7 Steps To Create Your Own Financial Plan

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Ever tried to navigate your way through a new city without using Google Maps? You’ll likely end up lost.

The same applies to navigating your finances: you need a route to get from where you are now to where you want to be later. Surprisingly though, most Canadians don’t map out their financial futures.

A recent CIBC study showed that almost 50% of Canadians don’t have a financial plan, and other studies indicate that many are unclear about what financial planning is, often confusing it with budgeting (not the same!). In this article, we’ll explain how to make your own financial plan.


What is a Financial Planning?

When some people hear “making a financial plan,” their eyes glaze over because they think it’s something needed only for retirement planning. While retirement planning is an important component of your financial plan, it’s so much more than that.

A financial plan is a written report that details your financial objectives and priorities, as well as charts out a path to achieve them.

The process involves examining how much money you have right now, how much you’ll need in the future, and what you need to do to reach your short- and long-term objectives.

For instance, it can help determine whether to contribute to a TFSA or RRSP (or both) and how much you’ll need to save in order to retire. Making a financial plan can help you chart your path.

Create Your Own Financial Plan in 7 Steps

A lot of people assume that it’s necessary to hire a financial advisor in order to create a financial plan. Not true! You can easily do it yourself, and we’ll show you how to make your own financial plan in seven easy steps.

1. Set Your Goals and Priorities

What would you like your future to hold? Your DIY financial plan starts with some tough questions about what kind of life you’d like to live.

Do you want to start your own business in the next few years? Do you plan on taking a “gap year” to travel? Or is your biggest goal to retire early?

Start by organizing your financial objectives into short- and long-term goals. What do you want to achieve within the next five years? Ten years? Twenty-five years? A short-term goal might be to save up for a wedding in the next 1-3 years.

A longer-term goal might be to save up for a down payment to buy a house. Either way, you need a plan in place to make it happen.

Once you’ve prioritized your goals, start thinking about what you need to do to accomplish them. This is where you might have to make some hard choices.

For instance, if you want to retire early, it might mean downsizing to a smaller apartment or selling your car so you can invest a bigger chunk of your paycheque. It’s all about balancing your priorities with your financial realities.

If retirement is at the top of your list, open an RRSP account with Wealthsimple, one of the best robo advisors in Canada, and set up automated deposits.

There’s no minimum investment amount and they offer sophisticated, personalized portfolio management at a competitive price. Here’s another excellent reason to sign-up: those who open and fund their first Wealthsimple account with at least $500 will get a $25 cash bonus.

2. Determine Your Net Worth

The next step is to get a picture of your current financial situation by creating a net worth statement. This is a great exercise to see how you’re doing financially. The math to figure out your net worth is straightforward:

  • Assets: Make a list of everything you own that has value and include an estimated dollar amount. This may include your home, vehicles, cash in bank or investment accounts, art and collectibles, etc. Add everything up to get a total assets figure.
  • Liabilities: Make a list of all debts or liabilities you might have. Make sure you include items like how much you owe on your mortgage or line of credit, outstanding credit card balances, taxes and loans. Tally up those amounts.

Finally, subtract liabilities from your assets to get your net worth. That figure provides a quick snapshot of your overall financial health.

3. Track Your Cash Flow

Your next task is to scrutinize your cash flow (how much you spend versus how much you earn). That means tracking all your spending, from your cell phone fees to your morning coffee.

Downloading a personal finance app like You Need a Budget(YNAB) can help you monitor your cash flow. If your spending is higher than your income, you may have to revise your goals and timeline for achieving them.

That’s okay – you’ll get there! This is also a perfect chance to cut back on non-essential spending or get one of the best cash back credit cards to put a little more money into your pocket.

4. Match Your Goals to Spending

If your earnings are higher than your spending, then congratulations! You’re in a good position to invest and save money for what you want out of life.

Looking at your expenses, determine how much can you put aside each month to invest or stash in a high-interest savings account.

The path to long-term financial security starts with “paying yourself first” and automating your savings – which means setting up regular contributions to your savings and investment accounts instead of waiting to see what’s leftover from your paycheque.

Treat it as a priority — just like you would for paying rent or your hydro bills. Do the math to find out how long it will take you to meet your top financial goals: divide the total cost of the item by a weekly or monthly amount to determine how long it will take for you to have the funds.

For example, to max out your TFSA this year, you’ll need to put aside roughly $115/week or $500/month to reach $6,000 in 12 months.

However, if you’re spending more than you earn, it’s going to make achieving your financial goals difficult.

If you’re in debt, try to pay off as much as you can and tackle the bills with the higher interest rates first.

If you’re struggling to keep up with payments, consider switching to one of the best low-interest credit cards or signing up for one of the best balance transfer credit cards (some of which offer 0% interest for a limited time). It’ll save you a ton of interest and put more money back into your wallet.

5. Create an Investing Plan

Once you know how much you can afford to invest, it’s easy to get going. Today, many Canadians are breaking up with their financial advisors and investing with one of the best robo advisors in Canada instead.

They offer simplified online investment management based on computer algorithms, which help to keep fees lower.

A robo advisor like Wealthsimple(our top pick) will use a questionnaire to match your financial goals and risk tolerance to a portfolio to best suit your needs. Plus, their fees are much lower than mutual funds – meaning you’ll get an even better return on investment.

Here’s a pro-tip: several robo advisors in Canada, including Wealthsimple, allow you to schedule automatic deposits into your investment account.

Then you just relax and watch your money pot grow. With its competitive fees and easy-to-use platform, Wealthsimple is our top choice and you can read about all the reasons why we love it in our Wealthsimple review.

Here’s another excellent reason to sign-up: those who open and fund their first Wealthsimple account with a minimum $500 will get a $25 cash bonus.

Perhaps you’re already a savvy investor and you know what you need to do to reach your financial goals. You just need an easy way to invest without racking up a ton of fees, which you can do with an online brokerage.

Check out our ultimate guide to Canada’s best trading platforms to find one that best suits your needs. But here’s the story: offering low fees and no-fee ETF purchases, our top choice is Questrade, where Young & Thrifty readers can get started with $50 in free trades.

6. Review Your Insurance Coverage

Insurance is first and foremost about protecting yourself and your family. It’s one of those things that you’ll be grateful for when you need it.

Essential types of insurance include auto (legally required to drive in Canada), home (or contents, if you’re renting) and perhaps health and disability, especially if your employer does not offer coverage.

Experts are divided over life insurance. If you have a family or you’re the sole income earner in your household, it makes sense to make sure that the people you care about will not suffer financial hardship without you.

7. Make a Will

You may not think you need one, but as soon as you’ve got assets, get a legal will ASAP. It’s a legal document that names your beneficiaries and what you want them to have.

Once you make a will, make sure you keep it updated as your circumstances change (e.g. you get married/divorced, have kids, buy a vacation home). It doesn’t have to be complicated either: with Willful, you can complete a legal will online in 20 minutes for as little as $99. No lawyer or notary public is needed.

Thus, if you never do anything against the norm, you’ll be just like everyone else

Did you find this helpful? Feel free to drop your comment and don’t fail to share with others.


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