How to have a better financial plan than half of Canadians

You are working on yours, right?

Have you ever heard the saying, If you fail to plan, you plan to fail? This is particularly true when it comes to your finances. A 2017 survey (a CIBC poll of Canadians with household incomes above $100,000) says almost half of Canadians have no financial plan in place at all. Nothing detailed that tells them how they will reach their goals.

This is putting half of the country's residents at risk for financial ruin. No financial plan means no emergency fund, no nest egg, no extra money at all. Consider that a small hiccup, like a temporary job loss, a family emergency or a house repair could send many people's bank accounts deep into the red.

With a financial plan in place, Canadians will feel more confident in their ability to manage unexpected changes in their finances. They can see in black and white individual personal goals, financial needs and priorities in areas such as income and expenses, taxes, mortgage planning, education needs, retirement, estate planning, and insurance. Why not have one?

However, the security that a financial plan can provide depends on how good it is. Here are some things to keep in mind when laying yours out.

Budgeting and planning are different

Many Canadians might feel if they have their budget under control their financial plan is too. While budgeting can be an important part of financial planning, there is so much more to consider. Sit down and identify your financial goals. Look at your life 5-10-15 years in advance, write down where you want to be at each of these stages. If buying a house is your goal in 5 years, how are you doing with the down payment. If retirement is 10 years away, how is your retirement fund looking. By identifying your short and long term goals you will be able to better map out how you're going to get there.

Bigger is better when it comes to an emergency fund

You should have enough money saved aside to fund your life for up to three months, if for example you were to lose your job or have to take an unpaid leave for some reason. Just a note, this is not three months of salary, but money that represents what you spend on average over a three month period. This includes your rent or mortgage payments, utility costs, transportation expenses, cost of groceries, and membership fees. To really get a handle on what you spend each month, track your expenses. Every penny that goes out of your account you should write down. There is also a secondary effect of tracking purchases – that is you get to see where you might be spending too much. Don't stop at three months, if you can afford to beef up your emergency fund, do it. I recommend saving 15 per cent of your pay cheque into this fund.

Debt is the biggest obstacle

When it comes to financial planning nothing will slow you down faster than debt. No matter how well you map out your goals you are bound to hit a roadblock if you are saddled with large debt payments. A healthy financial plan includes a path to being debt free. Outside of your mortgage debt, what other debts are you carrying? Credit cards, a line of credit, even loans to a friend – all of this is money you owe and some of it also comes at great cost to you. Tally up how much debt you have. Come with a plan to tackle it but start with your highest interest debt first. Seek the help of a debt management service if you need to.

It's a journey

By making a financial plan you are setting yourself up for success – but it's not a one-time exercise! Make sure you check in on your financial progress every six months. Adjust your savings and investments accordingly. Seek the advice of a professional when you need to, whether it be a tax professional, a financial advisor or a money coach. These services are often money well spent. Just find out up front what they will cost you.