Have you ever wanted to reduce your debt? Or save for a vacation or a down payment on a home? Or just feel more financially secure? If you have, all of those financial goals (and more) are far easier to reach with true financial planning.
Having a well-crafted financial plan not only helps you to set and achieve clear goals but it also provides you with strategies that will give you greater financial confidence. But what is financial planning, exactly? What makes for a comprehensive financial plan? And how can financial planning help you become financially secure? ?
Key components of true financial planning
True financial planning is not just about managing your money or growing investments; it’s about developing a detailed plan to achieve all your financial goals. It involves setting clear, achievable objectives and developing a strategic plan to reach them.
There are numerous elements that should be included in a financial plan. Here are some of the key components:
Reviewing your current situation and your financial goals
A starting point for any true financial plan is to know where you are right now and where you want to be in the future. Are you carrying a lot of high-interest debt? Do you have any retirement savings? Could you survive an unexpected event, such as losing your job or becoming critically ill?
Getting a clear picture of where you want to be financially is crucial. It will give you the ability to plan out exactly what needs to be done to get you there.
Budgeting/managing cash flow
A well-structured, realistic budget is the foundation of good financial planning. It helps you track your income and expenses, and ensures that you live within your means. By understanding exactly how much you’ve got coming in and where your money is going, you can make informed decisions and prioritize your spending. This is crucial, not just so you can manage day-to-day expenses, but also so that you can save for the future.
Managing debt
This is another critical aspect of true financial planning. If you’re carrying a lot of high-interest debt, it can feel like it’s impossible to free up any money for saving. However, there are various strategies for paying off debts, such as consolidating high-interest debts (such as credit cards) into one loan with a much lower interest rate.
Building an emergency fund is another key part of financial planning: it provides a financial buffer in case of unexpected expenses or income disruptions, and can help you avoid taking on high-interest debt. Having a financial plan that includes better debt management can significantly reduce financial stress and free up more income for saving.
Planning for major purchases
A well-thought-out financial plan can help you save money for major purchases. This can help avoid paying interest on loans that you would otherwise have to take out to make those purchases, which in turn will free up more money for other financial goals.
Saving for your kids’ education
If you have children, planning for their future is probably a priority for you. Given the costs involved with post-secondary education, starting to save for their education early can help avoid seeing your children graduate with heavy debt. A Registered Education Savings Plan (RESP) can help you to save for their education more efficiently, with tax-deferred growth and government grants that help these savings grow faster.
There are also investment products available that are designed specifically for RESPs. IG Target Education Portfolios, for example, change the mix of assets they hold over time. In the early saving years, they contain more assets with high growth potential, then as your child approaches high school graduation, they’re replaced with more conservative assets.
Retirement planning
A true financial plan approaches retirement planning with a robust strategy that’s flexible enough to adapt over time. It typically involves building an investment portfolio that’s primarily made up of investments with high growth potential in the early years.
If you have 30-plus years to go before retiring, you can afford to maximize your retirement portfolio’s growth potential by predominantly holding equities (shares in companies). If the markets dip, there’s still plenty of time for these investments to recover before you need to draw from them to provide you with retirement income.
If you’re close to or in retirement, your retirement plan still needs to allow for some portfolio growth to maximize your retirement income, while ensuring that your investments are relatively safe. Retirement planning is far from a “set-it-and-forget-it” strategy; it requires constant monitoring and tweaking to balance growth with security.
Managing risk
True financial planning ensures that you’re financially well prepared for anything that life might throw at you. A serious illness or injury that leads to a prolonged period of being unable to work can badly derail your financial plan. Similarly, if you or your spouse were to die, this could lead to serious financial difficulties for the family.
A comprehensive financial plan includes an insurance strategy so that, no matter what may happen to you and your family, you’ll be able to keep your financial goals on course and remain financially stable. Plus, it should be built into your overall financial plan, to ensure that it’s affordable and sufficient.
Estate planning
Many people think that estate planning is just for extremely rich people, but this couldn’t be further from the truth. True financial planning includes an estate plan that covers a multitude of concerns, including writing a comprehensive will; putting in place a power of attorney for both finances and medical decisions; naming beneficiaries for your insurance policies and registered accounts (such as your TFSA and RRSP, where appropriate and if permitted by provincial legislation); and deciding how to leave a lasting legacy.
A well-crafted estate plan can minimize legal complications and tax liabilities, providing peace of mind for you and your family.
A mortgage strategy
When it comes to getting a mortgage, many homeowners only focus on finding the lowest interest rate possible. True financial planning, however, integrates a mortgage strategy into your financial goals.
A mortgage strategy can include:
- A refinance to reduce your high-interest debts and free up more income.
- Access to a low-interest loan with a home equity line of credit.
- Ways to pay off your mortgage faster.
- Leveraging your home’s equity to gift your children money towards a down payment.
- Lengthening the amortization period to reduce mortgage payments and free up more cash.
Business planning
True financial planning integrates business owners’ finances with their personal finances. It adopts strategies to help you maximize the value of your business. It helps minimize taxes and helps you prepare for succession. It’s also crucial for turning the eventual proceeds from your business into substantial, predictable retirement income.
Tax efficiencies
True financial planning includes strategies for reducing your tax liabilities. This could include:
- Using registered accounts to defer or eliminate tax on investment growth.
- Minimizing taxes on retirement income by staggering the withdrawal of your income sources.
- Minimizing the tax burden left to your heirs.
- Pension-splitting opportunities to reduce your family’s overall tax burden.
- Contributing to a spousal RRSP to lower your taxable income.
Your financial plan should be constantly evolving, to take advantage of tax-saving opportunities as they arise.
The key benefits of a financial plan
Well-crafted financial planning provides a solid foundation for building a secure and prosperous future. It sets clear goals and a roadmap for achieving them; whether you’re planning for retirement, saving for a home or building an emergency fund, a financial plan ensures that your financial decisions are aligned with your long-term objectives. This can help you stay focused and motivated, making it easier to prioritize your spending and saving.
Another significant advantage of financial planning is how it helps grow your wealth faster. By identifying investment opportunities and strategies, a financial plan can maximize your returns and minimize risks, significantly increasing your net worth. Additionally, a financial plan can help you identify opportunities to reduce interest rates on loans and lower your debt, freeing up more resources to invest and save.
Preparing for the unexpected is another crucial benefit of a financial plan. True financial planning provides a buffer against financial shocks, including setting aside an emergency fund, and having adequate insurance and a contingency plan for various scenarios. By being prepared, you can avoid the stress and financial strain that often accompanies unexpected events.
A financial plan provides a comprehensive view of your income, expenses, assets and liabilities, allowing you to make more informed decisions. This in turn can lead to better financial habits and more effective money management.
Lastly, a financial plan gives you more financial confidence. Knowing that you have a solid plan in place can reduce anxiety and increase your sense of security. Whether you’re considering a career change, starting a business or making a major purchase, a financial plan can provide the clarity and assurance you need to move forward with confidence.
How an IG Advisor can help you with your financial plan
Thankfully, you don’t need to build your financial plan by yourself. True financial planning takes knowledge and expertise; an IG Advisor can provide the guidance you need to set your goals and make informed decisions. They’ll build an IG Living Plan that’s designed just for you and your unique circumstances.
First of all, they’ll look at your current financial situation in detail. This involves reviewing your income, expenses, debts and assets to get a clear picture of where you stand. By understanding your financial situation, your IG Advisor will be able to help you set realistic goals and develop strategies to achieve them. Whether you’re saving for retirement, planning for your children’s education or looking to invest in property, an IG Advisor can tailor their advice to meet your unique needs.
Your IG Advisor will build a financial plan that will include detailed strategies for saving, investing and managing your money. They’ll help optimize your investment portfolio for growth, ensuring that it’s aligned with your risk tolerance and long-term goals, and help you make more informed decisions.
They’ll also include tax-saving strategies in your financial plan. These could include strategies for maximizing tax deductions, taking advantage of tax-free and tax-sheltered savings accounts, and planning for future tax liabilities. By integrating tax planning into your overall financial plan, you can keep more of your hard-earned money and put it towards your financial goals.
Finally, your IG Advisor will monitor your plan regularly to ensure it evolves with your changing life circumstances. Whether you’re facing a significant life event like retirement, inheriting a large sum of money or starting a business, your IG Advisor can provide tailored strategies to help you navigate these changes effectively.
Get started with your financial plan
Ready to take the first step? Contacting an IG Advisor is the key to achieving your full financial potential. In the initial consultation, you’ll explore your current financial situation, where you’d like to be and any concerns you may have, while learning how a personalized financial planning approach can help you achieve them.
IG Advisors are highly trained professionals who specialize in providing financial advice tailored to your unique needs. They’ll work closely with you to identify your short- and long-term objectives, assess your risk tolerance and develop a strategic financial plan to help you reach your goals.
Contact an IG Advisor today and get started with financial planning designed to bring you financial security and confidence.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Advisor.
Mortgages are offered by Investors Group Trust Co. Ltd., a federally regulated trust company, and brokered by nesto Inc. Licences: Mortgage Brokerage Ontario #13044, Saskatchewan #316917, New Brunswick #180045101, Nova Scotia #202507230; Mortgage Brokerage Firm Quebec #605058; British Columbia, Alberta, Manitoba, Newfoundland/Labrador, PEI, Yukon, Nunavut, Northwest Territories. The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces make education savings grants available to their residents. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial services firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).
Trademarks, including IG Wealth Management and IG Private Wealth Management, are owned by IGM Financial Inc. and licensed to subsidiary corporations.
