Financial planning is really the process that encompasses everything for you as an individual. It does not only look at retirement, or which investments you should buy, or estate considerations, or insurance, or taxes. It encompasses all the complex aspects of your life. It focuses on all the financial and psychological factors that have an impact on your life.
Why is financial planning important?
For most Canadians, we don’t live in a vacuum. We rarely see situations where an individual lives their entire life as a single person with no children and no other commitments. Our lives begin to become more complex when we get married, and even more complex when we have children. Our extended families grow. We also see complexity in our work careers that may cause us to move within Canada and outside of Canada. During this time, we also purchase a home and then go through several upgrades of home. We may acquire other assets such as a vacation property or rental properties. We may get divorced and remarried extending our financial obligations. Children then desire to acquire a post-secondary education, and it goes on and on. Life does not stop while we decide what our financial goals and priorities are.
A well-designed financial plan will help you to reach your personal financial goals and objectives, and it will give you a greater sense of security.
There are several Life Stages, as follows:
- Starting out;
- Young family;
- Established family;
- Retirement; and
As you pass through each stage, life throws different challenges at you and a well-designed financial plan will provide you with the tools necessary to handle many of them.
The Total Financial Planning Process
The financial planner will use the Total Financial Planning Process, which is comprised of six distinct steps:
- Clarifying your present situation – this is done by collecting and assessing all relevant financial data – assets and liabilities, tax returns, insurance policies, wills and pension plans.
- Identifying your financial and personal goals and objectives – this will also help you to clarify your financial and personal values and attitudes.
- Identifying financial problems – these are problems that can create barriers to your financial independence.
- Providing written recommendations and alternative solutions – these will be structured to meet your need without undue emphasis on purchasing specific products.
- Assisting you to implement the right strategy – to ensure you reach your goals and objectives.
- Providing you with a review and revisions to your plan – to ensure that you achieve your goals.
Why hire a Financial Planner?
People hire financial planners for many reasons. Often people just don’t have time to attend to their personal financial affairs. Some people are confused by conflicting financial advice from several sources. Some people feel that they are paying too much tax. Others are confused about the way to invest their money. Some people are concerned about making ends meet or that they can’t save money. An finally, life changes such as retirement, job loss, inheritance, a loss of a child or spouse, an addition to the family, and many more situations can cause confusion.
Other considerations/final thoughts
Your financial plan should always be reviewed after any major life event – such as a birth, death, or divorce – to ensure it reflects your new reality, and then adjust it as necessary.
Products and services used in financial planning
- RRSPs, RRIFs, LIRAs, LIFs, TFSAs
- RESPs, RDSPs
- Investment funds
- Tax planning and services