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 it all over again. Maybe there’s a bonus thrown in there every once in a while. There might also be a large, unexpected expense like a new car or home renovation. What happens then? Even more, how many of us have an investment account where we funnel earmarked funds or draw from in times of need? The answer to both is financial planning. 

What is financial planning?

What 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. The general path, however, looks the same.

Typically speaking, there are six steps to creating a solid financial plan. 

Review Your Finances

How do you know where you want to be without knowing where you are? 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 to go on a trip around the world? Retire early? Buy a home? Just keep your head above water?

You can’t plan on meeting your goals without a solid vision in mind first. If you need help, sitting down with a trusted advisor to pinpoint your true goals, or to add to them makes sure your plan is working for you.

Choose Your Financial Path

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

Investigate Alternatives 

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

Implement The Financial Plan

Once you set up your plan and consider alternative ways of reaching your goals, it’s time to put in the work and implement your plan. When you have a plan in place (as well as patience), you can 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. You need to check in regularly to see if it’s working – or if it’s not very effective. 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.  

Learn more about high-interest savings accounts in Canada on our blog

Who Can Help Set up a Financial Plan?

There are different types of financial professionals who can work with you to plan your finances. Each offers its 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, so when you’re in the process of choosing one, be sure to ask 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 best suited to your financial situation, including 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, investing, and insurance.

Keep in mind: 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.

Financial Coach

A financial coach doesn’t sell financial products. Instead, 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. Working with a financial coach can help you improve that relationship through guidance, support and educated advice.

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, coaches work with clients to understand their true goals, needs, personality, and relationship with money in order to provide a financially stable plan.

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 includes 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 set them up for financial success. For starters, short- and long-term financial planning enables you to live comfortably now and into the future. Secondly, it prepares you to weather potential fluctuations in your income. 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! Make sure you get the most out of it.


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