Credible & Personal Financial Planning

Financial Planning is a two-step exercise.

Step 1: Enumerate your income sources and contrast this tally with your expense total. You can work from monthly or annual depending on your situation. Make sure to include those pesky “one-offs” like car repairs, school activities or holidays. Include everything.

Step 2: Inventory all of your assets that will be used or can be potentially used as retirement funds sources such your RRSP, real estate holdings or other investments. You will then want to identify your current as well as future liabilities. These could include your mortgage or future caregiving expenses for a loved one that you expect to be responsible for.

The outcome of this two-step exercise is a tally of your future expenses and expressed a function of your available assets to fund these (as in the sources of the future cash flows). The answer is binary; you either have enough assets vs your expense, or you do not.

It was once said, “a lack of planning is a plan to fail”. Just as you bring a map (or Google Maps) with you on a road trip, you should have some idea where you want your financial journey to end. If you want to end your journey in a comfortable position and enjoy life, it is much easier to do it with a financial plan.

Absolutely. You should start with a financial plan as soon as you get your first job and want to plan for a wedding, your first home or a trip around the world. As you age, your situation will get more complicated. Taxes, estate issues, combined with less time will make most successful investors turn to a professional financial planner. Remember, this is the first time you are doing this, while the planner will have been helping people in your very same situation for years. What you are paying for is his or her experience. Just like I pay a mechanic to change my brakes even though I can watch how-to videos on YouTube, there are certain things that warrant professional advice. The mistakes are just too costly.

You want to work with a financial planner who is familiar with both your current financial situation and the type of financial health you want to achieve. Some planners work with clients who need guidance on budgeting, others will work with divorce cases or exclusively with business owners. All of these situations are unique. Look for a specialist in the specific area that relates to your situation.

The Certified Financial Planner designation is controlled by FP Canada. They ensure that the professionals who obtained this designation have demonstrated a good level of financial planning knowledge through the examination process, and ensure that the holders adhere to a code of ethics conduct and pursue a continuing education path.

That question brings on a whole host of other questions. The short answer is that your savings should be a function of your expected withdrawal from those savings at a later date. Saving is about forgoing current spending now so that you can spend it later. In the meantime, you invest your savings so that they can grow and fund your future spending. However, there are no rules of thumb, hence, you need to go through the financial planning exercise to answer this question.

A good financial planner will ask you for the information they require. The additional information required will be in essence your life plan – How do you want your professional and personal life to unfold? Where does your financial situation fit with this life plan?

Ideally, a financial plan should be reviewed every three years. You should go through the planning exercise, or at least a portion of it every five years or as your personal situation evolves.