The Life Cycles of Financial Planning

As published in the September 2016 issue of Balance, a Manitoba Teachers’ Society publication.

I am asked by individuals of all ages, “What should I be doing at this stage of my life with my finances? I am feeling stressed about what I need to be thinking about.”

Most of us will go through a series of phases in our lifetimes with respect to financial management. They can be referred as follows:

(a) Getting started (to mid-thirties)
(b) Building up assets (mid-thirties to fifties)
(c) Investing (fifties to retirement)
(d) Retirement

Expect your financial plans to change as you move through the life cycles and other impactful life events. The five steps defined below are key components required at all four phases of our financial life. The five steps in the financial planning process are:

1. Identify goals & set priorities.
2. Assess resources.
3. Balance future cash flow.
4. Develop implementation and control strategies.
5. Evaluate progress.

17419757_s_Painting the road with roller brushGoal setting is the starting point. The fundamental building blocks of financial planning and goal setting are: knowing where you want to go, when you want to get there, and how much it will cost you.

Once you are clear about your goals and priorities, the next step is to take an inventory of your resources (what you currently have, or can expect to have) that can be used to achieve these goals. A net worth statement and an income statement are the two key pieces to the resource assessment. The net worth statement shows your assets and liabilities at a specific time.

Net worth = Total Assets – Total Liabilities (Your net worth should continually increase year over year as you work towards retirement.)

An income statement is a flow or resources over a period of time. The flow consists of money coming in and money going out on a monthly basis. I call this “The Spending Plan”!

Balancing future cash flow is really an extension of your monthly income statement to include five years of planning forward. This includes what your projected income will be over the five years, and expenses. It is very important that you include a savings component which will consist of both short and long term savings.

How you implement and control your plan will define success. Some key points about controlling your financial plan include:

(a) All those handling the money share a commitment to the plan;
(b) The control system is compatible with an individual’s personality and habits;
(c) Controlling a plan requires that someone know where the money is going;
(d) The funds for major groups of expenditures are segregated in some way to prevent over spending.

Evaluating your progress is the final point in the financial planning process. This is where you review the results, and adjust both the plan and what you need to change to make your financial goals a reality.

Very few people in life plan for the future. Making and using a financial plan requires motivation, knowledge, time, effort, self-discipline, and persistence.

The rewards of planning will be huge! You will continue to see your net worth increase year over year. As you experience this growth, you will be entering the next stage in life where you will want to have a good financial advisor.

Here are a few key points to help you choose a financial advisor for your asset building, investing, and retirement stages of life:

(a) Find out how they are paid. Is his or her income based on fees, fees and commission, or only on commission?
(b) Ask about their qualifications. What educational background and experience do they have? Are they licensed?
(c) What areas do they specialize in?
(d) What planning do they offer and at what cost?
(e) Request references so you can speak to them.
(f) How successful have they been with their personal plan?

Stay focused on your goals and keep your financial stress in check as you continue through the life cycles of financial planning!