you need a financial plan
- how much you
spend. Do a monthly
budget mapping out all your expenses, from newspaper subscriptions to rent,
mortgage payments, food, utilities, etc. Be thorough and include all your discretionary
spending, such as daily lattes, weekly beers and munchies because Slade says it
all adds up. "Understand that every dollar you spend is going to cost you
in future goals."
- how much you owe. Include everything from student
loans to car payments, as well as outstanding credit card debts or mortgages.
- how much you have. Include everything from the savings bonds grandma gave you
to chequing and savings accounts, RRSPS, RESPs, savings GICs, mutual fund or brokerage
accounts and any properties you own.
Baldwin stresses the need to be comprehensive at this
stage, because this section forms the foundation for the financial plan. If this
work is weak or inaccurate, your plan can come tumbling down like a house of cards.
you want to goSlade says this is the stage
where you dream and consider lifestyle issues. How long do you want to work? How
do you want to live? Do you want to travel and if so, how often? Do you have champagne
or beer tastes? "Be realistic," Connor urges. Ask yourself, "Can
I actually achieve the objectives I have set down?"
This is the most difficult aspect for people to get
their heads around because it requires short-, medium- and long-term planning.
"It's different strokes for different folks," says Baldwin, noting that
each person's plan will look different.
step requires you to assess not only on where you want to be, but also to make
assumptions such as what the company pension plan will pay you, what properties
you will own, where you'll want to live, how much you'll make during your career
and when you want to stop working.
Connor says even the best-laid
expectations get derailed, so you should prepare yourself for changes along the
way, whether it's an illness, a remarriage or a new job. Keep that and be prepared
to modify your goals as you get closer to them.
Now that you know what you have and where you want to
be, it's merely a case of mapping out how to get there, and that's as much a number-crunching
exercise as anything.
Once you have a sense of what you need
to save for and when you will need it, it's a case of developing an implementation
plan for the strategy and knowing how much money you need to put away on a regular
basis to achieve that number. Slade strongly urges investors to pay themselves
first and make regular monthly contributions to their retirement savings. It eases
the pain of trying to come up with a lump sum at some point during the year.
notes to watch investment fees when implementing the strategy and investing in
financial products and to make sure your holdings are diversified and your risk
is being properly managed.Monitor, monitor, monitor
Connor says investors often get fixated on their annualized returns. While that's
important, he says what's more important is whether something has changed in your
life that will have an impact on your plan and require modifications. That's why
regular monitoring is so important.
Above all, don't procrastinate,
warns Slade, because a year wasted can't be recouped and time is valuable when
it comes to investing money.
is editor of Canadian Lawyer magazine and co-author of Your Guide to Canadian
Law. He's a frequent contributor to the National Post and Investment Executive.