It is important to understand to know that no two plans should be the same. Everyone has their own set of unique circumstances that need to be accounted for. Below is a good start as to what a comprehensive financial plan should include:

 Goals and Objectives: An understanding needs be established of where you are going and why. On top of this your goals and objectives should be shared with all key advisors.

 Time Frames: It is important to differentiate between short, medium and long term goals as well as identify strategies and assets to coordinate with those specific goals.

 Balance Sheet: A look at your current assets and liabilities gives you a starting point. What resources do you currently have that can be used more effectively to achieve your goals.

 Income and Cash Flow Statement: As with the balance sheet your cash flow statement tells you what your lifestyle expenses are, your taxes owing and what is left over that can be put towards your goals.

 Risk Management: Before you can begin looking at your investments we must protect your assets. You want to be prepared for poor economic times, health care issues, and other unexpected financial emergencies. Many excellent profitable investment portfolios have been undone by poor financial planning.

 Strategies/Action Plan: Once you have a clear understanding of where you are and where you want a go you can start looking at specific strategies. These strategies include being prepared for emergencies/opportunities, tax plans, income plans, education, retirement, estate as well philanthropic. All of these strategies will change over time.

 Projections: Projections allow you to look at how your strategies will impact your ability to achieve your goals through your assets, liabilities, net worth, income and cash flow statements. These projections will be partially based on assumptions. It is vital that your assumptions be realistic, reviewed and adjusted yearly.

 Stress Test: It is important to recognize that regardless of how complete and comprehensive your plan is, it is an absolute certainty that the actual results will not be exactly as illustrated. The main culprit is that there are events that fall outside of this plan that we cannot control such as financial markets or the economic climate in general. The point of the stress test is to look at the “what ifs” and see how your plan will hold up.

© NATIONAL BANK FINANCIAL. All rights reserved 2013 – 2017.
National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).

Products and services of the National Bank Financial — Wealth Management are only offered in jurisdictions where they may be lawfully offered for sale. All products and services are subject to the terms of the applicable agreement. The information in this Website is subject to change without notice. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should consult with their financial adviser to determine if these securities may lawfully be sold in their jurisdiction.

In the early to mid-90’s most banks, Insurance and Mutual Fund Companies were promoting the importance of a financial plan. The reality is that many of these early plans were created simply to support and promote the sale of financial products. It was the selling of a financial product that led to the commoditization of the financial service industry (but that’s a discussion for another time). As the purpose of these early plans was simply to help sell product their scope, was very limited. The software was simplistic; it didn’t allow for “what ifs”, alternate scenarios and advanced tax strategies. At the same time much of the data/assumptions being used were completely unrealistic (double digit returns, markets that never go down, assumed tax rates, etc).

 As the markets continued to climb, more and more product was sold with the backing of the financial plan. It was the market crash in 2000 and more recently 2008 that exposed the disconnect between these plans and reality. The road to financial independence is not linear, in reality there are many pot holes that must be navigated before we can successfully reach our goals.

Due to the fact that reality is not linear, people should have a plan. If asked, the majority of people would instinctively agree that financial planning is good for them, yet only 20% of Canadians have a comprehensive financial plan. The truth is Canadians need a compressive financial plan.¹ Not only has it become increasingly more complicated to achieve financial independence, but there are so many more potential risks to your financial health including, loss of income, health concerns, down markets and sudden emergencies, etc to touch on only a few.

The key is being prepared prior to being faced with one of life’s uncertainties. The goal is to protect your net worth by anticipating contingencies allowing you to stay calm and make better decisions versus emotional decisions. In that sense, what distinguishes prepared investors is their ability to anticipate contingencies exceeds their ability to predict the future.

According to the Value of Financial Planning  study commissioned by FPSC, 83 per cent of Canadians who engage in comprehensive financial planning said they feel in control of their finances while 64 per cent with financial plans feel prepared to manage through tough economic times compared to only a third (33 per cent) without plans.¹

I would like to challenge those who responded that even without a plan they are prepared to manage through tough economic times. What is it that makes them believe that they will be okay? Is it wishful thinking or the proverbial “it won’t happen to me”?

As per my last post (Time To Review), I would like to reiterate that an investment plan is not a financial plan. Developing a plan takes a great deal of time, energy and patience. It is important to have an understanding of your own personal biases towards money, debt, investments and risks. You need to analyze multiple scenarios, and not just the rosy ones but also the scary “what ifs”. Conversations need to be had with family members and all key advisors. (To see what goes into a financial plan click here)

With all the complexities that Canadians face in their attempt to achieve financial health, it has never been more imperative for people to have a financial plan. Canadians have to start treating their household finances the same as any successful business would. “Planning is bringing the future into the present so that you can do something about it now.” Alan Lakein

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. “It’s Time to Get over ‘Getting by'” Financial Planning Standards Council Cary List, President & CEO, FPSC November 17, 2013, http://financialplanningweek.ca/news/its-time-get-over-getting
   

    

    

   © NATIONAL BANK FINANCIAL. All rights reserved 2013 – 2017.
   National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).

   Products and services of the National Bank Financial — Wealth Management are only offered in jurisdictions where they may be lawfully offered for sale. All products and services are subject to the terms of the applicable agreement. The information in this Website is subject to change without notice. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should consult with their financial adviser to determine if these securities may lawfully be sold in their jurisdiction.