Building your Financial
Success
With Alain Aube
Planning for financial success
Your
financial plan: Getting started
DEVELOPING A FINANCIAL PLAN IS an essential step in ensuring your
financial needs are met. Once you have clearly defined your financial
goals, think of a financial plan as your route to success - your road
map to where you want to be financially.
There are a number of basic elements to a financial plan. Here's a
primer on getting your financial house in order.
Assess your current financial position:
To move ahead, you must know where you stand today. The best way to
do this is to determine your net worth - an essential gauge of financial
health. Your net worth is the value of your assets (everything you own)
minus your liabilities (everything you owe). It indicates whether you're
ahead of the game, or have some catching up to do.
Establish a budget:
A budget encompasses a number of financial planning steps. First,
track your income and spending for a few months so you know where your
money comes from, and where it goes. Don't forget about expenses which
occur less frequently than monthly, such as insurance payments,
vacations and gifts. Once that's in place, you can make adjustments to
your budget and develop a workable spending and savings plan.
These days, the easiest way to track
income is by using one of the many computer software programs available.
If you already use one of these programs, much of the work of
establishing a budget is already done - as long as you've kept
meticulous computer records of your income and expenses. If you don't
use a computer, a binder in which you list all your sources of income
and monthly expenditures is a good alternative.
Establish your goals:
With an accurate picture of your net worth, income and spending,
you can use your budget to establish financial goals. Take a close
objective look at your expenses to determine whether any cost cutting is
possible in order to make available more dollars for other
opportunities. Take a realistic look at the lifestyle you want to live,
both now and when you retire. Now ask yourself: what will it take to get
there? Make sure to consider insurance and estate planning needs to
ensure the wealth you build is protected.
These steps will help you establish how
much you can afford to invest and what kind of growth you require from
your investment portfolio. These two pieces of information will help
determine your course of action.
Map out an investment and savings plan: Now it's time to fine tune your
spending and savings habits. Plan to pay down some debt (for example,
your mortgage) and come up with a long-term investment strategy.
Consider your retirement needs and plan to start or build your
Registered Retirement Savings Plan (RRSP). If you are able to reduce
some household expenses you may be able to achieve your financial goals
sooner.
Although you can put together a financial plan on your own, you'll
benefit from the advice of a financial advisor. An advisor can show you
how to accurately measure your financial picture and realistically
revise your budget. There isn't much point in formulating a plan if
goals are unreasonable or impossible to reach.
A financial advisor can also show you
ways to beef up your finances - such as how to establish a suitable
investment portfolio or ways to reduce the amount of taxes you pay.
