What is a Financial Plan?

There’s a misconception that to be good with money you need to have a lot of it. Not true!  A healthy financial future isn’t about how much money you make – it’s about how you manage and plan, whether you’re planning for yourself or your whole family. This article explores how to prepare yourself for an uncertain future.

In this beginner’s guide to financial planning, we’ll explain to you how you can work with a financial planner, and give you the information you need to feel more comfortable asking questions and making educated decisions.

A financial plan serves as a framework for your money and aids in the achievement of your objectives. Information about your cash flow, savings, debt, assets, insurance, and all other aspects of your financial life should be included in good financial planning. There are a number of financial planning and wealth management areas that a comprehensive financial plan takes into account. Certified Financial Planners (CFPs) can help streamline the process by tailoring a personalized financial plan suited to your short and long-term goals.

What Can a Financial Planner Do for You?

Financial planners have an expert and unbiased perspective on your investments, taking a comprehensive look at your circumstance and making recommendations for changes. They may also assist you in navigating difficult financial issues such as retirement planning, taxes, estate planning and paying down debt or help you invest with a personalized strategy. 

Working with a financial planner can often be beneficial if you’re having trouble prioritizing your financial goals, or need a plan for where and how to save. They assist you in developing a strategy for achieving your financial objectives and guiding you along the way, as well as increasing your savings, making wise investments, and reducing your debt.

What are your Financial Goals?

Spending time thinking about the end goal is the first step toward creating a financial plan. Whether you want to start a business, save money for retirement, or set up college funds for your children, it’s important to have a vision of what you want in your life, in addition to knowing your expenses and profits.

There are typically four different types of financial goals:

  • Debt repayment
  • Emergency funds
  • Short/Medium-term savings
  • Long-term/Retirement savings

In an ideal world, you’d be able to finance all of your target categories while still covering your monthly expenditures and allocating greater percentages of your income to the goals you’re pursuing most actively. Unfortunately, life isn’t always perfect, and financial constraints are a reality. You begin with goals because they will often motivate you to take the next steps and serve as a guiding light as you strive to achieve your objectives.

Financial Management and Cash Flow Planning

Financial management entails the preparing, arranging, directing, and monitoring of an individual’s, or a company’s, financial operations, such as acquisition and use of funds. It involves applying general management concepts to the individual’s or company’s financial capital.

Get a sense of your current and projected cash flow — how much money comes in and how much money leaves your account. You can begin planning by keeping track of your essential vs. non-essential expenses and generating a positive monthly cash flow.  You should contemplate what you’d like to have in the future once you’ve figured out whether you want to develop immediate, medium or long-term plans. Cash flow planning involves understanding the components that makeup where the money comes from, where it goes, and what choices are appropriate in creating the life you envision for yourself.

These components include:

  • Your income
  • Fixed and discretionary expenses
  • Taxes and savings

You can use this cash-flow tool kit to figure out where your hard-earned money is going and how to spend it on the items that are most important to you.

Investment Planning 

Financial wealth management generally includes investment management. When you make the decision to begin investing, the most important step is to educate yourself. You will feel more confident in investing if you have a better understanding of investments and how to develop your investments over time. However, it’s also important to have well-defined goals before investing any of your hard-earned capital. Consider what the investment is for, when you’ll need the money, and how much risk you’re willing to take.  

You should also make sure that you have a basic understanding (at the very least) of any investment into which you put your capital (e.g. the stock market, real estate, or small business). Your investments should be part of your monthly budget, with a specific amount of your income set aside for your investment goals.  

Liquidity Planning

Liquidity planning is about making sure you have the cash you need when you need it. You can either use this for your essential everyday expenses or to cover the costs of an unexpected event. Your daily income source is most likely your monthly salary or pension, but you might also have dividends, bond interest, capital gains, rental assets, employee participation plans, stock options, or fixed-term deposits.

Optimal wealth management of liquid assets will often help you earn more money by allowing you to spend unneeded cash in a profitable and timely manner. 

Insurance and Risk Management

We must understand that our lives and property can be jeopardized at any moment. Unforeseen events may result in a loss of income, possibly putting you and your dependents in financial risk. The last thing you want after working so hard to earn your money is for an unplanned event to wipe you out. Insurance is simply a safety net that protects your assets in the event of a life event that necessitates a significant sum of money to resolve. An insurance broker or financial planner will spend time getting to know you and understanding your needs and goals, which is one of the first steps in assisting you in developing a financial plan.

Health, auto, disability, life, home, and business insurance should all be included in your policy. Essentially, you want to safeguard something of significant value to ensure that you (and your loved ones) are financially safe. If you have the right insurance, you can turn a major tragedy into a minor inconvenience. 

For example, you may need to re-qualify for new mortgage insurance coverage if you transfer your mortgage to another financial institution, if you purchase a new house and need a new mortgage, or if you actually renew your mortgage for a longer period. You could be deemed uninsurable if you had a change in health, and you may be unable to obtain mortgage insurance. However, with term life insurance, it remains unchanged as long as you pay your premiums, even though you transfer your mortgage or purchase a new home.  

Retirement Planning 

Retirement planning is a multi-step process that will develop and progress along with your life and career. You’ll need to create a financial safety net to ensure a safe, secure, and enjoyable retirement. It’s important to pay attention to all the details to ensure your investment process goes smoothly. Determining time horizons, forecasting costs, measuring required after-tax returns, evaluating risk tolerance, and doing estate planning are all important aspects of retirement planning.

Before you retire, you can calculate your living costs and ensure that you have enough money to cover all of your future expenses comfortably. When it comes to retirement planning, some financial planners suggest following the 70% rule. This rule states that retirees will need roughly 70% of their pre-retirement income to maintain their lifestyle in retirement. This can be used as a basic guideline, and every person’s situation is vastly different. This is where a financial planner can help model out your specific situation so there’s a lot less left to chance.

Estate Planning

Estate planning is the process of preparing tasks to handle a person’s assets in the event of their incapacity or death. The bequest of properties to heirs and the payment of estate taxes are all part of the planning. Individuals create estate plans for a variety of purposes, including maintaining family wealth, caring for a surviving spouse and children, or leaving a charitable legacy. Assets that could make up an individual’s estate include houses, cars, stocks, artwork, life insurance, pensions, and debt. 

Estate planning isn’t something many people don’t like thinking about, but it enables you to decide what happens to your assets after you pass away. It entails compiling a list of all your possessions, drafting a will, and making it available to those who need it. Professional assistance may be needed by an Estate Lawyer or CFP.

Tax Planning

Having tax-efficient investment plans during your earning years, after retirement, and when your assets are passed on to your loved ones, is a vital part of maintaining and building your wealth over time. 

Taxes can often have a significant effect on your cash flow if you don’t plan ahead. You can keep up to date on any applicable tax deductions that may help you save money on tax payments.

Two of the common tax-saving investment opportunities are:

  • Tax-Free Savings account (TFSA) – It lets you earn investment income including interest, dividends and capital gains—tax-free. 
  • Registered Retirement Savings Plan (RRSP) – You only pay income tax on your investment, and the income it earns, when you make withdrawals from your RRSP.

Legal Aspects

Legal problems may have a huge effect on major decision-making events. Few people are aware of the nature and significance of an incapacity mandate. When an individual becomes mentally incapacitated because of an accident, this law takes effect. It enables them to appoint a personal and financial representative to make important decisions for them if they are ever incapacitated.

There are many kinds of contracts that a lawyer and financial planner may discuss in the course of planning such as cohabitation contracts, wills, power of attorney, employment contracts and shareholder agreements. They may also assist in naming executors and beneficiaries for their retirement plans.


A financial plan’s goal is to give you peace of mind and allow you to concentrate on the things that matter most to you. Remember, this is your path, not someone else’s, so developing a strategy for financial success is important. It’s well worth the time and effort to plan ahead for the life you want.

You can, of course, do this all on your own when you are comfortable with handling your own finances and are diligent enough to follow through. If this is all confusing for you, consulting a CFP might be best for you. Working with a CFP can help ease the process as they are able to give you the knowledge you need to inform your situation around taxes, insurance, and investments if you’re just starting out in your financial path.

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