It’s been my experience, that financial planning is often thought of as being overly complicated.
In fact, since no one really seems to know where to begin, they don’t—“I don’t know what to do, so I’m going to put it off until later and hope it all works out for the best.”
Good luck with that. I sincerely hope you make it.
The reason that anyone makes a plan is to be prepared. In my opinion, the simpler the plan is, the more likely that it will be achieved.
In fact, I think that the bulk of financial planning for most people can be covered by open and honest discussions around just six simple topics.
The order you put them in depends on your current priorities. Just start at the highest priority and work towards the least.
What would financially happen to your family if you passed away now?
This is the first building block because all the things that you want in life must be paid by the income that you will earn in the future.
If you pass away, that income stream stops and affects your family.
What would financially happen to your family if you became disabled right now?
Once again, if you became disabled, the future income stream that you would have earned becomes disrupted and affects your family.
What do you want to do to help your children into their adult life? Do you want to pay for their education? Do you want to help them start a business?
In any case, when will the funds be required and how much is needed?
Different people have very different attitudes towards these responsibilities.
There aren’t any wrong answers except not having any.
When do you see yourself retiring? What will you do, how long will you do it and what will it cost?
Don’t forget inflation. I’ve talked to many people who once thought that $300,000 was a lot of money in 1980.
Today, even though they have never lost a dime because they always bought GICs, they have found that $300,000 doesn’t seem like a lot of money anymore.
What would you do if an unplanned event happened?
Let’s face it. Sometimes, things happen and there’s a need for some emergency cash!
Maybe the transmission falls out of the car; maybe your partner loses their job; maybe there’s a health scare; maybe your kids (or your parents) need to live at home again.
When you pass away, your estate will get split up. How do you want it to be split up? What is allowed by law? Do you own assets that may have to be sold? How important is it to you to be able to provide a legacy to your children or an institution that you care deeply about, like a church, a charity or a school?
Each one of these topics does require some thought. What you choose to do doesn’t really matter.
All the plan does is identify the gap between where you are and where you want to go and then to provide the best directions.
Simple.
