What is Financial Planning?

What is Financial Planning?

Every time a paycheque hits the bank account, many of us use that money to pay bills and cover our expenses. When the next cheque comes, we do everything all over again. Maybe we receive a big bonus every once in a while. But maybe there is also a large, unexpected expense. What happens then? How many of us have an investment account we can funnel the new-found funds into, or to draw from in times of need? The answer is financial planning. 

Financial planning is the best way to manage the waxes and wanes in your financial situation. It allows you to live comfortably, while saving for a rainy day and, eventually, retirement.

Setting up a successful financial plan looks slightly different for everyone. But the general path looks the same. Typically speaking, there are six steps to creating a solid financial plan. 

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Review Your Finances

How do you know where you want to be without knowing where you are? So, it’s important to review all of your current debts, assets and spending to see what your finances actually look like. 

Set Goals

Do you want go on a trip around the world? Retire early? Just keep your head above water? Whatever your goals, you can’t plan without a solid vision in mind. If you need help, sit down with a trusted advisor to pinpoint your true goals, or to add goals to make sure your plan is working for you.

Choose Your Financial Path

You need to be comfortable with whatever plan you set up. However, if it’s too aggressive, you’ll likely struggle to achieve your goals. Be reasonable and realistic with your financial plan. 

Investigate Alternatives 

There are always multiple routes to the same end goal. So, explore alternatives before settling on one specific path. 

Implement The Financial Plan

Once you set up your plan and consider alternative ways to reach your goals, put your money where your mouth is and implement your plan. It’s time to buckle down and watch your efforts slowly begin to pay off in stability and savings. 

Evaluate and Review

A financial plan isn’t a set-it-and-forget-it scenario. Check in regularly to see if it’s working, as well as what might not be working as effectively. Tweak your plan as necessary as you move along the process. Additionally, review your financial plan, at minimum, on an annual basis. If you have a major financial shift (inheritance, job loss, promotion, etc.), meet with an advisor to reevaluate your current plan to see how to handle your new reality.  

Who Can Help Set up a Financial Plan?

There are different types of financial professionals who can work with you to plan your finances. None are better than the other. But each offers their own unique expertise and experience to help you with your financial planning.

Financial Planner

A financial planner works with you to create a financial plan in order to reach your goals. They may advise you on financial planning, risk management, investment planning, tax planning, retirement planning and estate planning.  Financial planners can be paid in different ways. Be sure to ask your planner how they’re paid.

Investment Advisor

The role of an Investment Advisor is to help make recommendations of quality investments, and to analyze securities, such as mutual funds, ETFs, stocks and bonds. Typically, investment advisors are fee-based and work with you to build a portfolio of investments that are best suited to your financial situation, and your long- and short-term financial goals.

Financial Advisor

A financial advisor provides advice on how to manage your money. They are well versed in the market, and provide recommendations on savings, investment and insurance tools to invest in. However, while they do know about the market and can make investment recommendations, they are less specialized in investments than someone for whom that is all they do. Still, they are a great source of educated advice in overall financial strategy.

There is so much more to investing money than savings and stocks. In addition, there is so much more to know about how to best invest your money based on your goals. Whether you want to manage your own investments or have someone else have total control, set up your money in a secure way that is best designed to successfully meet your own specific goals.

Financial Coach

Unlike most other financial planning professionals, a financial coach, also referred to as a money coach, doesn’t have the same specialized training in individual aspects of investments and insurance. Instead, they work with clients to understand their true goals, needs, personality and relationship with money in order to provide a financial stable plan.

A financial coach doesn’t sell financial products. They help clients through the process of setting up a financial plan and adhering to it.

Perhaps you are like so many people who rack up credit card debt month after month, and can never seem to get ahead. Or, maybe you are so scared of falling into any debt that you carry no debt and have limited credit history. Neither example demonstrates a healthy relationship with money. Work with a financial coach to improve that relationship through guidance, support and educated advice.

What is Included in a Financial Plan?

Financial plans reflect each individual situation. Businesses require a different type of financial plan than those designed for a family or an individual. However, the type of financial plan you need is based on your unique scenario. 

A well-designed, simple financial plan includes six-key components. It:

  •         Helps you set up a plan to save
  •         Sets you up for retirement
  •         Guides you towards paying off debts
  •         Ensures you are properly insured
  •         Gets as much of your tax dollars back in your pocket
  •         Includes a plan for your assets and dependants should you pass away

A comprehensive financial plan include all of the above, as well as:

  •         Estate planning
  •         Tax planning
  •         Cash flow analysis 
  •         Risk management
  •         Investment management

Do I Need a Financial Plan?

Whether or not you make a significant income or have a family, everyone benefits from sound advice and guidance to distribute earnings to set them up for financial success. Short- and long-term financial planning enables you to live comfortably now and into the future. Secondly, it prepares you to weather the waxes and wanes in your income. And finally, it gives you a financial situation to see you through to a comfortable retirement. 

So, in short, yes, you need one. You work hard for your money, and should make sure you get the most out of today, and tomorrow. 

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