What should my financial plan cover?
Financial planning: the ability to meet short term needs plus the confidence to realize long term objectives, while managing financial risk. That’s my definition. It really boils down to financial security – peace of mind.
What should your financial plan cover?
Inspired by a few recent emails on this subject I’ll outline a few things I would expect a financial plan to cover and how such a plan can help you.
First up though readers in the My Own Advisor inbox lately:
Thanks for your responses. About a financial plan though I’m not sure what I need to do? I already save money.
I appreciate your feedback. I know you can’t offer any financial advice but what do you mean when you say you prefer ‘plans over products’?
You write about goals on your site. Why do you do that – I guess these are all part of your broader plan? If so what are those broader plans and how did you end up defining them?
Financial Planning 101
Your financial plan should likely cover every aspect of your personal finances. This means your plan should likely cover:
- Goal setting
- How you organize your money (i.e., budgeting)
- Paying down debt obligations
- Insurance needs
- Tax management
- Retirement planning
- Estate planning
- Answering really important questions like:
- Why is money important to me?
- What is my money for?
- How do I know I’m doing it right?
Here are some examples of why you might want a financial plan that describes how you will succeed:
- I want to send my kid(s) to university.
- I’d really like to go on a trip to Europe.
- I’ll need to replace my car in a few years.
- I’d love to renovate our bathroom next year.
- If anything happens to me I want to make sure my family has income security.
- I wish I could pay off this line of credit.
- By the time I am 60 I would love to retire.
Few financial plans are set in stone, actually, more like none of them are. We all have a life and things change in it. Things change day-to-day let alone month-to-month. This means in any given year things can be very different than the year before. This is where financial plans can help. Financial plans can be revisited when expectations about our future change. They can help us let go of things we couldn’t predict or see coming. They can stabilize our financial worries because we’ve covered some money risks.
Our Financial Plan
For what’s it worth here are some near-term and longer-term things that are part of our financial plan in no order of importance:
- Become debt free. In doing so it will provide some significant financial flexibility – all income made will be ours to keep or spend beyond the basic necessities as we chose.
- Save for a newer car. We need one and just one!
- Have (retirement) income security. We continue to save and invest for our financial future by striving to maximize contributions to our TFSAs and RRSPs every year. We do so even though we have some small workplace pensions in our future.
- Manage risk. We have robust life insurance plans in place in case something happens to one of us.
- Worry less about money. With a modest emergency fund in place – we have money available to us for a few months if we need it.
- Have fun. We set aside money every year for international travel and long weekend experiences to look forward to.
With a financial plan in place, you’ll have a better understanding of where you stand today, where you want to be and how you can get there.
I look forward to having some expert opinions on this site to cover this subject in the future. Stay tuned!
What are your thoughts on financial plans? Do you have one that covers short-term need, longer-term goals while managing financial risk throughout?