The Financial Road Map

The economic impacts of the COVID pandemic – roller-coaster stock markets, job losses, struggling businesses – have left many Canadians concerned about their own financial security. The crisis has reinforced the importance, at any age, of having a detailed financial plan to help set long-term goals and realize your dreams. 

This five-part series of articles highlights the importance of having a financial plan, and how an advisor can help you be prepared for market corrections, as well as all the big events in your life. In Part 1, we discuss finding a planner that is right for you and what they need to build a plan for you. 

A financial planner is a guide who helps you set a road map for what you want your financial future to look like — where you are today, how you might get where you want to go, and how to ensure you have enough money to do so.

“It doesn't matter how simple your life, or what your income level is, when you have a plan, you have a guide, something to follow and to keep you on track,” says Tonya Campbell, Regional Vice President, Central Canada Mobile Advice Team at Scotiabank.

Depending on complexity, a plan could be a dozen pages or 50. It’s designed to tell a story about you and your family, including goals, projected income up to retirement, expected expenses at various stages of life and clear next steps on how to close some of the gaps in the plan. It takes into consideration your lifestyle, things you would like to do or plan for, whether that is travel or buying or selling a property, and even putting aside funds for a retirement home.

While a financial plan will include calculators and pie charts showing how much your investments are expected to grow between now and when you retire, these in themselves are not a financial plan. “Those things are simply communication aids to help people understand some of the investment choices they are making. The plan should pull the story together, with advice that includes savings strategies, risk management, insurance/protection, taxes, and estate planning” Campbell says.

There are no specific age or income requirements to set up a financial plan, but a good time might be when you’re in your late 20s or early 30s, have completed your studies and been working in a well-paid job for a few years. Typically, at this age you’re not thinking about long-term savings, without some sort of prompt. Often, you are paying off student loans, taking on a first car loan, or even saving for a down payment on a home. A financial planner can help you maximize your paycheque by figuring out how much discretionary money you have and how much you can save. “Even $25 a pay could be what gets them into the habit of investing early and often,” Campbell says.

This is also the time to build an understanding of market volatility, so that later when the stakes and the balances are higher, there is a built-in tolerance. “It’s really critical to start those habits and behaviours in preparation for their future,” she adds.

Once you’ve made the decision to start saving, you’ll need to find a planner. Bank branches and credit unions have accredited professionals available to get you started. Another way to find a good planner is to ask family and friends you trust for a referral. However, don’t decide solely on a referral, check out a few to ensure the one you settle on is a good fit.

You’re looking for someone who starts with the financial plan. Investment choice, or advice on how to achieve your goals, should be the last thing discussed. All the pieces of the puzzle need to be on the table before a financial planner can make an investment recommendation that takes them into account.

“The red flags for me are not leading with a financial plan and making investment recommendations upfront, and we do see that happen,” Campbell warns.

This is your opportunity to imagine your future and set a plan to get you there, which is why it is important to provide the planner with your financial story. There are four key things to prepare.

Do a deep dive on expenses and income: You can do this with tracking software, but if you don’t want to go that route, bank websites provide calculators to help you track expenses. Expenses should include rent or mortgage payments, utilities, food and medical expenses, and all discretionary spending. In other words, get a good handle on where your money is going. To ensure you are not missing anything, go through the past three months of your bank statements.

“It’s very difficult to have a conversation with people about how much should be saved, if they don’t have a basic handle on inflows and outflows of money,” Campbell says.

Document your assets and liabilities: On the asset side, list big-ticket items such as a house, car, and any other assets you consider key to your lifestyle. For liabilities, list any loans or mortgages and the terms associated with them, including the amount of monthly payments, interest rate and expiry date. A planner can show you how to rework some of those liabilities to increase cash flow, especially in light of the current low mortgage rate environment, to redirect funds to an investment plan. “You might have signed on to a mortgage two years ago at a higher rate, and now can blend and extend your mortgage rate, to lower your interest paid and/or bring down your payments,” Campbell says. For these items, it is helpful to bring the most recent two years of tax returns.

Write down your plans for the future: These can include shorter-term goals such as buying a new car, taking on a mortgage for a home, or having children, and longer-term ones such as sending children to university, caring for elderly parents, and what you want your retirement to look like.

Assess your risk tolerance: What is your current experience level with investing? Think about how you will react to market fluctuations that might cause your investment balances to go up and down. Would it make you anxious or not? This is just a starting point for the advisor to help you get a better handle on risk tolerance at the meeting, but you should start thinking about it.

By the numbers: Canadians worry about retirement funds

• 70% of Canadians are concerned about not having enough money to support retirement
• 2-in-3 Canadians expect to need less than a $1 million to fund their retirement
• 46% of Canadians plan to retire between 60 and 70 years old, 6% don’t plan to ever retire

The 2019 Scotiabank Investment Poll was conducted by Nielsen Consumer Insights between January 25 and February 3, 2019. A total of 1,012 completed surveys were collected from a random sample of panel members across Canada.