16 Feb

There are lots of old adages that apply to personal finance: “A penny saved is a penny earned; don’t take any wooden nickels; don’t put all your eggs in one basket”, etc.  One of my favorites is “Waste not, want not”, and I believe it is not too much of a stretch to apply the 3 R’s of Reduce, Reuse and Recycle to personal finance.


Cash Flow Plans reduce wastage of money on things that don’t matter.  Living within your means is the basic building block of financial literacy.  Unless you are like King Midas, only a certain amount of money flows into your household each month.  A Cash Flow Plan makes sure you reduce leakage of that money on things are not important to you so that you focus your resources on what does matter.

The Cash Flow Plan process uses a holistic, standardized process and formula that allows me to bring another set of eyes to your assets, liabilities, income and expenses, finding ways for you to manage your cash flow more effectively.  It gives you an easy way to control spending where you can and shows you where you will be in 10 years if you follow the plan.  While reducing leakage of your cash flow, you are also reducing anxiety about the future.


If you are in a position where you have good finances, you own a home, but you haven’t yet maximized your RRSP contribution for this year, you can re-use your good financial status and credit score by borrowing money to contribute to your RRSP.  Here is an example:

Using a calculator designed for this, I see that a woman who could afford to put away $300 per month for 24 months, may borrow about $7000 as a RSP contribution.

If the woman has an income of $80,000, this contribution of $7000 gives her a tax refund of just over $3000.  If she borrows in February and gets her tax refund in April and applies it to the RRSP loan, the debt of $7000 is now reduced to $4000.  Instead of paying off the loan over 24 months, she now has only 14 months to go. The interest rate on the loan is around 3% and if she can grow her RSP investment by 5%, she will also be ahead in her earnings despite having borrowed money for a short period of time.

She is able to reuse the bank’s money and her tax refund for building her investments.  She could also recycle the tax refund into a TFSA to build up emergency savings, or into a RESP to top up education savings plan.  Many contributions to RESP get 20% education savings grant from the federal government.   (There are limits to the maximum which can be contributed and which are eligible for savings grants). 


An interesting way to recycle money in several different manners is through a Critical Illness insurance (CI) policy.

This kind of insurance provides a sum of money to look after ourselves in a crisis, such as life-threatening cancer, heart attack, stroke, Parkinsons, MS, kidney failure, dementia, etc. (most policies cover 24 conditions).  If you get a diagnosis of critical illness covered by the policy, after 30 days you get the lump sum of the face value of the insurance to use for anything you want.

That could be getting medical help outside of the country, bringing parents or family members to live with you and help take care while you recover, paying down/off debts (even your mortgage), using the money for cash flow until you recover, etc.

To recycle money, the policy can be set up to include the following special features:  return of premium on early surrender (usually after 15 years), and return of premium on death.

Let’s look at the case of $100,000 coverage for a 45-year-old woman.  Paying for the extra premiums costs her an extra $804 per year which she can consider forced savings (she will pay $200 per month instead of $130).

Because her policy is set up as permanent, the insurance company cannot cancel it; however, after 15 years or any point after that, if she decides that she no longer needs Critical Illness insurance, then she can trigger the return of all premiums paid and recycle this money into savings or other investments.

In addition, as she has also chosen the return of premiums on death, suppose that she passes away, without ever having recourse to the policy, all the premiums paid flow to her estate, to cover her final expenses, taxation on her estate, and flow to her beneficiaries.

She has set up her policy to recycle her premiums in one of two different ways, should she never make a claim on the policy.

There is even another way that she may recycle her premiums; with some companies, Critical Illness insurance converts to Long Term Care insurance (LTC) to cover costs if she becomes functionally dependent on others to help her with daily living activities.  (Functionally dependent means you can no longer manage 2 or more activities of daily living such as feeding, dressing, getting in and out of bed, etc.)  In this case, the CI policy converted to LTC provides her with a monthly amount to get help at home care or in an institution.

Tennesse Williams is quoted as saying: “You can be young without money, but you can’t be old without it”. If he were alive today, I think he might agree with this good advice:

REDUCE taxes;

REUSE the bank’s money by borrowing to add to your retirement savings and REUSE any resulting tax refund; and

RECYCLE the insurance premiums into more benefits.

Contact me for innovative strategies on improving your personal finances at mheenan@assante.com or 416-939-2000.

It’s just good advice.


Using borrowed money to finance the purchase of securities involves greater risk than using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.