A Financial Plan is a Roadmap

Posted on: January 10, 2018

In today’s hectic world, most people have neither the time nor the expertise necessary to navigate the financial complexities of modern life. They need help making sense of it all, and would benefit from a comprehensive, thoughtful approach to money matters.

For many Canadians, 2018 will be the year they get their financial house in order, and take their first few steps towards improved financial well-being. And a detailed financial plan will be their roadmap.

If you are like many Canadians, you’re anxious about your finances. Seven out of 10 Canadians say they worry a lot about their financial situation and nearly 80% don’t have confidence that they’ll achieve their financial life goals. These result aren’t terribly surprising – Canadians are facing the most challenging economic times in decades. Personal debt is at an all-time high, the cost of home ownership is out of reach for many, and day-to-day living expenses are outpacing income growth. Don’t forget about the ongoing concerns about funding retirement, and your child’s education. Add in the potential for having to cover some health care costs for aging parents and it’s no wonder Canadian’s are financially stressed out.

A financial plan helps you see the big picture. When you have a plan, it’s easier to make financial decisions, stay on track, and achieve your goals. It will give you confidence, and the direction to ensure progress is made in all facets of your financial well-being. And for those experiencing a major life change or transition such as retirement, marriage, divorce or job loss, the process of creating a financial plan will help address the complexities these life changes often bring.

The benefits of financial planning are clear. The results of a three-year longitudinal study of 15,000 Canadians, conducted on behalf of Financial Planning Standards Council, revealed that those who engaged in comprehensive financial planning have significantly higher levels of financial and emotional well-being. Individuals with a financial plan have a better handle on their cash flow, have a plan to pay down debt and are more prepared for emergencies. They have a better understanding of their investments, they know what to do to retire comfortably and have greater peace of mind.

A Financial Roadmap

Unfortunately, many Canadians are held back by the common misunderstanding that financial planning is just about budgeting, or that it’s only about investing for retirement. Some believe that financial planning is for anybody but them, that they are too old, too young, or not wealthy enough. The fact is, most Canadians can benefit from financial planning, regardless of life stage or situation.

A financial plan is a tool with well-defined objectives. It’s a roadmap that helps you define your financial life goals and provides the tools, information and structure necessary to organize your finances and make the most of the money you have. It can help answer a wide range of questions, both short and long term, including:

  • Where does all of my money go each month?
  • How do I get ahead financially?
  • What do I need to do to retire comfortably?
  • How can I afford to work part-time, have a baby or start a new business?
  • Can I manage the expenses of buying a new home?
  • How should I manage my money if I’ve recently become widowed or divorced?
  • Should I put my money into an RSP’s or pay down the mortgage?
  • What’s the best way to finance my child’s education?
  • Do I have enough to create a financial legacy for my children and grandchildren?
  • Can I provide additional financial support to the charitable organizations that mean the most to me and my family?

A financial plan will help you answer these questions in an organized, structured manner. By creating a financial plan, you will know the necessary steps to get from where you are now to where you want to be with greater confidence and ease.

A Financial Planner typically provides a written financial plan which outlines your goals, challenges and considerations, recommendations and action plan. A comprehensive written financial plan generally includes the following:

  • A clarification of your short, medium and long term goals
  • A statement of Net Worth
  • An analysis of your cash inflows and outflows
  • A detailed budget and debt-reduction strategies
  • A review of your current investments and investment strategy advice
  • Projections regarding your retirement, including pension recommendations
  • A review of your insurance needs, group benefits and estate planning, including recommendations
  • The action steps needed to implement your plan

Although the planning document is a valuable tool, the real benefit is in the planning process and understanding that financial planning is a lifelong, dynamic process. Here’s how one Money Coaches Canada client described the benefits of the financial planning process:

“I felt scattered and not really sure where to start or what specific areas to look at. Now I feel like I have been given a direction and a map to follow. I can see exactly what I need to do, and I feel more confident following through with these steps knowing that there is someone I can speak with if I run into any problems. I now have a trusted ally that I can work with through every stage of my life.”

When you have the right plan for your circumstances, covering every area of your financial life, from investments to tax planning, insurance needs and retirement planning, you can balance what you need and want today with the personal goals you have for the future.

The Difference Between a Financial Planner and Investment Advisor

A Financial Planner’s service offering is usually much more broad than that of an Investment Advisor. A Financial Planner employs the financial planning process to help manage all aspects of your personal finances more successfully. All of your financial needs will be considered including cash flow analysis and budgeting, debt management, tax planning, investment planning, insurance, retirement and estate planning. The ideal Financial Planner is an independent voice that places a strong emphasis on personal financial education so that you are better informed, more confident and in control of your financial affairs. Unlike Money Coaches with Money Coaches Canada, some Financial Planners also provide investment management services.

Most investment Advisors, on the other hand, provide only investment management and investment-related advice. An Investment Advisor may help broker the sale and purchase of stocks and mutual funds or make recommendations on developing a balanced investment portfolio. They do not, in general, get involved in any other aspects of your financial well-being.

There are many different compensation models for investment advisors. It’s important to know how your advisor is being paid. Most investment advisors either derive their income from sales commissions or by charging a fee based upon the amount of money they are managing on your behalf. Some investment advisors also receive sales commissions for selling other financial services products, such as insurance products, or loans.

If you are interested in hiring a professional to provide holistic, comprehensive financial advice, a Financial Planner is a better choice. But choosing the right Financial Planner takes careful consideration. To begin, it’s important to understand that financial planners generally fall into two categories.

1. Financial Planners licensed to sell investments or insurance
Typically, this type of Financial Planner will provide you with a financial plan for free if you purchase, or intend to purchase, investments or insurance with them. Others referred to as fee-based or asset-based Financial Planners may charge a fee for the plan then give you with the option to invest or buy insurance from them.

The model of Financial Planners licensed to sell financial products is the most common one with the advantage of being a one-stop-shop for clients looking for financial planning and investment management. However, there is also a potential for conflict of interest in a model that blends planning advice and financial products. Ask for full disclosure on what services you can expect, how the planner will be compensated, and the overall fee you will be paying.

2. Financial Planners who don’t sell financial products
Fee-for-service or advice-only Financial Planners or Money Coaches charge clients a fee either hourly or by project. Fees typically range between $2,500-$5,000 per engagement depending on the complexity of planning needs.

Some advice-only Money Coaches provide comprehensive financial plans and others will help you address specific issues such as getting out of debt or saving for the things you want.

The terminology in the financial advice industry is not standardized so be sure to ask questions and to clarify what you can expect from your advisor no matter what model of financial advice works best for you.

Where to Find a Financial Planner

Finding the right financial planner requires due diligence and takes some homework. It’s wise to interview more than one Financial Planner and be prepared to ask them some very specific questions. Here are a few questions to ask a Financial Advisor before hiring them. The personal finance magazine MoneySense also maintains their own data base of MoneySense Approved Financial Advisors.

The clearer you are on what you are looking for in terms of guidance and what you expect from the relationship, the more likely you will find a Financial Planner that works for you. Do your homework, take advantage of complimentary consultations, ask questions, and trust your instincts.

Need Help Creating Your Financial Plan?

At Money Coaches Canada, our Money Coaches will help you develop a clear understanding of your financial situation, create a plan to reach your goals, and provide unbiased advice to keep you focused and on track.

If you are looking for transparent, commission-free advice that considers all aspects of your financial well-being, consider a Money Coach. A Money Coach is a fee-for-service financial professional that doesn’t sell investments, insurance or financial products. They are experts whose sole interest is your financial success.

To book your confidential, free initial consultation with a Money Coach, please contact Money Coaches Canada today.

Category(s): Investing, Money Coaching
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