Planning ahead and financial wellness go hand in hand. The good news is that creating a financial action plan isn’t as big or scary a job as you might think.
Financial planning is all about considering where you are now and building a clear picture of where you want to be (and by when). It all starts with goal-setting. When you know what you want to achieve, you can map out how to get there.
According to FP Canada, Canadians who plan ahead when it comes to their finances not only achieve higher levels of financial wellbeing, but also feel better about life in general. Knowing where you want to be, and how you can get there provides piece of mind. Think of creating a financial plan like setting your GPS before a long road-trip. Knowing where you're going and having a route to follow removes a lot of uncertainty and increases your chances of reaching your destination on time.
A good financial plan should start with knowing what shape your finances are in right now. Start by considering the following questions:
Depending on your age, personal circumstances, and financial goals you might start by focusing on some of these more than others.
Your goals guide your plan. They can include a final destination, such as a comfortable retirement, as well as stops along the way, including buying a home, paying for a wedding, and saving for your children's education. They can also include goals that help you achieve your aspirational goals, such as paying down debt.
The Government of Canada's Financial Goal Calculator can help you firm up your goals.
"The right tools can simplify the whole process of creating a budget and achieving your objectives."
When you have a clear picture of both your current situation and what you want to achieve, you can create an action plan to help you get from where you are to where you want to be. Chatting with a financial advisor can bring the most important things into focus and help you navigate the best options.
Your action plan should start by addressing the key financial areas we covered above.
Create a spending plan
A budget is a spending plan that logs and monitors your income and expenses (typically on a weekly or monthly basis) to help you achieve your goals. It includes allocating money to the various areas outlined in your plan. While you should review your overall financial plan once or twice a year, your budget is something you want to keep a much closer eye on—for example through a spreadsheet, app, or online platform.
The Government of Canada has a useful, and easy-to-use, online budget planner.
Watch a short video on how to use it to create your first budget
Ramp up your savings
Along with spending wisely, saving money is the key to achieving your goals. When you know what you want to save for and how much you need to save, you can create a savings plan, including opening one or more savings accounts and planning to "pay yourself first" each pay cheque cycle. Setting up automatic transfers makes it easy to keep saving.
Tackle your debts
Getting debt under control can help increase how much you can save. Your action plan should focus on ways to manage your "good debt," and minimize or pay down "bad debt." Good debt, such as a student loan or a mortgage, is lower-interest borrowing that leaves you with a valuable asset when it's paid off. Bad debt can include higher-interest borrowing or using credit for things you don't really need.
Invest in your future
Coming up with an investment plan can help you increase your savings for retirement, a down payment for a home, or your children's education. You have quite a few options when it comes to investing, including cash, stocks, bonds, and mutual funds. Each option carries different levels of risk and can deliver different returns. Talking to a financial advisor can help you build an investment plan linked to your goals, budget, and tolerance for risk.
Have a safety net
A protection plan aims to cover you and your loved ones against financial losses due to unexpected events, and protecting your assets and investments. Without insurance, an unexpected event could force you to turn to savings intended for something else and scupper your whole plan. The most common insurance to consider include life insurance and property insurance. Estate planning helps you protect loved ones from unnecessary hardship. It includes making a Will and appointing a Power of Attorney.
The right tools and advice can simplify the whole process of developing an action plan and achieving your objectives.
We recommend starting with these:
Your financial plan is far too important to leave gathering dust in a drawer or on a computer file. Consider scheduling an annual review with a financial advisor, much as you might go to a doctor for an annual physical. That way you know whether or not you're on track, and you can make adjustments and improvements as needed, or even change direction completely.
What are your financial goals? It's time to create an action plan for a brighter financial future.
Contact us to discuss your financial wellness, including how to develop a financial plan. We've got your back
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These articles are made available to you as tools for independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy. All examples are hypothetical and are for illustrative purposes only. Please visit your branch to seek personalized advice from qualified professionals for all personal finance issues.