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Why 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.

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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.

Where you want to go
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. 

Slade 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 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.

Develop a strategy
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.

Baldwin 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.

 Jim Middlemiss 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.

-- Posted: Feb. 07, 2007
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