Who’s in charge of your cash flow — you or your lifestyle?

While it’s important to enjoy life today, relinquishing control of your cash flow to your current spending desires could easily consume your future lifestyle. There are some simple strategies that can help put you in control of your cash flow to safeguard your future lifestyle and reach your financial goals.

One step at a time

We’ve heard it many times from BMO Private Banking clients: “I’d rather go to the dentist than do a financial plan.” If the idea of creating a financial plan makes you cringe, start with some easy “workaround” strategies that can help preserve your future financial well-being.

One of the simplest strategies for preserving wealth for your future is one that many aren’t following: having an automatic savings program that ensures you save and invest on a regular basis. It involves no budgeting, no financial planning and little effort once it’s set up. It’s an easy way to pay the “future you” in a way that may have only a marginal impact on your current lifestyle.

Start by maximizing your contributions to tax-effective accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs), especially given the latter’s new, $10,000 annual contribution limit. Then consider a non-registered investment account for amounts above those limits.

How debt can help you save

An effective strategy for spenders who are debt-averse is using debt as a means of forced savings.

For example, if you purchase an expensive home, you force more of your cash flow into repaying this debt and away from other lifestyle items.

Wealth planning for you

As you begin to channel more of your income towards your future, wealth planning can truly take your cash flow control to the next level.

It begins with simple awareness. How much of your money is going into the four main spending categories of debt, living expenses, discretionary expenses and future savings? From there, we can begin to assess what you want your future lifestyle to look like and how best to fund it. As an added bonus, better managing your cash flow today can also preserve and add to assets for the next generation.

This publication is provided for informational purposes only. The information herein is current as of July 14, 2015 and is based on sources that we believe to be reliable, but we do not guarantee it. It may be incomplete, or may change without notice. It is intended as information of a general nature and is not to be construed as specific advice. The comments included in this publication are not intended to be definitive analyses of tax applicability, trust and estates law, or investment strategy. You should consult with the appropriate professional regarding your personal circumstances. No part of this publication may be reproduced in any form or rendered in any publication without our express written permission. Unless stated otherwise, none of the information in the articles posted on the Wealth Exchange is intended for residents of Quebec.

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