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Your Simple Financial Plan- Part 1

November 6, 2013


Fasten your seat belts, we’re taking a ride. More like a whirlwind plane trip at 50,000 ft.

If you’re like most Canadians, you don’t have a financial plan. Nor, do you understand what I’m talking about.

Think about taking a long and exciting road trip to many far off destinations where you’ve never been before.  Last fall, my husband and I set out on a 3 week driving trip from Toronto through approx 15 U.S. states and back.  What a wonderful experience.  We knew we were going to get lost along the way but, sometimes, that’s just part of the excitement.   There were turns, twists and many bumps in the road.  But, with some destinations in mind, and a trusty GPS or map, we were always OK.

A financial plan is like a money road map through your life with your goals being your destinations.  At any given time, you will have short, medium and long term goals that you want to achieve.  For most of us, with limited resources, this means making tough choices along the way.   Perhaps, changing priorities as we navigate the different stages of life.  But its really the journey that matters, not the final destination!

How great would it feel to stop worrying about money?  To know where you stand and what you can/can’t afford.  To know if you’re on target to achieve your goals.  Whether you are 18 or 88, it’s always the right time to think about a financial plan.  Preparing a simple plan can be an incredibly liberating exercise.  It can open your eyes to new possibilities, give you confidence about your money and even permission to spend. How satisfying is that?

Here’s a quick introduction to my favourite components of a simple financial plan.

1)  Goals/Values

Without some goals, you have no idea where you want to go.  Goals are the things that get you out of bed in the morning.  Values are the way you want to live your life- the things that are most important to you.  Goals and values are the starting point for any financial plan.

2)  Earn Income

Unless you are independently wealthy, your career and lifetime earnings potential is the foundation of your financial plan.  Your earnings will determine what you can and can’t afford.  Give your career the time and investment it deserves. Career success is all about finding something you enjoy, something you’re good at and something that will pay you a reasonable wage that you’re happy with.

3)  Reduce Debt

Debt incurred to buy appreciating assets, like a home, is usually a necessary part of life.  But, so to, should having a plan to become debt free, ideally before retirement. The faster you pay off your debt, the less it will cost and the more options you will have for the use of your money.

4)  Manage Spending

The only way to grow your wealth over time is to spend less than you earn.  Many people do not know, watch or track what they spend in a given year, even in retirement.  Over-spending is a big reason why people encounter financial problems.

5)  Manage Savings and Investments

If you don’t save money today, you will have nothing to invest for tomorrow.  Building your savings and investments will give you financial flexibility for the inevitable bumps in the road that happen i.e. job loss, illness etc.  And, these savings and investments will provide income for a happy retirement.

6)  Manage Risk

When you are young and/or have a family, your most important asset is your current/future earnings potential.  Especially if you have significant debt.  You need to protect your loved ones in case the unthinkable happens i.e. death, accident, critical illness etc.

7)  Reduce Tax

Do you know that taxes are one of the most significant expenses of a Canadian family?  It can often make sense to manage the big picture view i.e. your total lifetime tax bill rather than your taxes due for a specific year.  With few exceptions, most people can learn better ways to build wealth in a tax-smart way.

I’m guessing, by now, that you think this financial plan does not look simple?  If you take it one step at a time, it can be easier than you think.  Do a quick assessment of your own situation- where are the biggest gaps?  Work on those first.  You will feel proud of even small accomplishments and know you are making a positive difference to your family’s financial health.

Over the next 7 weeks, I will talk about each of these components in more depth.  I want to help you understand and take the steps you need to tackle your own simple plan.  So stay tuned- it’s going to be a fun ride!

  1. Frez permalink

    Reblogged this on fredtroy and commented:
    ” La politesse est à l’esprit ce que la grâce est au visage.” Voltaire “Stances”

  2. Having a gameplan/manifesto/strategy whatever you want to call it is so important! Like you said, you wouldn’t start a big trip without planning, so why wouldn’t you also make a comprehensive plan on saving/investing!?

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