For almost thirty years of my career, I’ve gained immense satisfaction from helping our clients develop sound tax and wealth management strategies. And I’ve been blessed to watch them enjoy the rewards of their disciplined habits through greater wealth, health and happiness.
So I was struck when I read the Globe & Mail piece on ‘the nine milestones of a financially sound life’ according to Moshe Milevsky, a university finance professor. While a good deal of what Milevsky has to offer is sound, I would caution against adopting some of the recommendations in the article. Two subjects in particular caught my attention: income taxes and saving:
Tax planning and savings are, in my opinion, two key areas that lead to financial success. Saving taxes means more money saved each year to build wealth by reducing non-deductible debts, contributing to RRSPs, TFSAs, etc. Our self-assessing tax system places the onus on each taxpayer to play by the rules. Fortunately, there is considerable room to play within these rules to save significant taxes.
While Milevsky is technically correct that the “relationship with Revenue Canada is more dynamic than most people allow,” I disagree with the suggestion that taxpayers take a more aggressive position with CRA and not be concerned with the risk of an audit, likening it to entering into a negotiation. The stress, time, expense and aggravation of a CRA audit is rarely worth the potential savings and can often lead to interest and penalties.
Saving is another favourite strategy of mine. Who can argue with paying yourself first to build rainy day savings, accumulate wealth and enjoy the fruits of compounding income?
Milevsky’s view is that young people shouldn’t be concerned about saving for retirement, that a 22-year old who opens an RRSP is “harming himself.” His advice rather, is to “enjoy yourself. Go to Puerto Vallarta.” I have three children in their twenties and I’d be very concerned about them taking that advice having spent the last ten years of their lives educating them about responsible financial behaviour.
With respect, it is a similar disregard for a dollar saved that got the U.S. consumer in trouble. Discretionary spending is habitual and requires a balancing act between enjoying today vs. saving for tomorrow. Developing good savings habits early in life builds wealth sooner and faster. It’s just math.
Besides, unless one develops a savings practice early in life, it is much more difficult to change a mindset and an ingrained spending behaviour in your 40s and 50s — when it becomes urgent rather than merely important.
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