If you've ever asked yourself, "Do I have enough savings?" or "Am I well aligned for the future?", this article is for you!
We will cover why financial planning is important, what is financial planning, and what we can work on to achieve our goals.
How do you make sure you have a qualified financial planner?
To be a financial planner, you must be a member of the IQPF and registered with the AMF.
Why is it important to have financial planning?
It is used to answer the question “Am I well aligned for my short and long term goals?”, it is used to reduce stress and finally it serves as a guide for portfolio management.
What does financial planning cover?
Financial planning covers the following 7 fields:
- Finances: budget, savings capacity
- Retirement: retirement age, desired lifestyle
- Legal aspects: marriage contract, cohabitation agreement, shareholders' agreement
- Insurance / risk management: cover the needs in the event of death or incapacity
- Tax: optimize investments to reduce or postpone the tax bill
- Investments: asset allocation, expected return required to achieve objectives
- Estate: will, testamentary trusts
Is one of the 7 financial planning fields the most important?
The first step is very important! The budget is the basis for all the rest of the planning. We must start by determining whether we are in surplus or in deficit. Someone who has a good income but spends more than what they earn should tackle this problem before planning for the future.
Once we establish that we are not in deficit but in surplus with our financial plan, what do we do?
You have to ask yourself: what is my ideal in the short and long term? (retirement, home, marriage, estate) We start with the ideal scenario and, if it works, so much the better! If the ideal scenario does not work, you have to go back and make adjustments.
What points can we work on to make the financial plan work?
- The delay before being able to achieve my objective.
- How much money I'm going to need to reach the goal.
- Current savings level. Could I cut down on some things?
- Net rate of return on investments. For example, if you need 20%, it is not realistic. If you need 9% but you can't tolerate the volatility associated with being invested 100% in stocks, that's not realistic either. Also, for a short investment horizon, one should avoid stocks.
Once you know the financial plan is working, what would be the last step?
We need to ensure that portfolio management is in line with the plan and that everything is in place. For example, setting up automatic contributions to RRSPs or TFSAs. Following this, we need to review the plan periodically to ensure that we are still well aligned for the future.
Disclaimer
Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Marc-André Turcot, and not necessarily those of Raymond James Investment Counsel Ltd. Investors considering any investment strategy should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.
