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You have probably heard the term Financial Planning, but perhaps you have never taken the time to ask yourself "What is financial planning, and is it something I should do?". Read on to find out what it is. When you are finished reading hopefully you will realize a financial plan is something everyone should have. Then you will have to decide if you can do-it-yourself, or if you should use a Certified Financial Planner™.
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The Six Steps of Financial Planning |
Whether you do-it-yourself, or use a professional, the Personal Financial Planning process involves the following six steps:
1. Collect and assess all relevant financial data (assets, liabilities, tax records, insurance, pensions, wills, etc).
2. Identify your personal goals and objectives.
3. Analyze the data and identify problems and opportunities. This is where the training and experience of a professional CFP™ can add incredible value to the process.
4. Provide written recommendations and solutions.
5. Implement the plan. The financial plan has value only if the recommendations are put into action!
6. Periodic review and revision of your goals and your plan.
A more detailed explanation of the Six Steps is contained on the CAFP Website (Canadian Association of Financial Planners).
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What Areas Will a Professional Planner Cover? |
Here are just some of the areas a professional should consider in preparing your plan:
Retirement Planning - How much capital will be required and when will it be needed, in order to have your desired standard of living when your working career ends? If you don't know the answer to this question right now, take some action today to find out. Unfortunately many, many people do not have any idea how much money they will need to retire. The consequences of not having enough resources to retire comfortably … move in with your adult children when you run out of money.
Investment Planning - What is the best way to structure the ownership of your savings? What are the best investments for your current and future situations? Are you or your advisor using "business perspective investing" to choose your investments, in the same manner used by world-renowned investor Warren Buffett? Do you have a written policy to guide your investment choices?
Estate Planning - How do you ensure an orderly distribution of wealth, with as little tax as possible… when the inevitable occurs.
Tax Planning - What is the best way to reduce tax on your employment or business earnings? How can you draw on your investments and pensions during retirement in ways that keep tax to an absolute minimum, and in some cases zero tax?
Risk Management - What mechanisms are in place to protect you and your family against events which are beyond your control, but which can be potentially destroy part, or even all of what you worked so hard to accumulate. Is your plan set up to be "self-completing " in the event you become mentally incapacitated and unable to manage your own financial affairs?
When you think about it, hardship can strike anyone, anytime and in many ways. Some examples of well-known people: Christopher Reeve (paraplegic after a sports accident); Michael J. Fox (Parkinson's disease); Mohammed Ali (Parkinson's disease); Wayne Gretzky (arthritis); Princess Diana (car accident); Ronald Reagan (Alzheimer's). I'm sure you can think of not-so-famous people in your circle of friends and relatives who have had to battle, and sometimes lose the fight against cancer, MS, and other diseases, as well as car accidents, etc.
What would happen to you and your family if you met with sudden disability or premature death?
Debt Management - Wouldn't it be great to be debt free? Would you like to get there quicker? Perhaps you are already there. In that case, do you know the next step… how to take advantage of your good fortune and use it to reduce your taxes and increase your wealth?
Education of Your Children - This is on almost everyone's list of things they want. But hardly anyone does anything about it soon enough to get the most benefit. Have you heard about RESP's? Did you know that an RESP might not be the best strategy for everyone? Would you like to consider all the alternative strategies available?
For the typical Owner/Manager, the personal and business affairs are so closely related that every personal financial decision involves a personal consideration.
There are far more tax planning strategies available to a business owner than to the average Canadian. The trick is to recognize them, and then put them in place.
Even the most committed owner and talented accountant may be unable to do everything that needs to be done to run the business and put together a complete personal financial plan. It is key that the owner, accountant and Certified Financial Planner work together as a team so that all personal financial decisions take the business issues into consideration.
Here are some issues to consider if you are a business owner:
i .. Restructuring the business to create tax-free income for other members of your family (spouse, children)
ii...Use of a family trust for income splitting with your spouse and children.
iii. Restructuring the investments in your family trust to deal with the new "kiddie tax" which took effect on Jan. 1, 2000.
iv. Use of an IPP, which can enable you to shelter far more income from tax than an RRSP.
v.. Use of an IRP to generate tax-free income 15 years in the future.
vi. Buy-sell agreements to protect you and your family and your business partners in the event of sudden disability, premature .....death, or a relationship breakdown.
There are other strategies too numerous to mention here. I should emphasize that none of the above mentioned business owner strategies are for "do-it-yourselfers". They all require the services of qualified professionals.
In Conclusion
The rest is up to you. Pick up the telephone and call today for a complimentary appointment to discuss your situation. All meetings are kept completely confidential.
Chris Palmer, BBA, CMA, CFP™
Certified Financial Planner™
(902) 832-9433
