Every financial company is pushing financial planning these days. It seems everybody is using the term financial planning to describe the work they do. But are they really doing a financial plan? Most importantly, do you really have a financial plan? If not, do you need one?
If your planner spent 15 minutes to get their computer to spit out a printout of which mutual funds to buy and how much you need to save for retirement, that is not a financial plan.
When your broker or investment adviser talks to you about how to invest this year's RRSP contributions, that is not a financial plan.
Many of the options that are out there simply help you to address one or two key areas. In doing so, they don't take a look at your entire financial picture and therefore the recommendations may only be partially right, but often this leads to poor decisions.
So if we know what is not a financial plan, then what is?
A comprehensive financial plan looks at all areas of your personal and financial life.
This plan helps provide tremendous insight and instills confidence in the decisions you make in your day-to-day life. It can answer questions such as:
• Can I afford to buy that new house or vacation property?
• Which type of insurance should I have?
• How much risk do I really need to take with my investment portfolio?
• How much tax will I pay, and what can I do to significantly reduce it?
• Will I have enough to retire?
• Will I run out of money?
• How can I afford to help my kids with some of their financial goals?
• How much can I afford to pay for my grandkids education?
You may want to check out a free e-book called Financial Planning: Helping You Sail Successfully into the Future. It will help you to better understand the different components of a comprehensive financial plan - and will highlight how the plan can help you make smarter decisions. It was written by my colleague Frank Wiginton, a CFP, CIM (Canadian Investment Manager) and a Fellow of the Canadian Securities Institute.
You can get a free copy of the book by e-mailing Frank at frank@wiginton.ca.
Not everyone needs a comprehensive financial plan. At younger stages of life it can be as simple as work hard, save some money every month, and only borrow at the best interest rates. However, for most people 50+, when retirement starts to be in sight, or especially in the first year of retirement, a comprehensive financial plan can provide peace of mind, major tax savings, and a sense of control over a significant part of your life and legacy.
Ted Rechtshaffen