Why You May Not Already Have A Plan

When?

“When I begin my new career, I’ll be ready to plan for the future.” “When I get my raise, I’ll have enough to finally start preparing a financial plan.” “When I have more time to plan, I know I will.” “I have enough resources to last, and I’ll prepare my plan when I retire.” “We don’t need to plan. We’re retired, live on a fixed income, and are doing okay.”

Many of us fall victim to making promises to ourselves but never fulfill those promises. We assure ourselves that we’ll get serious about preparing for our financial future at some unspecified time.

Unprepared for Commitments

Perhaps you feel unprepared for the commitments you may have to make to reach your goals. A financial plan may require you to make changes or sacrifices in your current lifestyle.

But if you wait, you may have to make even bigger sacrifices. You might have to work for 10 years longer. You might have to reduce your lifestyle habits considerably to avoid running out of capital, wealth or property you can use to produce more income or wealth. You might even have to depend on your children to support you in your old age.

Often, people feel overwhelmed by the concept of preparing a financial plan and intimidated by the apparent size and complexity of the task. Because they don’t know how to plan financially, they resort to no planning at all.They find themselves making financial decisions on an as-needed basis.

Some who are well aware of the benefits of financial planning, still don’t have a plan.

Misconceptions

Here are some common misconceptions about financial planning:

1. You feel that you do not have sufficient income or assets to warrant planning
   
   Do you think you need a significant income, or at least a million in investment assets, to justify having a financial plan?
    
   People with less money benefit from planning even more than those who’re wealthy, simply because their need to make the most of each dollar is greater.
   
   Do you currently live paycheque to paycheque, thinking that when you make more money, planning will become an option?
    
   It’s more likely that, as your income grows, so will your lifestyle costs. There are those who say their annual income of $35,000 is inadequate to cover monthly expenses, and those who say $100,000 a year won’t cover their lifestyle needs. No matter what your income, financial planning can be a challenge. Often, the greater the challenges you face, the more you have to gain from a personally structured, long-term plan.
   
   Do you think those with higher incomes have different, better opportunities to build wealth? 
   
   Although the benefits to someone with a lower income may be smaller in size, planning benefits individuals in all income brackets in similar ways. Successful management of your income, no matter what size, increases the likelihood you’ll achieve your goals.
    
2. Planning will take too much time and effort
   
   A person who plans actually spends less time on financial matters than someone who does no planning at all.
   
   People with no plan often find themselves lurching from one financial crisis to another.
   
   Financial planning doesn’t eliminate surprises or adverse developments, but it lets you deal with them better because you know your options, so managing your personal affairs becomes less stressful.
    
3. You may believe it will be expensive
   
   I do not charge fees for financial planning as it is a complimentary service.  
   
   The real costs of not planning, can be considerable. This can be in terms of unnecessary income tax paid, higher interest costs, inefficient asset allocation and estate strategies, lost opportunities, risk exposure or, in the worst case, financial ruin.
   
   Helping you budget for expenses, and applying some strategies, such as increasing annual tax deductions* or deferrals to increase current cash flow, can save you considerably. 
    
4. You may be shying away from the commitments inherent in the financial planning process
   
   It is sometimes a difficult task to consider your real needs and make hard choices between diverse or conflicting options. But these decisions have to be made to better your situation and the sooner the better. You can count on my support.
    
5. Revealing the state of my financial affairs will be too embarrassing
   
   People who have planned well financially all their lives, without professional help, are extremely rare.
   
   Be assured that there are many people whose affairs are in far worse shape than yours. Like a doctor or lawyer, a qualified Certified Financial Planner will help you solve problems constructively, supportively, and ethically.
    
6. Once you’re past a certain age, it’s too late to plan
   
   Some people think that by 65 or 70, financial planning is no longer effective.
   
   While it’s too late to plan for past events, it’s never too late to plan for the future. Maximizing your current retirement income, reducing taxes payable*, ensuring you’ll have adequate healthcare and long-term care if needed, and designing an effective estate plan to reduce costs and ensure your wishes are carried out, are only a few of the relevant concerns in your retirement years.
   
   A financial plan will help determine whether or not your resources are sufficient to provide for your current lifestyle, if you need to reduce your lifestyle costs or could even increase your lifestyle costs.
   
   At all stages of life, financial planning has the same goal: enjoyment of life and peace of mind, knowing you’ll be okay and that things will be looked after. Financial planning is beneficial to anyone, regardless of age or circumstances.
    
7. You may unconsciously resist planning for death and disability
   
   Although we may be uncomfortable with the thought of catastrophic occurrences, they will still occur regardless. It is our responsibility to be prepared.
    

Over the past decade, Patricia Lovett-Reid, CFP, SVP with TD Canada Trust, has heard a litany of client justifications for not having a financial plan: “People think they still have plenty of time to get started, while others feel that they’ve run out of time. Others are simply convinced the government will provide for them in retirement.”

Lovett-Reid also encounters Canadians who think that having investments equals a financial plan: “I counteract that by asking people to picture a wheel, with each aspect of financial planning acting as a spoke. Only when the spokes move together will the wheel gain traction.”

*This information for Canadian tax payers is given in good faith and is relevant under existing Canadian tax legislation. It must not be construed as professional tax advice.  You should consult your certified tax professional who can advise you personally having taken into account all your own particular circumstances. 

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