Financial Literacy: Elements of planning

Growing need to take charge of your financial life

This is a challenging time for building your wealth and saving for retirement. A newly released survey by FP Canada found that Canadians between age 45 and 54 are struggling the most during the Covid-19 pandemic. Over a third in the so-called “Sandwich Generation” (caring for both children and aging parents) say they don’t think they can recover financially, and less than half say they were strong enough financially before the pandemic not to have to worry about their financial health. And the FP Canada 2020 Financial Stress Index indicates that Canadians rank money as their greatest cause of stress in life.

But research has also shown that those who engage in financial planning report significantly greater peace of mind, are on track to achieve their life goals, and enjoy elevated levels of overall contentment in their lives. But what does “financial planning” actually mean?

To ensure your financial plan meets your financial objectives, at a minimum it needs to contain the following information in detail:

The amount of money that you need to save each year.
The asset allocation that would give you the highest probability of maximizing your return with the least amount of risk.
Tax planning strategies to minimize your overall tax.
Judicious use of credit.
Plans for a pre-retirement lifestyle that allows you to have achieve the financial goals to fund the retirement lifestyle that you want.

So how do you go about achieving that goal of arranging your financial affairs in a way that enables you to live well now while saving for a secure retirement? The financial planning process can be broken down into five key components. There’s more to it, of course – a lot more – but at a minimum, here’s what goes into a financial plan.

1. Goals and objectives. To create a workable plan, you need to establish realistic expectations given your current financial situation, the state of the economy, and financial markets. Look at your entire financial picture including all family income, expenses, debts, real estate, all registered (RRSPs, TFSAs, RESPs, etc.) and non-registered (brokerage and other) accounts, and anything else that might have a bearing on your wealth outlook. Are all these elements currently working together in an integrated plan to achieve your immediate cash flow needs and longer-term goals for a financially secure retirement?

2. Investment planning. Review your portfolio, create a detailed statement of investment objectives, define the optimal allocation of your investment assets, and create a detailed investment strategy to meet your needs. This should take into account both short-term savings requirements and longer-term retirement income needs.

3. Risk management. With the help of a planner, it’s useful to analyze your current life, health, and disability insurance protection, including all employment coverage and benefits, assess your true needs, and create a cost-effective plan.

4. Tax planning. Analyze your current family tax situation and look for any major tax-planning opportunities you might have missed – anything from spousal RRSPs to income-splitting strategies. Also, don’t overlook tax-minimization planning for those who are business owner/managers, professionals, senior executives, and self-employed.

5. Higher education. A four-year university education is starting to edge up to the $100,000 mark. Do you really want to saddle your kids with that kind of debt on graduation? Of course not! Look into a variety of education savings plans and strategies, including RESPs and TFSAs.

6. Estate planning. Wills, trusts, registered accounts, and insurance policies are just some elements that go into creating an estate plan that meshes with your overall financial plan. Expert financial and legal help is needed to create a tax-efficient estate plan that most effectively carries out your wishes.

7. Advice. Are you getting the right kind of advice to mesh all these moving parts into a workable plan? Or are you just getting sales pitches from a variety of conflicting sources – brokers, fund salespeople, insurance agents, banks, and so on? Take stock of your situation and determine whether you are at the stage where you need a single source of professional, conflict-free wealth management advice.

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. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

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.