Back to basics with finances during tough economic times

In just a few short weeks, the words “global”, “crisis”, and “economy” have slipped into virtually every conversation, every newspaper headline and every talk show discussion.

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For many, it’s very personal as jobs are disappearing by the thousands. Across North America, the biggest, richest and most reliable companies – or so we thought – are lining up for handouts, asking the government to float them enough cash to keep their doors open and pay their people. “There’s been a big increase in the level of concern that people are voicing with regard to their investments and retirement income,” says Daniel Longlade, FCA, partner with Collins Barrow, Sudbury-Nipissing LLP in Sturgeon Falls. He notes that many of his clients are retired or planning to retire, and there’s no crystal ball to say how serious this recession will be, or how long it will take for things to bounce back. “It’s a time to take stock,” says Chartered Accountant Rudy Duschek, CFA in Markham. He sees many worried investors, some of whom are concerned that their money-management skills won’t be sufficient to navigate perilous markets and tough economic times. “People confuse investing and speculating,” Rudy says. “Investors need to do their homework and really check out an investment. They shouldn’t chase returns, or speculate in stocks based on inadequate analysis or because their neighbour says he made money on a particular trade. That’s always dangerous and particularly so in this environment. Now is the time to get advice from a qualified investment manager.” “Good investment managers,” he explains, “lay out a portfolio after providing you with an investment management statement. They’ll assess your risk tolerance in detail, and pay special attention to your expectations and time horizons, given the conditions in effect at the time.” Before you can launch an investment strategy, you need to have money to invest. Experts agree that it’s never been more important to be serious about managing our money. That starts with first principles. Like saving. To start, sit down and put together a budget. Add up the money coming in and the money going out. Where can you cut expenses? Use any extra dollars you find to pay down debt. The worst debt is the one with the highest interest rate, probably credit card debt. Pay down that one first followed by the next most expensive, and so on. Also, research whether the interest is deductible or not for tax purposes. Figure out where you can save money, or earn more, or both. Banks are nervous, and loans for things like cars and mortgages will be harder to get, even for those with sterling credit histories.You’ll have to be able to demonstrate your ability to pay. Lower that tax bill. Pay yourself first and put it into safe (relatively) secure, government-guaranteed investments. “For the average person, it’s a case of getting back to basics,” says Daniel. “Save, put money away to reduce taxes and debt, and get the help of a professional investment advisor to help you invest prudently.” Brought to you by the Institute of Chartered Accountants of Ontario.

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