To buy a house, you can call it your “home”? To have emergency funds in case of a mishap? To get your dream car? To save enough for your retirement? You might have written all of these resolutions in your “new year, new financial changes” list.
But things can go downhill real quick when you have recently moved to a new place like Canada and have to start everything from scratch.
- You have to get a credit card to keep up with your finances
- You have to look for a cheap place to renting until you save money for a new house
- You have to look for a job and other income streams to strive
And, the list goes on and on. However, living healthy and wealthy in Canada is more than just opening a savings account for retirement or emergencies. In fact, it requires one to do complete financial planning for a secure future life.
What Is Financial Planning?
A comprehensive analysis of your financial condition to create monetary plans to help achieve your financial life goals is typically considered financial planning. However, rather than focusing on a single aspect, it emphasizes reaching your financial aims overall. So, financial planning and asset management are basically two different yet similar concepts. To further clarify, financial planning is a broad term that covers all your financial goals:
- It starts with focusing on your present situation to put together pieces for your financial future. First, you evaluate your potential costs in the present and then prepare a future strategy based on it
- It’s a process of figuring out gradually how to make the best out of your life financially
As we explained earlier, it differs from asset management, so it covers various categories:
- Investment
- Decision making
- Insurance
- Retirement planning
- Emergency savings
- Risk management
- Taxes
- Real estate
Financial planning addresses creating a plan to reach your short-term and long-term goals. You just have to follow all the steps continuously!
Who Needs Financial Planning In Canada?
Whether an immigrant or a born Canadian, everyone needs a financial plan. It can benefit you in reaching your small goals like no credit card debt or car loan and help you achieve your long-term money goals like retirement savings or a house. For Canadians, financial planning is something that can push them gently towards the path leading to their life goals. As per Life Literacy Canada, here’s what the stats say:
- Almost 55% of the Canadians lack the basic knowledge of understanding conditional numbers, instructions, or statements
- Almost 4 out of 10 Canadians expressed money to be the reason for their everyday distress
- Almost a third of less-wage Canadians claimed money to be their largest concern
- Only 46% of Canadian residents follow a budget and financial planning
- Almost 60% of Canadians have no idea about their retirement plan or how they can save money for it
So, you ask who needs financial planning in Canada? The answer is almost everyone. But, the sad part is not all Canadians understand this. And those who do have no idea how they can have an effective financial plan for their better future.
Objectives Of Financial Planning
The objectives of financial planning may vary depending on your finances, needs, priorities, and final goals. It may also change based on your individuality, enterprise, or corporation. However, the basic goal of financial planning is to set you on the financial path steadily.
- It takes into account different areas of your life like education, job, children, vacation, loans, etc., to create a working strategy
- It also includes re-evaluating the progress of said strategies to note and compare the results
Financial planning is a gradual process so the primary objective comprises evaluation and re-evaluation of the progress. As the final goal is to give you a better financial future. For instance,
- You’re a middle-aged adult who wants to consider how much money you need to keep for an effective retirement plan. So, the objective of your financial planning is to put a few chunks out of your income into your savings fund
- You recently shifted to Canada and need to build a credit history from scratch. The objective of your financial planning is to get you a credit card that can help you do that.
- You’re an adult teen who started his first high-earning job. The aim of your financial planning is to set aside money every month to buy a house in future
Financial planning is not a one-time thing to follow. Instead, it’s a life-long strategy you have to follow in every aspect. Of course, you can hire a professional financial advisor for the job but if you can’t afford to do so, let’s read a simple breakdown of FP steps.
Financial Planning: Steps
Financial planning can be tough and complicated if you’re just started to understand financial literacy. However, even if you decide to give up the DIY idea and hire an expert, there’s a high chance you might not afford the consistent fees. So, the only option you’re left with is compromising on your life’s financial conditions and goals. Is that what you’ve been thinking about? Fortunately, you’ve been getting it all wrong because you can do it yourself!
Here are the easy-to-understand financial planning steps you can follow your healthy and wealthy financial future:
- Question Yourself (self-catharsis to understand the current situation)
- Create Objectives & Goals (decide what you need and what you want)
- Find Underlying Problems (discover problems stopping you from having good finances)
- List Down Your Solutions (think and make a short list of all the possible solutions to change your financial present)
- Get Into Action (start applying the solutions to your problems)
- Review & Evaluate (check your current financial situation every few months to conclude the progress)
Let’s get to know these steps you need to take in detail:
1. Question Yourself!
The first step is to accept that you need help from proper financial planning! Then comes self-evaluation, as only you know your current condition and your future goals. The right recovery starts from within, so the first person you should ask for help is yourself. And, if you fail to get the right answers, you are free to ask for expert advice. So, here are some financial questions to ask yourself today:
- Where do you stand right now financially?
- What’s the range of your credit score?
- Is your credit history good enough for the lenders?
- Have you started saving for your retirement?
- Do you earn enough income to raise kids?
- Do you have any passive income streams?
- Have you planned for marriage or family?
- Can you use money in case of an emergency?
- Do you know how to increase your income if needed?
- Have you started saving for your house?
- Can you afford your dream car?
There are so many simple questions that might have complicated answers. But ignoring them might complicate your life even further. So the best thing you can do to be on the right financial track is self-evaluation. Start asking yourself questions only you know the answers to because only then can you move towards the second step.
2. Create Objectives & Goals
In this step, you should have a clear view of your current condition so that you can plan correctly for your future situations. Know your objectives to set clear goals! What’s the reason you’re seeking help from financial planning? And, what are the goals you want to achieve using it? You need to be clear on both questions. You can use these methods to do that:
- Income evaluation: Calculate your monthly income and compare it with your yearly total. If the final figure is a mere number, it only highlights an underlying issue.
- Spending limits: Now, minus your spending with the total income to get a rough estimate of how much your life is costing you.
- Assets list: Note anything and everything you can call an asset. It may also include your work machines if you own a work-from-home business.
- Risk assessment: Now, determine your risk factor and give it a category. Like what complexity it is and how much time do you require to solve it
- Capacity value: this is the ratio of your tolerance and endurance on how much you can struggle and survive to transform your bad financial situation.
By clearing the air, you must have an idea of what you want to achieve and how much time you can think of doing that.
3. Find Underlying Problems
This is one of the major steps that can ruin your whole transformation game. Having clear life objectives, financial goals, and answers to complex money questions doesn’t matter if you don’t find the root cause of your situation. For instance, if you want to improve your credit score but don’t pay your balance in full, then this is the underlying problem we’re talking about!
Anything and everything that stops you from changing your poor money condition into a good financial situation is a problem. Of course, we are not implying you have to live like a cheapskate to achieve your goals. It’s equally important to cut yourself some slack to keep going in the right direction.
4. List Down Your Solutions
When you know your problems, you can find better and more effective solutions to them. The purpose of this step is to find short-term and long-term solutions to your problems without going astray. The length, complexity, and action of the solution will depend on how serious the problem is. Here are some basic solutions you can apply to your common financial problems in Canada:
- Increase your income: If your income evaluation puts you in the low-income category, it’s only fair to think of online and offline ways to improve your earnings.
- Restrict your spending: If your spending analysis reveals that you’re spending way more than what’s required, you need to cut any extra bills you can.
- Pay your taxes: Clear your tax, credit, and loan bill consistently to avoid any debt condition that might stop you from reaching your goal.
- Proper time management: Follow the time stamp you’ve decided for your certain goal. Budget, plan and strategize to achieve it.
Lastly, it’s okay if you sometimes feel exhausted, as all good things take time. If you ever feel like giving up, simply take a break and continue your financial planning journey again.
5. Get Into Action
Now that you know what’s wrong and what you need to do to correct it, you can start your action plan. Apply the right strategies to specific problems and continue doing so. You might find it difficult at the start, but once you get the hang of it, everything will start falling into place.
6. Review & Evaluate
The last and final step of the financial planning process is the review and evaluation phase. It is to know where you stand financially and emotionally after all your effort.
- Start by comparing what you had at the start and what you own now
- You can modify some of your solutions if things aren’t working quite as you wanted
If you can’t seem to find the right track, this is the step when you’ll have the answer to whether or not you need a financial advisor for your financial planning
Bottom Line
Financial planning is not a short-term phase of your life. Instead, it should be a regular strategy incorporated into your everyday routine. There’s more to financial planning than budgeting, making effective money spending strategies, and saving plans. And, all the Canadians who understand this concept have reported feeling financially and emotionally more content than those who don’t.
Do you want to be among the Canadian residents who understand financial planning and know how to implement it in their lives to reach goals? Of course, you do! So, give this comprehensive guide a read and start your journey on being a financially satisfied and literate Canadian!