The beginning of a new year brings new plans, resolutions, goals, and hopes, many of which revolve around our finances. But sticking to a new financial resolution isn’t easy. Almost half of Canadians (49%) believe they are saving enough to reach their goals.
However, 30% currently don’t have an investment plan, and 20% don’t know where to begin. Here’s what experts say you should do to make a financial plan that’s both achievable and helps you keep momentum through life’s ups and downs. “Deciding on goals and objectives is probably the most important part, the first step of a proper financial plan,” says Howard Kabot, vice-president of financial planning at RBC Wealth Management.
These objectives result from determining what short-, medium-, and long-term goals you want to accomplish. Kabot notes these “will set the tone for the plan” and “guide decisions and strategies.” There’s no one-size-fits-all goal; each person has different plans depending on their stage of life. Kabot has seen many Canadians prepare for retirement, pay off short-term debt, or pay down their mortgages.
Ravy Pung, financial planner at National Bank, agrees that Canadians planning for the future should “start by thinking about what you want to achieve and ask yourself, ‘How much time do I need to achieve each goal?'” Pung recommends clients open a savings or investment account for each goal they are working towards, rather than having all their funds in one spot. “Having distinct accounts for each goal reduces the temptation to withdraw money from the accounts dedicated to a specific goal that has not been reached.”
Setting goals is the first step to a solid plan, but the objectives need to be definable, achievable in a reasonable timeframe, and specific, say Pung and Kabot. “On paper, there has to be clarity, as well as specifics.
The goals and objectives need to be stated in black and white,” Kabot said. The goals need to be achievable in a “reasonable fashion,” depending on the client’s needs. Once you have some goals on paper, Pung suggests reviewing your financial situation to determine what kind of money you can allocate to each goal based on your budget.
“Start by reviewing your income compared to your annual expenses.
Experts’ financial planning strategies
Separate your fixed expenses, such as rent and utility bills, from your variable expenses, like dining out and entertainment,” Pung said, adding that clients should then “identify areas where you can cut back or reduce spending, which will help you determine how much money you can reallocate towards your goal.”
Kabot recognizes that setting the right goals can instill excitement for his clients to get down to business and start executing their plans.
But maintaining momentum is harder than it may seem. He suggests reviewing your financial plan often. “A lot of plans will have a checklist where you can get that one-pager out of the plan, stick it on the fridge, and just keep an eye on it to make sure you’re doing the things you are supposed to do,” he said.
For clients working with an advisor, he recommends discussing their plan at least once or twice a year. While having clear and concrete objectives is critical, being able to adjust them when required is just as important, according to Pung. “A good financial plan is one that is personalized, but it also has to be flexible and evolve over time,” she said.
Pung suggests clients revise their plans “every year at least or every time there’s a life event,” such as losing or changing a job, a relationship change, or expecting a child. Kabot echoes this sentiment and suggests Canadians revise their plans to incorporate new circumstances. If they don’t, “it’ll make it much more difficult to measure how you’re doing against those goals,” he said.
Both experts agree that if you find you aren’t meeting your goals after a significant period – for example, six months – it may be time to recalibrate. “That happens quite often,” Kabot said. He advises clients to go back and evaluate their goals and the money allocated to them with their new circumstances in mind.
“You sit down and figure out what you have to do to get there, and then you can feel like you’re on the right path,” he said. In Pung’s view, the key to finding financial success after your financial circumstances change is to not lose sight of the forest for the trees. “The key to success is to keep the big picture, the situation, and the financial plan in mind while staying flexible enough to adapt to unforeseen circumstances.”