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Why you need a financial plan

A financial plan is the road map to the retirement of your dreams. So why do so few people have them?

When it comes to financial planning, Canadians would rather visit a dentist than go through the process of building a road map to retirement, says Tania Slade, regional sales manager for BMO Mutual Funds.

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"Folks who don't have a plan think it's painful. They think we're going to tell them they're bad and they better stop spending their money. They don't want to know the truth; they just want to stay in denial."

Although past BMO surveys show that 91 percent of Canadians agree having enough money for retirement requires planning and advice to reach their goals, the reality is few people take concrete steps to get that help. Baby boomers actually spend more time planning their exercise, diet, home renovations and travel than they do planning for retirement, she says.

While 70 percent of Canadian boomers have an RRSP, fewer than 50 percent have a written financial plan in place, according to BMO's most recent survey of boomers. A further 21 percent say it's in their head, while 34 percent admit to having nothing at all.

That apathy toward financial planning can have a devastating impact on Canadians' financial health, say financial planning experts. Because without a road map to where you want to go, chances are you'll get lost or miss your destination.

"Everyone should do it; most do not," says Pat Connor, an investment representative and certified financial planner with Edward Jones in Ottawa. Canadians need to understand that "retirement really isn't a date, it's a dollar figure." The amount you'll need "to maintain a certain lifestyle" can only be determined by financial planning.

Warren Baldwin, a fee-only certified financial planner and regional vice-president of T.E. Wealth, in Toronto, adds that financial planning is simply a "process through which you need to work through to get a better understanding where all your finances are going and how they are going to come together."

The experts say a good financial plan has four critical components: an understanding of where you are at today, a look at where you want to go, a strategy and implementation plan for getting there and regular monitoring.

Each one requires you to have realistic and concrete goals and expectations; otherwise it will be a miserable failure. By being concrete, Connor says, "it leads to better decisions being made."

Where you are at today
This is the simple part of the plan, as it merely requires you to pull together current information about your wealth. However, it is also the most tedious and requires investors to dig into bank, brokerage and credit card statements and commit to paper their major financial assets and debts.

That means determining:
- how much you earn. Include all revenue sources, such as income, inheritance, rental property, etc.

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