Around this time of year, many people are beset by doubts and anxieties
about their financial situation – especially after the no-holds-barred
holiday spending season. You can always get your personal financial
chaos under control with some basic budgeting techniques, and there are
hundreds of very good, free, online resources to help you do that. But
it sounds like you’re having trouble with the bigger picture. To get
your overall financial life in order, you have to start by looking at
it from the top down.
Start by setting some general goals for both short-term and long-term
personal objectives. For example, do you want to save for a down payment on
a home? Are you setting money aside for retirement? A vacation? A new car?
Make a plan, Stan
Goals need a plan – one that allows you to set priorities and assess your
resources. Take a blank sheet of paper and draw a line vertically down the
centre. On one side, list your goal – say a Caribbean cruise with a cost
of, say, $5,500. On the other side of the sheet, write down how much you
can set aside from every paycheque to put towards that goal. Divide the
bigger amount by the smaller amount to see how long it’ll take to save up
to pay for that cruise in cash. At this point, you might just give up and
go back to the plastic. But that’s just a plan to dig a deeper hole.
So maybe you could use a financial planner who is an
expert at this sort of thing. If you want to make sense of that shoebox
full of slips, and bills, and forgotten priorities, find a Certified
Financial Planner to help you out.
Save a few bucks, why don’t you?
Easy to say, but how do you do it? The quickest way is to transfer some
manageable fixed amount every month (or every paycheque) from your bank
account to an investment account. One rule of thumb says you should set
aside about 10% of your after-tax income. The trouble with rules of thumb
is that they are often based on myth. Setting aside 10% of your salary
isn’t really possible for most of us. The real trick is to set aside
whatever you can comfortably afford to, but do it consistently.
If you put, say, $50 a week –$200 per month – into a low-risk investment
account that generates 4% return compounded annually, after 25 years your
savings will have grown to over $102,000! It’ll grow to a lot more if you
gradually increase the monthly savings amount and the rate of return as you
become more financially secure over the years.
Okay, so you have some investments
If you already have an Registered Retirement Savings Plan (RRSP), a
Tax-Free Savings Account (TFSA), or a non-registered brokerage account, be
sure that your entire portfolio matches your tolerance for risk. If you
swear up and down that you’re an ultra-conservative investor, your
portfolio is crammed with equity mutual funds, that’s hardly low-risk! It’s
a fairly simple matter to fix, with a questionnaire I use to
draw up a realistic risk profile.
It’s not complicated. Ask yourself what level of loss you can stand in your
portfolio over a given length of time. Are you okay with a drop of 10% over
three months? Or a year? On a $50,000 portfolio, that’s $5,000. Remember,
10% is how much the stock market loses when it’s going through what’s
called a “correction.” Be honest: Are you comfortable losing some of that
$5,000 in a short time? Think of it this way: If you lose 10% on a $5,000
portfolio, you’ll have to make over 11% on your investments (now worth
$4,500) to get back to breakeven. If that worries, you, maybe you’re not as
risk-ready as you think.
Creating an honest risk profile will help you rebalance your portfolio in
the New Year to just the right mix of safety, income, and growth assets
that will truly meet your needs – and let you sleep nights.
Setting budgets for the nuts and bolts of your monthly income and outgo is
all well and good – and even necessary. But it’s only one part of the
personal finance equation. Starting at the top, setting goals, and
developing a plan are really the first steps to bringing order to financial
chaos. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for
high net worth individuals and families. She is also listed as a
MoneySense Approved Financial Advisor. Contact her directly by phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2018 by the Fund Library. All rights reserved. Reproduction in whole or
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The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.