Do you have a financial plan? It seems like a straight-forward enough question, but is it? In 2019, 54 per cent of Canadians reported having a financial plan. That number hasn’t changed since 2017. The 2017 study goes on further to say that of those who said they have a financial plan, 36 per cent describe it as a budget they review regularly, a short-term plan or ‘other’. By definition, those are not proper financial plans, and means that only 35 per cent of Canadians have financial plans. But do they? What constitutes a proper financial plan anyway?
True financial planning is about advice, solving problems or creating a plan to achieve one or more goals. You know you have a proper financial plan when:
- It is preceded by a Letter of Engagement.
- It covers six areas of your financial situation, possibly more:
- Cash flow & Net Worth
- Investment Planning / Strategies
- Retirement / Financial Independence Planning
- Risk Management
- Tax Planning
- Estate Planning
- Special Needs
- It identifies goals and objectives using S.M.A.R.T principles – Specific, Measurable, Achievable, Realistic, Timeline.
- Its assumptions are defined and reasonable.
- It provides alternatives for consideration.
- Its recommendations are based on analysis and are shown to be achievable.
- It provides a timeline for implementing the recommendations.
- It improves your financial literacy by educating you on the subjects that are relevant to you.
- It tells you what you need to know, not necessarily what you want to hear.
- It mentions financial products as a concept only, not by a specific name. i.e. Permanent Life Insurance rather than Manulife Performax Gold.
The narrative should be tailored to you – short and to the point. There are situations where a modular financial plan may address a specific need, but all areas should be considered in its conclusions. You need to know that the document you receive is a proper, comprehensive financial plan and not simply justification for selling a product.
If you are looking for a comprehensive financial plan including the components listed above, I suggest you consult the IAFP’s Find a Planner tool. You can find it here: Find a Planner.
