6 Steps To Creating A Sound Financial Plan

Q.  I don’t have a large income or a lot of investments.  How can a financial planner help me?

You don’t have to be wealthy to make a financial plan.  A financial planner can help you in the following ways:

1.  Clarify your current situation

A planner will provide you with a personal and financial data-gathering document to fill in with information about your family, your job, spending habits, your assets and liabilities, and your goals and objectives.

They’ll also look at your investment statements, loan statements, your pay stub, income tax returns and assessments, employee benefits statements, insurance policies and perhaps your will.

If you decide to see a fee-for-service planner who charges by the hour, it’s best to be as organized as possible with your paperwork, or it could get expensive.

2.  Identify your financial and personal goals and objectives

The planner will review your stated goals and objectives and can help you establish time horizons and estimated costs for each one.

Related: Why A Fiduciary Standard For Investment Advisors Is Needed In Canada

Personal financial values and attitudes should also be discussed so the planner has a clear understanding of what is important to you and your family so any recommendations won’t make you uncomfortable.

3.  Identify potential problems

The financial planner can identify certain precarious situations such as too much credit card debt, income tax inefficiency and too much risk exposure that could make you vulnerable if a crisis occurs, and provide you with sound advice.

4.  Provide written recommendations

Once the planner has reviewed your situation, clarified your goals and identified barriers to those goals, he or she can prepare a plan providing specific recommendations that should move you toward your goals.

Related: Why Your Financial Plan Sucks

He or she should also provide you with various alternate solutions for you to consider so you can choose what feels most comfortable.

5.  Implementation

Your plan will only work if you implement it, and you should be free to use any financial services adviser to do so.  However, your planner has a responsibility to see that the plan is put into motion, and may help you co-ordinate with other knowledgeable professionals.

6.  Periodic review and revision

A financial plan must evolve as your life circumstances change over time.  The planner should review your plan with you periodically – typically once a year – to account for changes in your lifestyle, economic conditions and tax legislation.

If you implement a debt reduction or savings/investment program, the planner should monitor your progress to ensure you are on track.


The above is the six-step financial planning process that is standard for members of the Canadian Association of Financial Planners.

You can certainly do them yourself if you are motivated, knowledgeable and have the time to do research.  Many people enjoy the process.

Some people, however, need a plan – a map if you will – to get them started on their financial journey.  There are many excellent personal finance and investment books available, but sometimes it can be difficult to translate the concepts to your own personal situation.

Related: Why I Became A DIY Investor

Often an objective observer can be very helpful in figuring out a direction or setting goals and mapping a plan to achieve them.  An outsider can make you more accountable in implementing the plan and avoiding procrastination.

Final thoughts

Developing a plan will give you an opportunity to realize your financial goals and develop your wealth as time goes by.  Whatever your age or circumstances, it’s never too late to begin.

There are many people who enjoy spending a lot of time reading financial literature, researching investments, and building and monitoring their own portfolios.

Some people need a bit of help to get them started and, once the plan is in place, they can continue to manage it on their own.

Others are willing to have a trusted advisor implement their plan and make investment purchases, with only periodic reviews for review and monitoring purposes.

Related: Investors Getting Short Changed From Banks, Advisors

Then there are those who have no specific financial plan, who go half-cocked in many different directions solely dependent on the latest news item or hot investment tip and wonder why they are not making any progress.

Which one are you?

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  1. Bill Myers on May 15, 2013 at 8:20 am

    Building a financial plan is essential especially if you are factoring children or retiring by a certain age. It could be as simple to a budgeting agenda over a year or include stocks and portfolios.

    I also agree with your point to review your goals. The plan should mirror your life and with life comes change. One’s financial plan should be adjusted accordingly.

  2. thefiscallyfit on May 15, 2013 at 9:58 am

    This is the first post that I have seen in a long time that recognizes the difference in a financial “advisor” and an actual CFP (certified financial planner).

    • Boomer on May 15, 2013 at 1:40 pm

      @thefiscallyfit: While many financial advisors do have CFP or PFP designations, their primary purpose is to sell their firms’ products. They can make up a simple financial plan but they have restrictions, for example they can’t advise on insurance products (except credit insurance), estate planning or investment products other than their own.

      This might be suitable for some – and the plan is free!

  3. Joe on May 15, 2013 at 2:53 pm

    “Why Your Financial Plan Sucks” is definitely the best related link ever on B&E.

    • Echo on May 15, 2013 at 3:18 pm

      @Joe – That post was your coming out party. Glad to have launched you into stardom 🙂

  4. thefiscallyfit on May 15, 2013 at 3:42 pm

    haha so by definition, unless you are both life and investment licensed, (LLQP, MFDA, IIROC)you cannot even legally give financial advice. On top of that, if both the risk and asset portions of a finaical plan are 100% necessary, they cannot be included if you are not licensed. So if I am understanding this correctly, your everyday bank “advisor” cannot do a financial plan?…. as defined by the CFP designation and the CIFP (Canadian Institute of Financial Planners)

    • Boomer on May 16, 2013 at 10:52 am

      @thefiscallyfit: A bank advisor can give you a general financial plan and general advice but you must be licensed to sell insurance products and stocks, so by “definition” the plan will be limited.

      Again, this is suitable for some – and they can then go to other professionals for further information and to make their suitable purchases.

      I’m speaking of in-branch financial advisors here. Banks do have personnel who are financial planners that can prepare more comprehensive plans.

  5. John Anderson on May 17, 2013 at 1:31 am

    I know Boomer and Echo talk about buying stocks that pay dividends and reinvesting the growing dividends.This is especially true in a non-registered account where you get the benefit of the dividend tax credit paying much less income tax than interest and investment income (foreign dividend income and foreign bond interest income).

    I here about people buying Bell Canada,BCE for the current dividend yield of 5.10%. Bell Canada has a 21 year strip bond with a 5.10% strip bond yield.A $11,000 couple’s TFSA’s would be worth $31,264.37 in 2034.

    My wife and I do not buy corporate bonds,strip bonds because we are not comfortable with these type of investments.Similar provincial strip bonds 21-23 year maturities would yield between 3.58% to 3.78% depending on the province.

    It looks like for anyone who is comfortable with Bell Canada,BCE or other corporate bonds,strip bonds in their TFSA,RRSP would benefit greatly from a 5.10% strip bond yield.Just to let you know after compound interest does it’s magic the 5.10% simple interest becomes 8.7724%.

    A 21 year 3.78% provincial strip bond yield becomes a 5.6173% after compound interest does it’s magic.

  6. thefiscallyfit on May 17, 2013 at 11:49 am

    Hey John, I have a couple of questions for clarification.
    1.Why are you opposed to debt?
    2.Are you legitimately concerned with an insurance company default? therefore losing out on economies of scale regarding several policies instead of one large policy? Is that the tradeoff?
    3. With your bond yield predictions, do you take into account that bond prices have an inverse relationship with interest rates, meaning that in a rising rate environment the value of your bond portfolio will decrease?
    4. What was your decision making process in choosing a GIC over an AA (accumulation annuity)
    5.How are you measuring “risk”, std dev, potential loss of money etc?

  7. Harry @ Smart Money Junction on May 19, 2013 at 3:46 am

    Some handy tips there Boomer. I think the key to creating a financial plan is to gauge your current situation well and then identify your needs- both in the short term and in the future. Doing this correctly can pretty much guarantee that you will have a more than decent plan that suits you perfectly.

  8. thefiscallyfit on May 21, 2013 at 12:36 pm

    @ John Anderson

    Thanks for the response.

    It seems like you have a relatively good handle on things. My only question goes back to risk. You seem to be very concerned about volatility and fluctuations of values… hence you avoid the “market” correct. Being abale to sleep at night has a value to it, that is for sure.

    But if we use std dev (which is what you are inherently using to choose the asset class of bonds, GIC, etc)since 1986 govt of can 10 year bonds and 5 year GIC have had a std dev of 2.3 and 2.8 and the average annual return 6.6 and 5.3 respectively. Given it is possible to come up with a low cost conservative market based portfolio that beats the return with a std dev of around 3, is the difference between the two strategies simply “peace of mind”?

    This is simply an “out there” question as many people do not put a value on “peace of mind” or the opportunity cost of all the time and effort they put into running their portfolio. This is basically a hidden MER we all charge ourselves haha. Regardless of whether we enjoy it, we still need to add it in.

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