Many people do not take the time to create a full financial plan. This can lead to trouble down the road, where investments are not sufficient to support a retiree or whether future family members are not provided for.
Wealth Specialists like Tom Terzis recommend that every investor sit down and create a concrete financial plan. Certified financial planners are the best resource for making this plan, but you can do it yourself if you have enough expertise.
Defining a Financial Plan
A financial plan lays out an individual’s objectives for their well-being and security. It is a long-term plan which takes an individual’s goals into account and provides guidance on how to achieve them. It also has a guide for investment and savings strategy in order to fulfill those objectives.
In order to make a financial plan, people should gather all of the relevant information from their investment firms, banks, and RRSP providers.
Net Worth
Finding out what your net worth is might be eye-opening. To calculate your net worth, include all of your assets. This can include homes, cars, cash, RRSP plans, investment plans, and anything else that you own that can be sold at a significant profit.
After you have calculated your assets, calculate your liabilities. These include your student loan debt, credit card debt, mortgage, and car loans. This figure will be able to guide your financial future.
Cash Flow
You will need to make a cash flow document so that you can see how you are spending your money day-to-day. If you carefully lay out exactly where your money is coming from and where it is going, you can find room in your budget for investments. You may also be able to trim your personal budget to the point where you can increase your net worth.
Keeping your cash flow plan in mind will mean that you can accurately estimate how much money you will spend on things like holiday gifts, utilities, and vacations without damaging you financially.
Retirement Strategy
No matter what your priorities are, you should have a concrete plan for your retirement. Many people have RRSP plans, but these may not be enough to fully support you, and in some cases your spouse, during your retirement years. Don’t depend on receiving Canada Pension Plan, as this money has been cut back so many times that it provides only a poverty-level income for seniors.
Risk Management Plan
You will need to decide what kinds of insurance you need. Life insurance, catastrophic coverage, and personal liability coverage are all important areas to consider. You may want to invest in a whole life insurance plan, meaning that you can borrow against the principal. This is especially useful if you have a young family.
Another important aspect of insurance that should not be overlooked is long-term care planning. An increasing number of people will need to spend time in nursing facilities as they grow older. Putting money into a long-term care insurance plan means that your worries will be set to rest when it is time to move into a nursing home. This also takes a significant burden off your friends and family and may enable your family to keep your house and property after your passing.
Long-Term Investment Plan
Many people are living longer thanks to advances in medical science. This means that dollar amounts saved for retirement are often not enough when it comes time to cash them in. You should realistically plan for your life expectancy when creating a long-term investment plan. You will need to make a plan for your long-term financial security. This will lay out your objectives for investment and quantify how much risk you are willing to take.
You should also plan for what will happen to your debts after you die. In most cases, a spouse will be responsible for credit card debt. Make sure that you have enough insurance or investments to cover these needs.
Tax Plan
In order to get the most out of your money, you need to plan carefully for tax considerations. Visit an experienced CA to help you maximize the return on your taxes within the boundaries of the law.
Proper tax planning includes monitoring the changing laws to see where you can gain advantages. Tax-efficient investments, charity planning, loss harvesting, and gifting are strategies that you can use to reduce your tax liability legally.
Education Planning
If you have children or grandchildren who want to attend college, you should be able to save money to help them with these investments. It is wise to start saving for college while a child is still in infancy, but it is never too late to start. Make sure that you check all of the plans available in your state to take advantage of special tax provisions.
Estate Plan
You will need to make careful arrangements for your children or your heirs. This can include wills, trusts, life insurance, and other considerations. If you do not have a will, your estate will be managed in a probate court and your heirs may not be able to do what they need to do with your money or property. Estate planning can bring you and your heirs’ peace of mind.
Tom Terzis Recommends Making Your Own Plan
When you are making a personal financial plan, there are many factors that need to be taken into consideration. Your age, family, and cash flow dictate many of these provisions. Above all, be honest with yourself about your sources of income and your expenses. Having an overly optimistic view of your financial future can lead you into trouble.
Financial planning is all about preparing for the worst circumstances. Tom Terzis recommends that everyone should see a certified financial planner for help with this important issue.