The importance of creating a well-rounded financial plan
Discover how a comprehensive financial plan can help alleviate some of the stresses you may face.
While we are often faced with changes in our lives, one area we hope not to worry about is our finances. A comprehensive financial plan should be something you can lean on in good times and bad.
“I think people have to pause and take a deep breath,” says Heather Richardson, Assistant Vice President, Sales Strategy and Effectiveness, TD Wealth. “People may feel there’s a lot of ambiguity about the future and that sentiment may spill over to their finances.”
Richardson hopes people can evaluate their financial plans from a comprehensive perspective and not from the standpoint of just one day. “As you see market volatility, it can lead to a spike in emotions,” she says. “Those emotions can lead to behaviour that may be inconsistent with the long-term approach that’s been built into a holistic financial plan,” she says.
Richardson says one of the benefits of a strong financial plan is that it may be able to bring you confidence in the face of volatility. Here are four things you can do that can help make your financial plan a success and hopefully, make life a little easier to manage in times of uncertainty.
Avoid short-term reactions
We’ve managed to get through turbulent markets in the past and we may continue to see more volatility in years to come, but Richardson points out, knee-jerk reactions can actually cause long-term harm to your financial plans. While taking money out of investments and putting it into cash, delaying major purchases and feeling paralyzed over economic decisions can all be natural reactions, Richardson says such moves are often driven more by fear than strategy — and they may not have to occur at all when you have confidence in your financial plan. In fact, she notes that if you had pulled money out of the market when it last declined, you would have suffered a loss, and not only that, but you may have missed the recovery that followed.
TSX Composite Gains/Losses Jan. 1, 2020 — Sept. 30, 2020
Source: Bloomberg Finance L.P. as of Sept. 30, 2020. Bloomberg and Bloomberg.com are trademarks and service marks of Bloomberg Finance L.P., a Delaware limited partnership, or its subsidiaries. All rights reserved.
Get clear on your long-term goals
Richardson worries that many of us may be stowing money away without knowing exactly what we’re saving for. Sure, we’d like to retire someday, but we may not have worked out what kinds of things we’d like to do, how much those things may cost or when we might be able to afford them. What comes off your paycheck and goes into an RRSP or your pension today will have a direct impact on your lifestyle in retirement, says Richardson, and sound financial planning can help determine if you are saving enough, if the rate of return on your investments will be enough to get you there and help you plan for other goals you’d like to achieve along the way. “You should have a long-term goal for retirement but also account for your short-term goals, like buying a cottage or going on vacation, and ensure they’re baked in to your plan as well,” she says.
Have a financial plan that’s personalized
Your money concerns may shift depending where you are in life. When you are just starting out, you may be more worried about dealing with student loans and immediate bills than a retirement plan 40 years in the future. Later in life, you may be more interested in how your wealth will pass down efficiently to your heirs and your favourite charities. And then there are all the life events in between: saving for your child’s education, paying off your mortgage, deciding when to contribute to your TFSA or your RRSP, or wondering what kind of insurance you might need. Richardson says all these concerns (and more) mean each financial plan has to be tailored to a person’s life and personality, and evolve as their life changes.
Consider a checkup with your planner or advisor
As life goes on, you may be concerned about suddenly losing income, not being able to pay an unexpected tax bill or dealing with other financial setbacks. Richardson says that a strong financial plan should not only cover your needs for today and your goals for tomorrow, but also help you feel prepared in case the unexpected happens. Having an emergency fund, powers of attorney, estate planning or insurance in place can give you the peace of mind to help face any situation.
While there are no quick answers to unpredictable problems, talking to your financial planner or advisor and having a financial checkup is one way to gain some reassurance and confidence. Your financial planner may be able to help alleviate unnecessary worries and ensure your financial plan addresses the issues that are on your mind. Moreover, a financial planner may be able to help you build a personal continuity plan that ensures your financial health if an unexpected emergency happens. While you may be more prepared than you think, it can help to review your plan with your financial planner during times of uncertainty so you understand exactly why it’s working, Richardson says.
“In times like these it can be easy to get distracted by headlines in the news or one day in the market,” she says, “But by looking at your long-term picture and the plan that’s put in place by a wealth professional, it can help ground you back to the decisions you made on the path to achieve long-term success.”