What is Financial Planning?Submitted by Robert McEachern & Scott McEachern on May 9th, 2018
Financial planning is a pretty broad subject. If you ask five different people what it means, you may get five different answers. In this blog, we break down financial planning into 6 topics.
A Will and Power of Attorney
A will is document that ensures your wishes and desires are taken into account after you have passed away. The will ensures your opinion is respected and establishes ground rules to help keep peace in the family. Powers of Attorney are needed for when you are living, but can’t make decisions on your own. There are two types: Power of attorney for health and power of attorney for property. We don’t give advice in this area, but strongly suggest you visit a lawyer to put these documents into force.
Life Insurance for Those You Love
Without life insurance, an unexpected death can drastically change your family’s lifestyle. Rules of thumb say you should have 7-10 times your income, plus all your debts and the costs of final expenses covered. How much you pay for this coverage depends on how much coverage you need and how long you need coverage for. You buy life insurance for those you love, not for yourself.
Income Replacement Insurance
While you are in your working years, if you become sick or disabled, the bills don’t stop. Your family still needs to eat, pay the mortgage, and deal with unexpected medical expenses. Typically a good starting point is having coverage for 2-3 times your income.
Most Canadians do not have an emergency fund, but live paycheque to paycheque. You’ll want to save at least 10% of your income for your future self. The problem is that if most Canadians have no savings, this can mean a drastic lifestyle change. If it seems overwhelming, start with a smaller percentage and increase it annually. The earlier you start to invest, the better. Why? It gives your money more time to grow.
While alive, you are able to make your financial decisions yourself. You can donate to the charities you love and support, and gift money to children and grandchild. But upon your death, all gifts stop, taxes are due and your estate can be depleted rather quickly. What better way to be remembered by family than prepaying a grandchild’s education or making a lump sum contribution to your charity of choice? To do this, you need a plan.
Your Maintenance Package
Just like your automobile, your home, or your body, annual check-ups on your finances are needed to ensure everything is fine. You’ll need to review your net worth, your financial goals, your life goals, and make necessary changes. Are there new tax laws that may affect your planning? Are retirement projections on course?
Each of these six strategies play an intricate part in living your life on purpose and planning ahead. What you do today help you avoid the speedbumps life throws your way. Since no two individuals, couples, or families are exactly alike, no pre-determined solution fits all.
The key is your action plan.