You Must Consider These 6 Financial Planning Objectives

When creating a financial plan, and making any investments you need to be clear on your objectives. To be most effective the process must start with some self-reflection which is often easier said than done. To help with that, here are 6 things you must consider as they relate to your objectives.

#1 – Time Horizon
The first question is about timing. Your short and long term financial goals gain clarity when specific timelines are assigned to them. Having a clear picture of your time horizon helps your advisor plan effectively, and gives perspective along the way to your retirement goals.

For short term needs, are you planning to purchase a home, buy or finance a new car, or have a child? For longer term needs what is your retirement timeframe?

#2 – Liquidity Needs
Second you need to consider your liquidity needs, because cash is king. Have a huge net worth tied up in stock options does no good if you need access to cash to fund a current need. Consider how much you may need in the short term to cover:

1. Emergency fund – typically 3-6 months of expenses saved up in an emergency fund is the foundation for sufficient liquidity
2. 1-2 year goal fund – do you need a down payment to purchase a home, or access to cash to help a child with education costs?
3. Known expenses – do you have known expenses such as tax instalments or upcoming capital gains that you’ll need access to cash in order to cover?
4. Near term investment opportunities – are there investments you may wish to make in the near future that it would be prudent to have cash or access to capital prepared for?

#3 – Income vs. Growth
Next, the need for income now vs. in the future is an important consideration that will help you select the right types of investment. If you’re in the early stages of accumulating capital and building your retirement nest egg, you can often forego income today to get more growth before retirement time since you have income from your employment, business, etc. Conversely, following retirement there is typically a greater need for income rather than future growth. So, realistically, how much income (if any) do you need along the way from your investments?

#4 – Goal Setting
Having enough for retirement is usually a primary concern. A few key inputs determine whether you’ll have enough or need to adjust:

1. When do you want to retire? The more years until retirement, the more time you have to save and invest.
2. What annual income do you need when you retire? The more you need to fund your retirement lifestyle, the more savings and investment income/growth you’ll need.
3. Where are you starting from? The more retirement savings you already have in place, the easier it is to get to your goal.
4. How much can you add? The more money you can save every year, the faster you’ll reach your goal.
5. What will the inflation rate be before and after retirement? This one is out of your control, but we can bet $1 today will be worth less than $1 at retirement time. The higher inflation, the more you’ll need to save.
6. What return can you get? Based on your risk tolerance what type of return can you earn on your savings to get to your retirement goal, and after retirement to provide income to fund your lifestyle?

#5 – Taxation
Another key consideration is taxation. There are many tax shelters available to assist Canadians in saving for retirement, and proper tax planning can make your financial plan more effective. Consider what marginal tax rates will be when you retire and how this will impact your retirement lifestyle (hint: demographic trends mean the rates for various brackets are likely to be higher in the future).

#6 – Primary and secondary objectives
Finally, get clear on your priorities. Most people’s primary objective is to retire, but secondary objectives may include other lifestyle goals. What are your “must have” objectives vs. your “nice to have objectives”? How big of a home do you need? How much disposable income do you require? How much would you like to spend on travel? A second home? Recreational activities? Get clear on needs vs. wants so you can plan effectively.

Last Word
When working with your wealth professionals, transparency and honesty work best. These professionals are on your team and the more clear the picture you can paint of where you are today and where you wan to be at retirement time, the better your wealth advisory team can serve you.

Also, realize that liquidity does not always have to be cash. In fact in the accumulation stage where you are trying to save and invest most aggressively, having idle cash on hand means you’re not moving towards your retirement goals as quickly as possible. For many Canadians a home equity line of credit could be sufficient to provide for their liquidity needs and help them accelerate their wealth building goals.

No mortgage or financial planning team in this country does more borrowing to invest or borrowing for wealth creation than our team. We have the business track record and formal education to support your plan and to help you achieve your financial goals. Volatile markets create opportunities and we would love the opportunity to help you capitalize. Call our office today to discuss how we can help at 1-855-410-9905 or email

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