The days are drawing in and Christmas is just around the corner. The shops are getting busier and, if you’re organized, perhaps you have even finished your Christmas shopping. For some though, Christmas is the season where they buy this year’s gifts with next year’s money. But with a bit of planning it doesn’t have to be this way. If you’re feeling the financial strain of the season, then financial life planning is something you should consider, and what better time to start than today. You can always become more financially literate and start benefitting from its value.
Everyone knows that Christmas comes once a year and therefore it makes sense to plan for it in advance to save yourself financial stress, there are many other life events that you know will come around one day, but require a plan to get there. Perhaps the most significant life event when it comes to financial life planning is retirement: understanding when you can afford to retire, how much you will need, and what goals you wish to accomplish both before and after you stop working.
Financial life planning deals with everything that’s important in your financial and personal life, from ensuring you can afford to do things that really matter both now and for the foreseeable future, to ensuring your family will manage without your income if you were to fall ill or die, or structuring your finances well so you can leave a legacy. It is an ongoing process to help you make sensible decisions about that can help you achieve your goals in life. Considering all these different aspects can result in some complex calculations but getting started doesn’t have to be difficult.
Integral to all financial life planning is having a plan written down. For some, writing down a financial life plan may be seen as a chore, or simply too difficult because the future is unknown. It’s true that life can be unpredictable and real life can complicate even the best made plans, but without even a basic plan there is a danger you could end up just financially drifting, simply hoping for the best.
Here are some ideas to hopefully inspire you to begin:
Making a start
Whatever your age or stage in life, its never too late to make a start. Lives can change very quickly and you’ll be grateful to have some cash saved when you need it. Ask yourself how long would your lifestyle last if you lost your income? Would you have enough to cope with an emergency?
Governments don’t provide
People tend to believe, wrongly, that the government will provide for them. As our population continues to age, there will be fewer people available to pay for retirement benefits, so government handouts will grow ever smaller.
Debt is robbing your future
If you have debt, then it is both impacting your financial health now and is stopping you from saving for your future. Make a plan to pay it off as quickly as you can.
How much do I need to retire?
Obviously this depends on your expectations in retirement. You need to think about your likely expenditure requirements on a month by month basis. You then should factor in additional capital needs like home repairs, a new car, and other unforeseen emergencies. Then you need to consider where this income will come from.
How do I get started
Let’s consider a simple framework to help get you started of financial life planning. At its core, financial life planning takes goals, needs, and objectives and designs a plan to achieve them. This process puts you in control of your financial future with clarity and confidence. It’s much more than financial advice which typically looks at single need like setting up a RRSP.
In a nutshell, a financial life plan should be about making the most of your life. We all know we are going to pass away one day, so why not aim to ensure that you have lived your life to its potential? And with people living longer and being more active, financial life planning is more important than ever as the traditional plan for retirement no longer applies for many.
Establish your goals
Simply writing them down is a powerful act that will help them come true, rather than keeping them in your brain to make happen some day. They may take years of diligence to achieve so get clarity of what you want to work towards. They don’t need to be set in stone, in fact, goals are always changing as we grow and develop.
Perform a financial audit
Establish the value of your assets and liabilities. Often these values are in different places so it can be hard to keep track. Think about all the different accounts and products you may have from current accounts and savings accounts, to your retirement fund valuations and mortgage balance.
Evaluate your financial position
The results of your financial audit could be surprising, perhaps positively if your investments have grown more than you expected, or the results could be quite sobering meaning you need to increase the amount you save each month to meet your goals. Regardless, it is better to know where you stand today rather than bury your head in the sand.
Develop your plan
Create a route map for achieving your different goals. Start by working out your goals in life, in the short, medium, and long term. Prioritize them, and think about the likely cost of those goals and when you will need the money. You can then start to plan your finances to work out how to achieve them. It’s about getting organized and being in control of your finances rather than letting your finances control you.
Implement your plan
Make the changes and make it happen. Making your life plans actually happen can be hard, especially if you’re unsure of the implications. For example, new retirement income rules haven given more freedom than ever before, but without careful consideration, there is the potential to over-spend or lose a significant proportion to the tax man if your distributions and other income take you over the higher tax rate threshold in any one year.
The bottomline
Working with a professional could be very helpful to help ensure your financial life planning is comprehensive and the best fit for your circumstances. In our experience, our clients are happier following a financial life planning process as they know that a Certified Financial Planner planner is sitting on the same side of the table as them, working with them to ensure they achieve their goals. They see that their goals and aims in life are the driver of the process. They feel empowered and excited by the knowledge of what they need to do to achieve their goals and in Keeping Life Current.
