Sinking oil prices are set to shrink the cost of living for most Canadians in 2015, but what should advisors be doing to win control of that freed-up cash?
The cost of living for most Canadians will fall dramatically in 2015 thanks to oil prices which haven’t been this low since December 2008. What should advisors do to grab a piece?
There are several things an advisor can do in this situation. Increased RRSP and TFSA contributions immediately come to mind as does debt repayment, whether it be for credit cards or the mortgage; even RESP’s.
But before any of this can happen, we first need to figure out what kind of savings we’re really talking about. According to Statistics Canada there were 31.7 million registered vehicles across the country in 2013, which includes cars, trucks, buses, farm vehicles, ATV’s, snowmobiles, etc. The savings for rabid snowmobilers, who have a penchant for spending a lot of money on their passion, is significant in and of itself.
I digress.
The first, and easiest calculation, is to figure out the annual cost savings per vehicle. This comes to $473 or less than $40 per month. It might not seem like much but when these funds are invested over 25 years at an annual rate 4% (adjusted for inflation and fees), the nut at the end of two-and-a-half decades is slightly less than $21,000.
According to a Toronto Star article from 2014 the average Canadian household has 1.5 cars putting the true savings per household at more like $710 or almost $31,000 after 25 years. Unfortunately, if you live in the Oshawa-Hamilton corridor, much of the potential cost savings could be lost to new taxes if those proposed by Metrolinx back in 2013 to help fund transit in Southern Ontario are ever implemented.
However, it’s all a moot point because the odds of oil prices staying at $50 a barrel for 25 years are slim to none.
What’s important here is that advisors can use the drop in oil prices as an entry point into a discussion about budgeting and cash management. If you have clients who are prone to overspending this is a great time to suggest they set up a monthly savings plan using the projected gas savings to fund the plan, which could then act as an emergency fund for unexpected expenses. Even better, if they haven’t done so already, is to open a TFSA to hold these funds.
I’m no expert when it comes to financial planning but when an opportunity knocks, I think you want to take advantage of it.
There are several things an advisor can do in this situation. Increased RRSP and TFSA contributions immediately come to mind as does debt repayment, whether it be for credit cards or the mortgage; even RESP’s.
But before any of this can happen, we first need to figure out what kind of savings we’re really talking about. According to Statistics Canada there were 31.7 million registered vehicles across the country in 2013, which includes cars, trucks, buses, farm vehicles, ATV’s, snowmobiles, etc. The savings for rabid snowmobilers, who have a penchant for spending a lot of money on their passion, is significant in and of itself.
I digress.
The first, and easiest calculation, is to figure out the annual cost savings per vehicle. This comes to $473 or less than $40 per month. It might not seem like much but when these funds are invested over 25 years at an annual rate 4% (adjusted for inflation and fees), the nut at the end of two-and-a-half decades is slightly less than $21,000.
According to a Toronto Star article from 2014 the average Canadian household has 1.5 cars putting the true savings per household at more like $710 or almost $31,000 after 25 years. Unfortunately, if you live in the Oshawa-Hamilton corridor, much of the potential cost savings could be lost to new taxes if those proposed by Metrolinx back in 2013 to help fund transit in Southern Ontario are ever implemented.
However, it’s all a moot point because the odds of oil prices staying at $50 a barrel for 25 years are slim to none.
What’s important here is that advisors can use the drop in oil prices as an entry point into a discussion about budgeting and cash management. If you have clients who are prone to overspending this is a great time to suggest they set up a monthly savings plan using the projected gas savings to fund the plan, which could then act as an emergency fund for unexpected expenses. Even better, if they haven’t done so already, is to open a TFSA to hold these funds.
I’m no expert when it comes to financial planning but when an opportunity knocks, I think you want to take advantage of it.
