Your Plan Starts With Goals

Financial planning experts agree that having a plan is essential, and that it is important to periodically revisit that plan. As with many things in life, it is never too late to start with a financial plan.  My main point in this short post is that your plan should not start money, but rather with your life goals. It works best if your plan is in writing.

Life Goals

Start with the big picture. Each plan will be unique, since each of us is unique, but the following questions may be helpful.

• Who are the most important people in your life?
• What in life is most important to you?
• Who else are you, or might you be, responsible for, and what are their needs?
• What organizations and causes do you want to support?
• What are your career aspirations, and what do you need to get there?
• What age do you hope to retire, and do you see retirement as a partial or full retirement from paid work?
• What makes you happy?
• What special needs to do you have?

Getting There

After you have your life goals established, the next step is to make a reasonable series of financial estimates of what you will need to achieve your goal.  For example, if you want to fully retire at a certain age, make reasonable estimates of how much you anticipate needing. Keep in mind that OAS and CPP will get you part way there.  Then use a calculator such as this one from Financial Post to estimate how much you need to contribute each year to meet your goal. 

Other goals will be easier to estimate.  For example, perhaps you want enough for a down payment on a house of a certain price in five years time, or want to build up an emergency fund to cover 9 months of expenses.

Some may be more complex - for example you want to be able to quit your job and start up a business. You need a reasonable business plan not just for startup funds, and income replacement, but also to anticipate possible business losses in early years and a contingency fund.

Not Just One Plan

I think that having multiple parallel plans works best for many of us.  For example, have one retirement plan, another that is a plan for education savings, a plan to work toward a major housing goal,  a plan for helping causes important to you, etc. Clearly the different plans must make sense when taken together with your resources, but it is often simpler to establish the way forward when we view it as a series of parallel paths. Also, I think it is more encouraging to see that progress has been made in meeting some goals, even when we have fallen short on others.

Some argue that multiple plans add complexity, but I think the opposite is true.  It is simpler to look at our financial goals and progress as a series of parts, and then view the big picture as the sum of those parts.

Rebalance Your Life Plan

Just as we are advised to rebalance investments annually, you should revisit the life goal aspects of your plan periodically.  Evaluate whether your goals or circumstances have changed, and make changes to your plan. One advantage of your plan being in writing, even if as simple as a bullet list of items, is that it makes it easy to see whether you are on track, and where changes are needed.  I have never done this personally, but I know of people who set a date, like New Year's, for a formal reconsideration each year, and I think that makes a lot of sense.

Know When To Hold and When To Fold

While plans are important, they can and should be changed. As the Kenny Rogers The Gambler lyrics suggested

"You've got to know when to hold 'em  

Know when to fold 'em"

I think that some of us don't know when to hold them, when to stay firm to goals, even when things seem difficult. But some of us are also too resistant to change goals, even when, deep down, we know we should.

Maybe something that was important to you, is no longer so important.  Perhaps you have new priorities.  Maybe you have changed your mind and want to retire earlier or later. Sometimes conditions require us to change our plans - for example after the market crashes some had to postpone retirement, or make it a partial retirement.

Resources for Developing a Financial Plan

I don't personally like the financial priority and order in some of these processes, but the following are valuable background for developing your financial plan.

1. WikiHow have a clear and attractive article on developing a financial plan. I particularly like their emphasis on SMART.  Is it Specific, Measurable, Achievable, Rewarding and Timely
2. The Moneysense Financial Plan Kit is surely one of the most complete guides out there, and well thought out.  They provide a series of Word of PDF documents to help you create a plan in 11 steps.
3. Although not as prescriptive as the above, the finiki document on Creating a Financial Plan is Canadian with good information on a number of aspects of your plan.
4. Want to see what an award winning financial plan looks like? See this great Canadian financial plan here.

Closing Thoughts

Life is not about investments.  Investments are tools, nothing more (or less).  They are tools that allow you to care for others, to provide educational opportunities, to feel secure in your retirement, to allow independence, to support organizations and causes important to you.

Whether you want to engage a professional financial planner to assist you with the plan is a matter of personal preference.  If you are making the plan yourself, make sure that you use valid sources to help you with quantitative aspects of your plan.

For many it makes sense to start the life plan goals on your own, but then get a professional financial planner to help estimate how much you will need, and how to get there financially. You can find a CFP® (Certified Financial Planner) in your area here. I would not count on an advisor who has a stake in your investments to help you with a financial plan.

If you do use the services of a professional planner, always keep in mind that it is your plan and you must take ultimate responsibility for your plan.  She or he may help you develop the plan, but never ask (or let) an advisor to make the plan for you.

This posting has considered developing a life plan, and a little bit about the financial needs for that plan.  After that part of your plan is complete, you also need an investment plan, that will guide how to invest your savings consistent with your life plan.  We will cover investment plans in a future post.

Happy planning!

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor, and reading this column should not be interpreted as obtaining individual financial planning or investment advice. For major financial decisions it is always wise to consult skilled, impartial professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.