Travelling can be an exciting adventure. But sometimes when you’re in new, unfamiliar surroundings, you can get lost. Roadmaps can help you find your way back to your destination. Financial planning, like a roadmap, can help you when you are dealing with bumps in the road, avoiding wrong turns and reaching dead ends. It can also help keep your financial journey pointed in the right direction.
A financial plan should focus on your current needs and future goals. It establishes the best routes to get there (on time) as well as identifies important landmarks so you know you’re on the right track.
Since no two people’s situations are the same, and life is full of detours, your plan can be as simple or as robust as you need it to be. Meeting with a financial advisor can help you create something that works for you.
Here are some areas to consider when you are building out your roadmap.
Understand how you spend
Figuring out how much money you have and where it goes doesn’t necessarily mean giving up things that you love, like weekly dinners out, a yearly vacation or delicious cappuccinos. It’s all about realizing the best ways to allocate money to things most important to you. A good way to kick start your plan is to list all your income and expenses side by side to discover any potential potholes on your financial journey. This exercise can also help you see if you can afford to maintain your current lifestyle.
Your financial journey is long and you might run into some challenges along the way. Diversifying your savings across a wide range of investments can help manage long-term risk and keep you focused on your investment objectives. It also can help you avoid the temptation and pitfalls of trying to time the market.
A sound financial plan can identify ways to reduce or defer the taxes you’re paying now and in the future. There are many potential strategies to consider, including capital gains deferral, retirement income splitting, Canada Pension Plan (CPP) sharing, cash gifting to your minor children, testamentary trusts and tax efficient investments such as corporate class mutual funds.
Update your plan along the way
During your financial journey, your situation can change. If you get married, start a family or open your own business, it’s important to examine how these events affect your financial plan. You need to make sure your finances and legal affairs are up-to-date. It can be hard to think about, but your financial roadmap should include a stop to allow you to make objective and financially sound decisions to reflect your wishes in a Will. Your financial plan can help you determine: the best ways to transfer wealth to your children and grandchildren or other relatives; who are the right executor and trustee for your estate; and, charitable giving, probate and other tax considerations. For business owners your roadmap can also help you determine the necessary steps for a smooth and successful transition of the business to future generations.
Meeting with a financial advisor can be a good place to start and also serve as a regular annual check point to help you stay pointed in the right direction.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.