Life is unpredictable. But, as we age,the volatility of life encourages us to planandprepare. Sadly, most Canadians don’t. According to one recent CIBC poll, more than two-thirds of Canadians don’t have a financial plan. This iscausing them to put their goals aside, pay their debts using personal savings and put their financial stability for retirement at risk. Having a plan for your money will keep your financial information organized so you can handle your money without stress.
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The Importance of Having a Financial Plan
The same poll, conducted by one of the five biggest Canadian banks, also statesthat 77% of Canadians are concerned about having enough retirement savings; 11% say they won’t. As a result, they might need to entirely rely on CPP and/or OAS.
The situation may get worse as more and more Canadians go into debt.Ignoring this issue is only going to complicate it more.A financial plan keeps your financial position and goals in mind.
Its purpose is to make sure you can lead the kind of life you wantafter retirement or during unexpected life events, such as job loss or divorce. The plan includes a financial audit of your household and financial statements thatincludecash flow, income statements and a balance sheet. In this way you get a better idea about your true financial performance and position. Based on this you can measure your spending habits and after-tax income levels. Whatever the surplus or deficit, it can then be measured against your liquid assets and investments.
This is also a great way to identify some important factors like tax planning, corporate structures andyour need for insurance. In short, it’s a perfect way to get a well-documented summary of your financial condition while saving you time and money.
Financial Planning According to Your Need
Financial planning is not a one-size-fits-all solution. You may require some professional assistance to manage all the tasks. The good news is that you can get financial planning services suited to your budget andneed.
- If you’re only interested in portfolio management, where you need asset allocation and balancing risk against the performance of your assets, automated investing services or online services can help. These services range from automatic entries and asset rebalancing to tax optimization. Since the process is digital, it costs far less than human portfolio managers.
- For holistic financial planning and investment advice, there are online services that provide you access to human advisors. Whether you need automated investment management or to consult a team of financial advisors, this can be useful. When you’re provided with a dedicated human financial advisor, they’ll not only help you manage your investments but offer a complete financial plan. You can rest assured that your finances are checked regularly to make sure they stay on track.
- In case of complicated financial conditions, you may need a specialist in tax planning, estate planning or insurance. You can always hire a fee-only advisor who have signed an oath to act in your best interest.
How to Make a Financial Plan
Here’s a quick guide that’ll help you get a grip on your money.
1. Set Financial Goals
It’s always important to set priorities.Ask yourself where you see yourself in the next five, 10 or 20 years.What do you hope your retirement will look like? Answering these questions is important because these goals will keep you motivated to make them a reality. If you feel unsure about where to start, getting the help of a tool to set your financial goals is a good idea.
2. Identify Your Monthly Cash Flow
Find out what you can about your monthly cashflow. Unless you know where your money is coming from and going to, you can never plan properly.
3. Don’t Let Emergencies Become Disasters
No matter what you’re planning for, one of the key elements of any financial plan is putting money away for emergencies. It may be difficult at first but you can always start small. In this way covering small emergencies and repairs will help you avoid credit card debt. Once you’ve mastered this, you can move on to bigger goals, such as planning basic living expense for an entire month.
Another way to disaster-proof your budget is to build credit. Good credit means you can access better rates on loans and cheaper rates on insurance.
4. Manage High-Interest Debt
Remember, high-interest debts are poison to financial planning. Credit card balances, payday loans and rent-to-own payments have such high-interest rates on them that you end up paying twice or even thrice the amount you borrowed.
If you’re already struggling with debt, try seeking a debt consolidation loan or a debt management plan to wrap several expenses at a much lower rate.
There are no cloudnine days without rockbottom moments. But don’t let them put a halt to your life.A financial plan is anything but a static document. Simply take advantage of this tool to track your progress and you can adjust your life accordingly.