Financial Planning

Need for a Financial Plan

Economic growth, the trend towards two-income families, ever changing tax laws, changing lifestyles, increasing pressure on the government pension plan system, complex family units and early retirement packages are just some of the factors that have increased the complexity of managing your personal finances.

You may have failed to develop a financial plan for a number of reasons:

►    You may be confused about the financial planning process: Some people are intimidated by the size and complexity of the task of financial planning, and choose to avoid it altogether.

►    You may be shying away from the commitments inherent in the planning process: Formulating personal financial objectives can be a difficult task because it forces you to consider your real needs. Also, it often requires you to make hard choices between diverse or conflicting objectives. Furthermore, the strategies designed to meet your objectives can often require you to adopt changes in behavior.

►    You may believe it will be expensive: in fact, the real cost of planning may be lower than you realize, and in some cases, it might already be built into the cost of the financial products or services that you already use. It is also important to balance the cost of planning with the cost of not planning in terms of unnecessary income tax paid, lost opportunities or, in the worst case, financial ruin.

►    You may unconsciously resist planning for death or disability: Some people are so uncomfortable with the thought of catastrophic occurrences such as disability or death that they avoid planning for them.

Failing to plan adequately for your financial future may cost you in more ways than one. Some examples include:

►    Inefficient use of resources: If you don't have a clearly defined financial plan, you are more likely to make impulse decisions, or tend to take an ad hoc approach to financial planning.

►    Failure to meet financial objectives: As the saying goes "those who fail to plan, plan to fail". If you fail to develop clearly defined objectives and plans to achieve them, you are unlikely to reach your financial objectives.

►    Unprepared for catastrophes: You may be financially unprepared to meet catastrophes such as death, disability, prolonged unemployment or confinement to a custodial care facility. Unfortunately, the personal distress that accompanies these types of catastrophes is often unnecessarily compounded by financial stress caused by the related loss of income.

►    Higher than necessary taxation: Most people would not dispute that some type of taxation is necessary to support our current standard of living; however, no one likes to pay more than their fair share. Although very few real loop-holes remain in the Canadian tax system, there are many legitimate ways to minimize or defer the amount of tax that you pay.

Personal financial planning is the process of examining your own financial and personal situation, defining realistic short-term and long-term financial objectives and developing and implementing strategies for reaching those objectives. To effectively and efficiently satisfy your financial needs, consider working with a financial planner in developing a formal plan for acquiring and allocating money and building a secure financial future. 

The information contained in this commentary is designed to provide you with general information only, and is not intended to be comprehensive advice applicable to the circumstances of any individual. We strongly urge you to seek professional assistance before acting upon information included herein.