you started to and making recommendations to clients. Go back and forth a little bit today on a few different topics because things have evolved for you. Hey Chris over the years. Chris: ⁓ yeah, yeah, steep learning curve my friend. ⁓ Scott: Sure. Because we both have very different like starts to our journey in financial planning. You came in, actually why don't you tell the audience, where did you start in the world of financial planning? Chris: Yeah. Yeah, I was just going to suggest, why don't we dive into that just real quick. So this is a second career for me. Originally, I went to NAIT, took civil engineering technology, and worked my way up to become a project manager for a large construction company in the Edmonton area. Scott: Yeah, that's right there. Chris: It was a great career, it was also quite demanding and yeah, just became something that wasn't very much fun. ⁓ for me, ⁓ about money and investing was always something that I enjoyed. And kind of spurred on the transition into financial planning. So, you know, a project project coordinator, all those ⁓ I almost nine years the construction industry, like ⁓ I was ⁓ managing multimillion projects. So we're still talking about money, but. Scott: Yep. Chris: It's a different, a different way, ⁓ And ⁓ yeah, I in that ⁓ kind ⁓ that and then also the background of being a investor since I was 18 years old. ⁓ So ⁓ opening my investment accounts and building my ⁓ ETF portfolios a very young age. ⁓ Scott: Yep. Mm-hmm. Yeah, you've always had a strong interest in finance, you know, even before you got into the industry, right? Yep. for me, my background, like I got in into the financial planning or advice area back ⁓ 2012. My background is a bit different though. My mom was in the industry for 30 plus years as advisor doing insurance and investment management for clients. So I kind of came from that world where it was, ⁓ was fairly product driven, a little bit less on the financial planning side of things. So I got kind of ⁓ early days in kind of getting my reps in on of the insurance side of things. So I have, I've changed my tune definitely in a few areas on that front, but, you know, going through the early, early years of getting my CFP and actually starting to do ⁓ what we of call real financial planning. my takes on certain aspects of planning and giving advice has certainly changed over the years too, for sure. Yeah. Even from when I first got my CFP to today, which is crazy, it's coming up a decade since I got my CFP almost this year, so, wild. Yeah. Yep. Chris: Yeah, sure. Crazy. That is wild, Yeah. Cool. Well, let's dive into some of these things that stand out for us. I think it was pretty cool. You were like, this idea, and ⁓ much instantly we were both like, ⁓ yeah, I got two or three things. ⁓ Scott: Yeah, for sure. Why don't you start us off? Which one do want to hit first? Chris: Okay, I'm going talk about TFSAs first. think ⁓ to my early days and probably this advice too often ⁓ it was that yeah, TFSAs are the best accounts that everybody should be prioritizing, you know, investing inside those accounts first. ⁓ And ⁓ yeah, I've changed tune on that. think. Scott: Okay. Yep. Chris: I should say though, like I still love tax-free savings accounts. They are still one of the best investment accounts in Canada. We be using them. We're not saying it's bad. ⁓ Right, my advice was always like, yeah, you have to use that first. Like if you're missing such a huge opportunity, if you're not using that and like ⁓ they're better than our RRSP's ⁓ and you got to do that. ⁓ And I that was just a bit naive. Scott: Yeah, you're not saying it's bad. We love a tax-for-savings Chris: Two parts here, I think it was naive and just ⁓ on, ⁓ was just trying to be firm on something that I believed in. When reality, ⁓ the answer was probably, it depends ⁓ on unique situation. ⁓ Like, they be the best for you, ⁓ but have to dive into your specific situation ⁓ in to appropriately determine that. Scott: Yeah. Chris: And so like, yeah, that's an evolution that I've gone through. And then part of the other part of the reason that I think I always push so hard for these is because we see them and there's so much, there's studies that have been done on these accounts ⁓ whatnot. ⁓ they're underutilized. ⁓ They're not enough have them period. the Canadians that do have them are not using them properly. They're using them as savings accounts. And first we should blame created these things ⁓ calling them savings accounts because they are clearly not their investment accounts and they should be labeled as such. ⁓ So. ⁓ Scott: Mm-hmm. Yep. Yep. Tax-free investment account would be a better, doesn't have the same ⁓ quick acronym off the tongue, but the more ideal name for it. Chris: Absolutely. No. Absolutely. So I think that's also part of the reason that I always push so hard is because I them and heard of them being ⁓ inappropriately for so long that I was like, ⁓ got to be the person that's pushing TFSAs. You got to use them, got to invest in them. Don't just park your money in them ⁓ treat it like a savings account. That's such a ⁓ opportunity. Scott: Yeah. Yeah. And like he said, it truly does come down to it depends. Obviously like there's probably some very kind of general rules of thumb. Like if you have a fairly low modest income, like maybe under 40, 50,000, yeah, you're probably better off starting off with a TFSA and making your monthly contributions there versus using an RSP when the tax implications of the refund that you're getting on those contributions is going to be less impactful, maybe waiting until future years when your income is going to be higher and get a bigger tax refund. Right? Yeah. Chris: Yep. Exactly. Yep. Scott: But all things being equal, think one thing I've learned more the years when it comes to TFSA and RRSP in terms of the outcome of the two accounts is actually very similar when it comes to what you get out of the end of the day. When it comes to the refund, if you actually were to take the refund and reinvest that and the tax deductibility, the kind of made it seem like one's better than the other. But in reality, they come out to bit of a wash, assuming tax rates remain equal over the course of a long period of time. Chris: Yeah, yeah, I think that's a good point. It's way. They're both great outcomes at the end of the day. think the mistake is that people ⁓ aren't ⁓ those correctly. They're not considering the after-tax dollars that going to work for you in ⁓ either situation. It's little bit complicated when you factor in that refund or reduction in taxes by an RSP contribution ⁓ versus ⁓ using after-tax dollars make TFSA contribution. Scott: Yeah. Yep. Chris: And yeah, it's a little complicated, but if we walk through, pretty straightforward to get to the right math and understand that the outcomes are similar. Scott: Yep. feel like the best, best, the best outcome for, for, for most people it's like, well, why not both? Let's find a nice combination of utilizing both because both vehicles have their pros and pros to it. Like, yeah, for sure. Chris: Both, exactly. Thank you. Yeah, yeah, for sure. Okay, Scott, give us one of yours. Scott: Alright, since I mentioned I kind of started off in my journey in the financial world on the insurance side, I'll touch on my insurance thing that I've kind of definitely changed my tune on over the years. in my career when I was just kind of delivering insurance advice to clients, when it came to things like critical illness and disability insurance in particular, I was always very pro, you should get a contract that has what's referred to as return a premium on the contract. So I'll talk about, I can talk about my ⁓ personal critical illness policy that I still have in place, but if I could go back I would do things differently. So my critical illness policy has a level term, so I got the policy in place when I was about 25 years old and the premium is going to be set and level until my age of 75. After 15 years in the contract, which I'm coming up on pretty soon here, I have the option at any point in time between that 15th year of the contract all the way up to my age 75, I can cancel the contract at any time and get 100 % of the premium dollars that I've put into the contract back. So I always thought that was such a great feature, like a great selling point to say, hey, in this example of a critical illness policy, if you get critically ill, you're gonna get your lump sum benefit of say $100,000 and you can do you want with that money But on the flip side, if you never get sick or at any point in time after that 15th year, if you wanna cancel the contract, ⁓ you're gonna get every premium back. Basically, like getting your money back. That sounds like a good deal if you don't get sick, right? Would you agree like intuitively like kind of that sounds like it could be a really great positive outcome? But what I didn't realize then that I definitely realize now is that Chris: Absolutely. Scott: It's basically get the cheapest option available to cover off the insurance need and take the difference and put that money and put that towards an RRSP or a TFSA and get that invested in the market. And you're going to have a much better outcome than just collecting your premium dollars back, which are basically given back to you with no interest earned over that potential 20, 30 year period of time. Right? Chris: Yeah. Yeah. There's a definite trade off there, Scott: So it's, I guess it's good in the sense of like, it's a, it's kind of for savings, like you're, you're forced to like put the money in and eventually going to get it back if you never get sick, but it's kind of no different than just putting it under your mattress. And then at one point you kind of take the money out of the mat out from underneath the mattress and you can use it, but you haven't kept up with inflation or purchasing power of that money. Right. Chris: Yes, it sounds good and interesting that yeah, we see these types of ⁓ combined with insurance Products because it's like well You know, it's I think it's a feature honestly in my opinion like it's like yeah You need this insurance for the purpose of insurance. But ⁓ yeah, there's this cool thing called return a premium ⁓ and get you'll get all your money you pay into it. You'll get that all back but then ⁓ Scott: Yep. Chris: yeah, you're also paying more to have that option to get the money back. ⁓ Scott: Yeah, and to give you some context, like critical illness insurance premiums have certainly increased over last 10 years, even just like the same age from say 10 years ago to now, costs of that insurance have risen. But let's look at it like kind of an example, like if you were in your 30s to 40s or so, if you're getting $100,000 policy and like a simple 10 year term contract, that might be 30 or $40 a month. But if you were to get a contract similar to what I have, like where it's level cost is 75 with return a premium, you could be looking upwards to like 120 to $150 per month. Right? There's a big difference in that. Like, yes, my premium will never change on me and I'm to get my premium dollars back. But if you could get that 60, 70, $80 difference in the market and invested and working for you over a 20 year period of time, I'd rather take the lower cost of insurance now and get that money working for me. Chris: Yeah, I completely agree. Kind of goes back to what we are often saying to our clients, get insurance for insurance, keep investments as investments. Like they're two separate distinct things. Don't commingle them. Scott: Yeah. Yeah, for sure. Yep. Yep. your next one, Chris? Chris: Okay, my next one's on like, I would call budgeting, which is a term we don't often use anymore. We use, ⁓ prefer to use a term called cashflow planning. yeah, when I first started out, yeah, to give some perspective to this in my early career, my previous career, I never had a budget. I always just ⁓ saved invested first and then spent what was left. Scott: Yeah. Chris: So like to the point where I would max out my RSP and TFSA like on January 1st of every year or close to and then I would just spend what's So when I changed careers and didn't have such steady income, ⁓ I to change ⁓ kind how ⁓ we money as a family with my wife. for us that really meant a couple of years ⁓ of ⁓ closely all the dollars went. Scott: Right. Chris: that led me to believe that everybody should also watch where every dollar goes and be on top of that on a monthly basis. And man was that draining. And not intuitive, not like adapted to our natural tendencies as human beings and our natural behaviors. And so since the early days, I've totally changed my tune on that. don't think anybody should be tracking where every dollar goes and you know, going through that level of detail on a monthly basis. I really don't. It's not worth your time. It is to go through it as an exercise, maybe annually to be like, okay, here's where our money went last month. Okay, cool. That's going to inform how we do our cashflow planning going forward. Like as that type of exercise, I think it can be beneficial, but on a monthly basis, I think it's just a way. of time to be frankly frankly honest like it's... ⁓ Scott: Yep. I don't mind the hot take. I think it's, I think it's bold. Like I think there's people out there who probably do to some degree think that there's value in, tracking, looking at every statement, putting into an Excel document or using some sort of tool and categorizing everything and they get, they get joy or value from doing that. But I know we'd probably argue like, it, is it moving the needle? it helping you? Is it helping you get to the outcome that you're looking to get aside from just like. Chris: Mm-hmm. Could your time and energy be spent in a different way? Scott: I'd say it's good in the sense of like, you have awareness. Yeah. Yeah, for sure. For sure. But like, what's the, what's the approach now to oversimplify it? Chris: oversimplify we need awareness of where money goes and then we need a system that works within your natural human behaviors. So we need to automate everything we can then we need to be able to clearly track the what we would call emotional spending the stuff that's not ⁓ know kind of set in stone connected to our core like housing transportation and financial obligations. Those things we should automate all of those ⁓ they happen automatically on a monthly basis or by weekly whatever you want and then the rest of your expenses is what deserves your attention and but it yeah it shouldn't be categorized as in like ⁓ I can only spend a hundred dollars on eating out this month and I have a hundred dollars for entertainment and hobbies and I have you know whatever whatever those things are like again I used to think that was relevant and useful now I think your spendable amount is three thousand dollars a month card starts at 3,000 preloaded, spend down to zero. When you're done, you're done. Easy. Scott: Yeah. For sure. Yeah, that's basically, kind of like what you were doing. ⁓ originally without the without tracking every single dollar. It's like, all right, we have income coming in. We're going to do our saving and investing first and then we're going to spend what's left. I guess like I know you're not we're not doing that exactly now, but in some senses, we're building out a cash flow plan where it's like, all right, let's understand what your refer to them as your committed expenses, like your housing, your financial obligations, your transportation costs. And then what do need to set aside for saving and investing and short term goals? What do we have left over? Like after maybe a bit of a buffer? What do we have left over for your kind of fun, emotional spending that we call your spendable like is it $2,000 a month is it $6,000 a month whatever the number is let's help you then develop a system and guard rails around that number ideally separating that spending from into a different vehicle account or card so it's like we just need to we just need to focus on that can you can you stick within your spending each month or each week to like make that amount work Let's help you develop a system to manage that and everything else in your cash flow plan should work ideally, mostly automated for you. This is happening in the background. Yep, I agree. Chris: Yep. A hundred percent doesn't require, doesn't require Excel or going through every transaction categorizing. Yep. Cool. Scott: Yeah, for sure. Yep. All right. On that note, maybe I think this goes into... ⁓ goes nicely. Your point goes nicely into my next point I think early in my career, I thought very strongly that ⁓ was imperative if you wanted to have long term financial success and reach your end goal of eventual retirement and making work optional is that you needed to be saving 15 to 20 % of your net income. Basically, if you weren't doing that now, now, regardless of where you're at in your career, that that wasn't good enough. Like you're you're failure, you're not going to make you're not going to reach your goals. I've definitely changed my tune on that. Some compliments of Morgan Housel for sure, friend of the show. Shout out Morgan Housel. Chris: to Morgan Absoil. Scott: Yeah, I think just over time, think I've we've seen so many situations now, obviously working with chiropractors coming into practice, like they're coming out of school with student loans or trying to start up a practice and maybe taking out startup loans. And then we got we got households and families that we work with that, you know, they're later in their career earning good money. But their kids are like they three or four kids and they're all in their teenage years and they're all in expensive sports and hobbies. And it's like the most expensive season of their life. So to boil it all down, I a I just the caveat to all that is like you shouldn't be saving 5 % because you've overextended yourself say on on way too much house or you now have a $1,200 a month BMW lease payment and that's if that's the reason why you're only saving 5 % well that's that's not great I think like that's just that's just not good big picture planning in my opinion but it's like hey we're only saving 5 % right now because of XYZ and they're good reasons we see a few we see the outcome here give us a few years whatever the season is that we need to get out of but we'll be ramping up that savings right here in the near term and if we have a plan for that then it's for me it's like two thumbs up. Chris: Yeah, for sure. I totally agree. There's seasons in life that we all go through and we can't expect it just to be this standard 10, 15, 20 % across the board. And even at that, ⁓ love the point. I remember where I heard this point, but like saving. Scott: Yep. Chris: 15 % when you're earning say $50,000 a year is kind of a waste when you look at the big picture of your potential earnings over your life, especially if you like archivist that's, you know, coming into practice, like your, your peak earnings are way more like saving 5 % of your peak earning years is way more impactful than saving 18 or 20 % of your first income year. Scott: Yeah. And that's why it's sometimes hard to project that out. If you're If you're doc coming out of school, you're 25 years old, for example, and your first year maybe making $70,000 $80,000 or something around that. Like it's hard to project out what your income earning potential is and what that trajectory could look like where in the latter 10 years of your career, you're going to be your peak earnings. Maybe the kids have moved out and you can save easily 30 % of your income at that point. It's obviously we don't want to discount time in the market and the power of compounding over those decades, but we have to take everything with a grain of salt. It just really comes down to like if we're being thoughtful and we have a plan and we're like forth, we have some foresight of where we're going and what that future will look like and what our earning potential and what our savings rate could be in like say five years from now or 10 years from now. And if that's all going to line up, it's like, yeah, we're going to get to a point where we're going to be saving a lot and we're going to be able to reach our goals. If that allows you the opportunity to free up some cashflow and live life and have experiences and do the things you want to do with your family and kids right now, then I think we're all for that, right? It's finding that balance. Chris: Yeah, I think the only other point I would add is we do like to see the habit of regular saving and investing started right away, but let's not get hung up on the percentage. Let's create the pattern and the habit that we know we automatically save and invest amount of dollars each month. Scott: Yeah. pressure. sure that's that's one that's probably one area that i've i've always had since day one even if you're coming out of out of school or starting a career and you have debt and maybe not necessarily high interest credit card debt but line of credits or student loans and the mortgage and ⁓ car and those things i think it's important to be saving and investing something to get that experience as an investor to start building liquidity it's one thing just to be hammering down your debt and yeah you might be making some gains on your net worth by lowering your debt but building up emergency funds, building up cash reserves, building up your investments, it gives you flexibility and options and liquidity as you kind of progress through your career. So, yep. Chris: Yeah, for sure. Cool. Let's sit on this last one real quick here, Scott. Business owners. This is mutual. mean, I probably didn't feel as strongly about this as you did having that, you know, initial experience working with incorporated business owners straight away. But the the regret and ⁓ I'll just open it by saying we hear this advice. You can avoid you can lower your tax bill. Scott: Is this mutual? Is this mutual for us, Chris, or what? I guess... Yeah. Yeah. Chris: and avoid paying into CPP as an incorporated business owner if you pay yourself a dividend versus a salary or wages. that is an ⁓ way to increase your net take-home pay. Scott: Yep. Yep. Well, well, well, true. I think there's a, there's a big, there's a big grain of salt there in terms of what that actually equates to in terms of freed up cashflow. I guess we're from my standpoint early in my career, when I was a CFP holder and like had gone through the education and had some reps with, with, you know, putting in the financial plans and doing analysis is that for a period of time, I was very anti CPP. I don't think it's a good deal, especially if you're the business owner paying both the employee employer portion of CPP. I can do better if I basically take that some of money and invested on my own. I'll get a better rate of return. That's the route that I want to go. And probably for a good four or five year stretch as an incorporated business owner, I only paid myself in the form of a dividend. But additional context that we won't get into on this episode because we have one coming out here shortly really diving into the nitty gritty of the benefits of salary and paying yourself way to ⁓ RSP room and CPP and whatnot. We have an episode coming up on that here in the near future. But ⁓ I really dug into the analysis and understood the tax implications and the benefits of CPP long term and looking at it as a different asset class to my overall, ⁓ the overall portfolio that I'm growing. in terms of yeah, we have a nice portfolio growing in RSPs, TFSAs in the broad markets, but there's something to be said about that CPP being there at retirement that's going to grow with inflation, not just indexed to a certain percentage. takes out that risk of sequence of returns. So, you know what that basically means? Like when you retire, if you were to retire at say 60, that first five years in retirement, like if you start retirement and the markets are in a big ⁓ or come some down years, right as you start retirement, that can have major implications on your retirement. And that's just basically unlucky the sequence of returns of when you retire, right? CPP kind of counteracts that in some respects where you have a portion of your income that's coming in, that's allowing you to not be as worried about sequence of returns of how much you can draw from your portfolio if markets are down just as you're starting retirement. Right. Many. Chris: Yeah, there's so many things that many ⁓ and detail that we ⁓ get into in the future. But for for today's episode, I would I would sum it up by saying CPP is guaranteed. It's indexed. It's indexed to inflation income you can count on for life. So you're not going to live it. It's going to adjust every year with inflation. And. Scott: Yep. Chris: paying both components as an employee, like employee and employer component of CPP is not, it's not as bad as it sounds. the employer component is an expense to the business. You know, there's, there's lots of things to consider with, with this. So, yeah, it's pretty hard to, to fight in my opinion, like, A lot of people will complain or look to teachers and people from other professions that have these coveted defined benefit pension plans that are set amount each month indexed to inflation. And in honesty, in truth, in Canada, CPP is as close as you can get if you're not one of those in one of those professions that has access to a defined benefit pension plan. Scott: Yeah. you don't hear about too many retired ⁓ or firefighters that are on these defined pension benefit plans. ⁓ not making any complaints about how their pension works come retirement, right? Yeah. Chris: Exactly. Yeah. Yep. Yep. Okay, Scott, wrap it up there. We had some five pretty good points there. I think it's interesting and ⁓ natural. Like we all change. We all evolve as we grow in our experience working with clients and just in the industry in general. It's probably normal that we're not going to give the same exact same advice that we gave 10 years ago. Also, ⁓ Scott: Yeah. Cool. Yeah. Yeah. Yep. Chris: things change, like tax laws change. need to keep up and continue to evolve and grow and stay ⁓ top of all the changes that are happening in ⁓ country. Scott: Yeah, and I think it's just important for us as as or why you're making that new change that might counteract what you said previously, that's okay. We all evolve and grow as humans. Chris: Yeah. Yeah. I think if you're with an advisor financial planner long enough, you're ⁓ they're a good planner, you're they're probably going to come back to you at some point and say, Hey, I told you to do this 10 years ago. Now I think we should do it differently. At some point in that relationship. Scott: Yeah. For sure. the only thing I'll add to that is that there's probably a handful of things that we could touch on that probably will never change that we know for a fact will be the case in 10 years from now. ⁓ for sure. Cool. All right, well fun conversation Chris. Thanks for the time today. Hope you got some of this episode. We'll you guys ⁓ again week. Chris: That's Yeah, that's true. That's fair. Yep, good one. See you next week.