How do I set up my financial plan?

14 October 2022 by National Bank
Why Should You Have a Good Financial Plan?

Have you ever thought about setting up a financial plan to manage your finances better? It’s likely the best way to help you reach your life goals in the short, medium and long term. Creating a financial plan could be a secure and flexible value for your retirement and beyond. Here’s why and how to plan based on your financial reality.

What is a financial plan?

A financial plan is simple. It’s a way of defining your life goals and then choosing the best path to achieve them. Like any successful plan, you’ll have concrete steps to follow that will help you in the short, medium and long term. Basically, it’s a guide with personalized advice to help you reach a predetermined financial destination.

What’s the difference between a financial plan and a retirement plan?

Although some steps are similar, a financial plan covers several areas. It applies across all the important stages of your financial life: Secondary residence, travel, work, education and, of course, your retirement. A financial plan makes saving easier and your financial efforts go further than if you didn’t have a plan.

A retirement plan focuses on the steps required to allow you to stop working and enjoy your retirement to the fullest. Your financial plan can help you prepare for retirement, but it can also help you get a head start on accomplishing your goals before and after retirement.

How do I create my financial plan?

It’s entirely possible to create one yourself using online tools, but we recommend you work with a financial expert to make sure the calculations are accurate. Financial experts have skills and knowledge of the economic context that add value to the process. They’ll ask you questions about your personal and financial situation to understand your needs and develop a financial plan that suits you.

Here are the steps you’ll take to create your financial plan: 

Set goals based on your plans

Before creating a financial plan, it’s important to consider your lifestyle and your partner’s lifestyle, if applicable. Think about your future together and the plans you’ll share during your working lives and in retirement. It’s best to have a concrete idea of your plans before meeting with your financial advisor. Here are some questions to help you reflect:

  • Where do you want to live?
  • In what type of home?
  • What do you like (or would you like) to do for fun?
  • What are your biggest upcoming expenses?
  • Do you have any concrete plans in the short, medium or long term?

Compile your documents

For your financial plan to fit your profile and be as accurate as possible, it has to be based on your actual financial situation. To make this happen, you’ll need to gather as many documents as possible with a number of current figures and data. The following types of documents could help you get the information you need:

  • Your pension fund statement
  • Your Québec Pension Plan (QPP) or Canada Pension Plan (CPP) Statement of Participation
  • Your detailed investment statements
  • Your pay stubs or tax return
  • Your notice of assessment
  • Your insurance policies
  • Your bank, credit card and loan statements

If you’re an entrepreneur, consider including:

  • Your financial statements for the past 3 years
  • The shareholders’ agreement (if applicable)
  • Your business insurance policy

Creating your personal budget and balance sheet

These documents will then enable you to paint a detailed picture of your financial situation, consisting of your assets and debts as well as your expenses and income. To do this, you’ll use 2 very important and complementary financial tools:

The personal budget

A personal budget is the best representation of your financial activity for a given period. An annual budget is the most common. It allows you to compare the money you make with the money you spend. The difference between the 2 is the amount available to invest, or if it’s a negative balance, the shortfall you’ll have to try to eliminate.

Balance sheet

A financial balance sheet is a portrait of your net worth. In other words, what you have minus what you owe. Your assets minus your debts. For example, your financial advisor will want to determine what portion of your home is already paid off and how much is still mortgaged.

A personal budget and balance sheet are 2 necessary steps and tools when developing your financial plan. While online budgeting and balance sheet tools are handy, your advisor can also support you in completing the various steps.

Create your financial plan by determining the steps involved

Building the plan is the step that requires the most knowledge, because it’s the most strategic part of the process. For best results, your plan must be based on personal factors such as your financial balance sheet and external factors like your economic context.

If you want a financial plan that makes sense and fits your profile like a glove, you’ll need more in-depth knowledge of things like financial planning, savings and investments. It also helps to have an understanding of economics. All of this knowledge will help you draw up a sound financial plan based on accurate and realistic calculations.

The purpose of the exercise is for you and your advisor to see whether you’ll have enough income and saving capacity to achieve your goals. You’ll also look at how to overcome certain shortfalls. Your financial plan will include savings goals and investment projections and recommendations.

Take action and follow up

Creating a financial plan is one thing. You also have to keep it up to date and adjust it over the long term. Keep in mind that your financial plan is not set in stone; it evolves over time.

Ideally, you should meet with your advisor once a year, especially if you’re approaching your retirement date. Together, see if your net worth and balance sheet have changed enough to affect your financial plan.

Of course, if a major life event could disrupt your financial situation, such as losing your job, separating from your partner or even getting a promotion, it’s a good idea to discuss it with your advisor immediately. You can then modify your plan as needed.

Your financial plan will guide you throughout your life, even after you retire. It enables you to navigate the different financial stages of your life with more certainty and peace of mind, even in the face of unexpected events. The advantage of your financial plan is that it’s not fixed. You can continuously adapt it as your personal and financial situation changes.

To discuss your future financial plan with an advisor,

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