Financial planning is all about considering where you are now and building a clear picture of where you want to be (and by when). 

The good news is that creating a financial action plan isn’t as big or scary a job as you might think. It all starts with goal-setting. When you know what you want to achieve, you can map out how to get there.  

Why you need a financial plan

According to FP Canada, Canadians who plan ahead when it comes to their finances not only achieve higher levels of financial wellbeing, but also feel better about life in general. Knowing where you want to be, and how you can get there provides piece of mind.  

Think of creating a financial plan like setting your GPS before a long road-trip to Tofino. Knowing where you're going and having a route to follow removes a lot of uncertainty and increases your chances of reaching your destination on time.  

Step 1: Know where you stand

A good financial plan should start with knowing what shape your finances are in right now. Start by considering the following questions:

How much are you earning and spending?

Looking at how much you earn and what you spend it on [link to Spending article] lets you understand where you might be overspending or mis-spending on non-priority items.

What do you own?

Your assets could include anything you own outright, including a property, boat, car, or other valuable item, as well as investments and cash reserves. 

What do you owe?

Your liabilities include credit card debt, a mortgage, student loans, personal loans, and a line of credit. 

What have you saved?

Your savings include money saved for a rainy day, in an emergency fund, or that you are putting toward a specific savings goal.

What have you invested?

Investments typically include money invested for the medium- or long-term, including RRSPs, TFSAs, and RESPs.

How are you protected?

Buying insurance helps to minimize financial losses from death, illness, loss of income, or damage to assets. 

Are your loved ones looked after?

Estate planning, including making a Will, helps minimize any financial burden or complications from your death on loved ones, such as around tax and ownership or access to assets. 

Depending on your age, personal circumstances, and financial goals you might start by focusing on some of these more than others.

Step 2: Set some goals

Your goals guide your plan. They can include a final destination, such as a comfortable retirement, as well as stops along the way, including buying a home, finding that perfect weekend cabin, paying for a wedding, and saving for your children's education. They can also include goals that help you achieve your aspirational goals, such as paying down debt. 

The Government of Canada's Financial Goal Calculator can help you firm up your goals. 

"The right tools can simplify the whole process of creating a budget and achieving your objectives."

— Arwen Martyn, CFP, Financial Consultant, Coastal Community Credit Union

Step 3: Create an action plan

When you have a clear picture of both your current situation and what you want to achieve, you can create an action plan to help you get from where you are to where you want to be. Chatting with a financial advisor can bring the most important things into focus and help you navigate the best options.  

Your action plan should start by addressing the key financial areas we covered above.

Create a spending plan

A budget is a spending plan that logs and monitors your income and expenses (typically on a weekly or monthly basis) to help you achieve your goals. It includes allocating money to the various areas outlined in your plan. While you should review your overall financial plan once or twice a year, your budget is something you want to keep a much closer eye on—for example through a spreadsheet, app, or online platform.

The Government of Canada has a useful, and easy-to-use, online budget planner. Watch a short video on how to use it to create your first budget: 

Ramp up your savings

Along with spending wisely, saving money is the key to achieving your goals. When you know what you want to save for and how much you need to save, you can create a savings plan, including opening one or more savings accounts and planning to "pay yourself first" each pay cheque cycle. Setting up automatic transfers makes it easy to keep saving. 

Tackle your debts

Getting debt under control can help increase how much you can save. Your action plan should focus on ways to manage your "good debt," and minimize or pay down "bad debt." Good debt, such as a student loan or a mortgage, is lower-interest borrowing that leaves you with a valuable asset when it's paid off. Bad debt can include higher-interest borrowing or using credit for things you don't really need. 

Invest in your future

Coming up with an investment plan can help you increase your savings for retirement, a down payment for a home, or your children's education. You have quite a few options when it comes to investing, including cash, stocks, bonds, and mutual funds. Each option carries different levels of risk and can deliver different returns. Talking to a financial advisor can help you build an investment plan linked to your goals, budget, and tolerance for risk. 

"The Island is a fantastic place to retire," says Arwen Martyn, CFP, Financial Consultant, Coastal Community Credit Union.  "Talking to an advisor and putting a financial plan in place gives you a roadmap to achieve the kind of retirement you want." 

Have a safety net

A protection plan aims to cover you and your loved ones against financial losses due to unexpected events, and protecting your assets and investments. Without insurance, an unexpected event could force you to turn to savings intended for something else and scupper your whole plan. The most common insurance to consider include life insurance and property insurance. Estate planning helps you protect loved ones from unnecessary hardship. It includes making a Will and appointing a Power of Attorney.

Step 4: Use the right tools for the job

According to Arwen: "The right tools and advice can simplify the whole process of developing an action plan and achieving your objectives." We recommend starting with these:

• Calculators: There are online calculators for everything from setting goals to creating a budget to calculating credit card payments. Here are a few more.
• Recurring payments: Set up automatic payments, for example into a savings account, to help you save money without needing to remind yourself.
• Advisors: A financial advisor can work with you to set realistic goals, and act as a coach to help you achieve them.

Step 5: Keep reviewing and improving

Your financial plan is far too important to leave gathering dust in a drawer or on a computer file. Consider scheduling an annual review with a financial advisor, much as you might go to a doctor for an annual physical.

"An annual review tells you whether or not you're on track," says Arwen. "Then you can make adjustments and improvements as needed, or even change direction completely."

What are your financial goals? It's time to create an action plan for a brighter financial future.  

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