Today, I want to discuss financial plans and why they are important and to extend an invitation for you to create or refine your existing financial plan with me.
Many people like to skip the financial plan and instead focus on investments. I get it —investments are exciting, while planning is boring. But, conceptually, a financial plan is really the foundation with investments acting as the visible structure on top of it. A weak foundation can sometimes lead to a shaky structure.
On the outside, a financial plan is straightforward. You take your present financial circumstance – the values of your home, RRSPs, TFSAs, mortgage - add in your current financial behaviours like debt repayment and savings strategies - make some assumptions about the future like expenses, living situations, and other goals, like supporting your children. Add some time, shake it up and voila – there’s the plan.
Ultimately, financial planning assesses whether your current situations and actions align with future expectations. If there is misalignment, adjustments are necessary— and this is where it gets interesting and, let’s be honest, where it gets real.
Consider this example – you are looking at an income projection for a couple in their mid-50s wishing to retire at 60 which for most is aggressive. It doesn’t take a doctorate in finance to see what the chart is telling us. Red is not great news. In this scenario, they end up running out of savings in their early 80s and relying on their various pensions.
This is not what they wanted to hear.
To remedy the situation, we had 3 core levers to pull: retire later, spend less in retirement or save more today. This couple opted to increase their savings now and lower their retirement spending expectations.
What’s so powerful about the planning process is how it enables you to adjust your mindset, expectations and behaviours in real time.
In the previous example, it was the couple who came up with the actions to rid the plan of red – not me. That creates a tremendous amount of ownership and commitment to the plan.
A financial plan isn't just about tightening your belt. Quite the opposite, a financial plan can give people permission. To travel. To spend more freely. To gift. To renovate. To enjoy. For many, it can be challenging to switch from a mindset of putting money into the plan to one of taking money out. They fear that there may not be enough. But hopefully, a financial plan can allow people to see the bigger picture and live their best life.
The centerpiece of a financial plan is typically retirement income but we also help answer other questions like:
- How much can you help your adult child with a home purchase? That’s been a hot one for the last few years.
- Can you switch to a less stressful but lower-paying job and still meet your retirement goals?
- How much house can you afford after a divorce?
- Is a second property in the cards for retirement?
- Should you take your Old Age Security at 65 or defer it to 70?
- How can you maximize the after-tax value of your estate? This question may lead us to trigger taxes on purpose which is a tough thing to do without proper context.
A financial plan is not a play-by-play of how the world will unfold despite the scientific looking graphs and charts. Dwight Eisenhower wisely said: “I have always found that plans are useless, but planning is indispensable." It is the process of planning that matters. The conversations that matter. The “a-ha” moments. It is the clarity derived in knowing what is on and off the table financially.
In the end, a solid financial plan is your roadmap to living the life you want. Whether you're building your first plan, updating your existing one, or wanting to test some wild ideas, I'm here to help and let's get going!
Bryan Deviney is a Senior Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 416.216.6500 or visit www.bryandeviney.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
The case study mentioned in this presentation is provided for illustrative purposes only and does not represent an actual client or an actual client’s experience, but rather is meant to provide an example of our process and methodology. The results portrayed is not representative of all of our clients’ experiences.
