The beginning of a new year brings new plans, resolutions, goals and hopes, many of which revolve around our finances. But sticking to a new financial resolution isn’t easy.
A recent survey by TD Bank Group found that almost half of Canadians (49 per cent) think they are saving enough to reach their goals. Thirty per cent currently don’t have an investment plan at all, and 20 per cent don’t know where to begin.
Here’s what experts say you should do to make a financial plan that’s both achievable and helps you keep momentum through life’s ups and downs.
Decide what matters most
“Deciding on goals and objectives is probably the most important part, the first step of a proper financial plan,” Howard Kabot, vice-president of financial planning at RBC Wealth Management, said in an interview with Yahoo Finance Canada. These objectives are a result of determining what short-, medium-, and long-term goals you want to accomplish, he adds, noting that they “will set the tone for the plan” and “guide decisions and strategies.”
Kabot stresses that there is no one-size-fits-all goal and each person has different plans, depending on their stage of life. That said, he has seen many Canadians make plans to prepare for retirement, pay off short-term debt (e.g. credit card debt), or pay down their mortgages.
Ravy Pung, financial planner at National Bank, agrees that Canadians looking to plan for the future should “start by thinking about what you want to achieve… and ask yourself, ‘How much time do [I] need to achieve each goal?’” she told Yahoo Finance Canada in an interview.
Pung recommends clients open a savings or investment account for each goal they are working towards, rather than have all their funds in one spot.
“Having distinct accounts for each goal significantly reduces the temptation to withdraw money from the accounts dedicated to a specific goal that has not been reached.”
Set goals that are realistic, specific and time-bound
Setting goals is the first step to a solid plan, but the objectives need to be definable, achievable in a reasonable timeframe and specific, say Pung and Kabot.
“On paper, there has to be clarity, as well as specifics. The goals and objectives need to be stated… in black and white,” Kabot said. He adds that the goals need to be achievable in a “reasonable fashion”, depending on the client’s needs.
Once you have some of the goals on paper, Pung suggests reviewing your financial situation to determine what kind of money you can throw at each goal based on your budget.
“Start by reviewing your income compared to your annual expenses. Separate your fixed expenses, such as rent, utility bills, and your variable expenses, like dining-out and entertainment activities,” Pung said, adding that clients should then, “identify areas where you can cut back or reduce spending, and with that process, it will help you determine how much money you can reallocate towards your goal.”
Review regularly
Kabot recognizes that setting the right goals can easily instill excitement for his clients to get down to business and start executing their plans. But keeping up the momentum is harder than it may seem.
So, he suggests reviewing your financial plan often.
“A lot of plans will have a checklist where you can literally get that one-pager out of the plan, stick it on the fridge and just keep an eye on it to make sure that you’re doing the things you are supposed to do,” he said.
For clients who are working with an advisor, he adds that they should be having a discussion about their plan at least once or twice a year.
Don’t be afraid to recalibrate
While having clear and concrete objectives is critical, being able to adjust them when required is just as important, according to Pung.
“A good financial plan is one that is first personalized… but it also has to be flexible, and it evolves over time,” she said. Pung suggests clients revise their plans “every year at least or every time that there’s a life event,” such as losing or changing a job, a relationship change, or expecting a child.
Kabot echoes that sentiment and suggests Canadians revise their plans so that these new circumstances are incorporated into the plan, and clients can readjust their goals accordingly. If they don’t do that, “it’ll make it that much more difficult to measure how you’re doing against those goals,” he said.
Both experts agree that if you find you aren’t meeting your goals after a substantial period of time – for example, six months – that may indicate it’s time to recalibrate.
“That happens quite often,” Kabot said. He suggests clients go back and evaluate their goals, and how much money was allocated towards them, with their new circumstances in mind.
“You sit down, and you figure out what you have to do to get there… and then you can feel like you’re sort of on the right path,” he said.
In Pung’s view, the key to finding financial success after your financial circumstances change is to not lose sight of the forest for the trees.
“The key [to] success is to keep the big picture in mind, the situation in mind, the financial plan in mind, while staying flexible enough to adapt to unforeseen circumstances.”
