5 Year Road Map for Success

Road Map for Success
What is your 5-year Success Road Map?

    Congratulations, You have arrived! This is as true now as it will be 5 years from now. Or 10 years from now.

But wait, where are we?

   The choices you make will determine where that destination is. We cannot change where we are right now, but deciding where you want to be in 5 years will help you align your goals and your efforts to take you in the right direction. We cannot speed up the passage of time, if you have a 5 year vision of your future, that future will come towards you. The only change you can make is the direction you face, so that when 5 years passes you will be standing where you envision it today.

   I’m not sure about the devil, but certainly the recipe for success lies in the details. Planning and mapping out your ideal future is essential for achievement. That is why all our courses start with a structured planning phase. When you map out the ideal future, you are able to make the small, incremental changes to your direction that lead you to a new path.

5-yr goal setting diagram

   Failing to plan for that target in the future will leave you walking down the same path. A slight course correction can easily change your future trajectory for your future self. What does this look like?

   Financially, you could automate some savings. Over time that automatic investment in your future brings you closer to your financial goals, closer to financial freedom. For your health, something as small as taking the stairs each day, or an evening stroll around the block. This moderate amount of movement can help you keep off those extra few pounds (kilo’s). And it could improve your heart health, allowing you to take an extra hike with your family and friends, enjoying those moments with growing children without gasping for air. A small health change today leads to laughter and memories 5 years from now, or 10 years from now, or for the rest of your life.

   In your career, this could be the extra few phone calls or meeting networking prospects, leading to new opportunities, more challenging and fulfilling work. Or a daily meditation or journal that helps keep your stress levels down in the rough times, and helps you more fully enjoy the blessed times. A small change will set you on a better path with your friendships, and most importantly your loving relationships.

   While it may not be doom and gloom if you fail to plan today, you certainly won’t be living your best, richest life without a plan and a dream to work towards.

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   In the overwhelm of our busy, bustling lives, it’s easy to push this dreaming and planning off for another day. But we must ask ourselves, what is the cost of doing nothing? To that I must answer, the cost is high.

   You can still achieve success. You can still reach your ideal destination.

5-yr goal #2

   But the road to reach your destination is so much harder if you wait. Postponing the “difficult” planning for your future only makes the road much, much steeper. And that extra effort on the steep road? That’s only the fraction of the cost that you experience as you make radical changes later on.

5-yr goal #3

   The real cost is the extra effort that you need to exert to make radical changes later on, plus the cost of missed opportunities throughout the delayed time. How much is an extra year of financial freedom worth? How about years of stronger relationships with friends, family, and loved ones? A stronger mind? Extra years of youthful vigor? More fulfilment from your career?

Do you have a 5-year plan?

   If so, what are your goals and aspirations? If not, take out a piece of paper, think about the important areas of your life and plan out where you would like to be in 5 years. The cost of inaction is too high to wait!

   I want to pass along a dare I was once challenged to.

The Dare to Dream.

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Share with us in the comments below, what is your Dream?

Which is better? RRSP vs TFSA

RRSP vs TFSA

   It’s tax time, which means we’re taking a much needed look at our current finances. While we’re looking at our finances, this provides a great opportunity to make adjustments for our 2019 financial strategy. Part of that strategy involves deciding where to invest. And that brings us to the often asked question, which is better; the Tax Free Savings Account (TFSA) or the Registered Retirement Savings Plan (RRSP)?

   As any personal finance expert will say, the answer is both. While that’s excellent advice, and I highly recommend investing in both if you have the ability, some of our readers do need to choose. This can be especially true if you have unused lifetime contribution room on either of the two investment vehicles. If that is the case for you, knowing how to determine which option is better can save you thousands of dollars in your lifetime.

   The RRSP is a tax-deferred investment, which means you should be able to contribute more now, because of the tax break. When you retire and start withdrawing the monies, you will pay tax at that time.

   When contributing to the TFSA on the other hand, these funds are invested on an after-tax basis. This means you have already paid income taxes on the funds that you invest. As a result, when you withdraw any money, including gains, these proceeds are tax-free.

Let’s look at this a little closer:

Example 1

Example 1

* Future Value is determined at an annual growth rate of 7.5% over 20 years.

   As you can see in Example 1, holding our tax rates constant, both options will result in the same after-tax proceeds. This isn’t an accident, as the two investments were designed this way! At this point, you might be saying, “Okay, this is a rather long way of saying that TFSA’s and RRSP’s are the same.” But wait! Before I lose you, let’s look at the numbers when taxes change. As is hopefully the case as you grow throughout your professional career, you’ll reach different tax brackets.

   In Example 2, holding all other assumptions constant, we’ll assume you plan a wealthy retirement, where you withdraw enough each year to be taxed at an average rate of 35%.

Example 2

Example 2

* We have held our growth assumptions constant, as a reminder: Future Value is determined at an annual growth rate of 7.5% over 20 years.

   In example 2 (above), the TFSA wins out. The taxes we paid when we first invested were at a lower rate than when we withdrew the funds in our retirement. What does this mean? If your marginal tax rate now is lower than you expect it to be when you retire, you would be better off using the Tax Free Savings Account (TFSA) to save money. In plain English, think early in your career when your annual earnings are lower.

   Now let’s flip the tax equation around. This would be the case if you were established in your career, and yours earnings reflect that!

Example 3

Example 3

* Growth rate 7.5% annually, 20 years.

   You guessed it! Registered Retirement Savings Plan (RRSP) investments win out when you pay more taxes now. These investments help reduce the taxes paid on your income at higher rates, and are taxed at lower rates when you withdraw.

   Let’s sum it up! If you earn in the same tax bracket that you expect to retire in, the investment options are the same. If you expect to have more retirement income than what you currently earn at, the TFSA is better. Conversely, if you are a high earner right now and plan to retire at a lower tax bracket, the RRSP is financially better.

 

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Other Considerations:

   It is important to note, this analysis does not take into consideration other factors. For example, if you are applying for Child Support, that could change the results of this analysis. Often the subsidies available are higher at lower income levels, meaning the RRSP could be the better option to reduce taxable income and qualify for higher child support payments/ assistance.

   There are also restrictions on annual and lifetime contribution limits for both RRSP and TFSA. We’ll cover those in other articles, so you can make better informed financial decisions.

   And finally, any employer matching changes the results too. As a general rule, if you are lucky enough to have employer matching for either RRSP or TFSA, it is almost always best to take full advantage of those programs.

Return on Investment, Your Investment

   Return on Investment, or ROI, is a fairly common term used when investing. Simply put, you desire a positive growth on monies invested over time. This could be interest income on a loan you made, your house increasing in value, or the stock market paying dividends and increasing in value.

 

   Now we’ll look at the other aspect of ROI, the ways we don’t commonly associate the term. I’m talking about the decisions that you make every day. The decisions that involve some level of financial, time, or energy commitment from you. These are all finite resources in everyone’s life, and while financial elements receive more attention, your time and your energy are even more scarce. And unlike money, when they run out, you can’t get more at the local store. It is this scarcity that drives the need for each decision you make to bring you a positive Return on Investment.

 

   Sounds great, right? But how does this actually look in yours and my daily lives? It’s heading to the gym when you’d rather skip today. It’s saying no to that extra beer or two to make sure you can get out of bed tomorrow without holding your head. It’s flicking the TV off a half hour early so you can read and improve your knowledge and communication. Or not putting yourself in the position to make an impulse purchase that you’ll regret later. It's checking in with the important things in your life to make sure you’re building on a strong foundation.

 

   It is these little successes every day that build into a long-term positive Return on Investment, your investment in you, your life. So go on, make the choices today that leave you wealthier, happier, and healthier tomorrow.