Why Your Financial Plan Sucks

Everybody should have a financial plan. Very few people do. A scientific poll of me, my girlfriend, and our infant daughter reveals that only 33% of Canadians have a financial plan (margin of error of +/- 2.2%, 19 times out of 20).

A financial plan is a broad sketch of how you’ll use money to achieve your definition of success. It should take stock of where you are today and where you want to be in the future. Your plan should include “big picture” financial goals and basic contingency plans.

If you don’t already have a plan, relax. Making one is easy. Go find a free template.

If you already have a financial plan, read this article. Then consider revising your plan because the chances are high that it sucks.

6 Reasons Your Financial Plan Sucks:

1) Your financial plan sucks because it reads like the love child of a math exam and a James Joyce novel.

Good financial plans are only a few pages. Your plan should be focused on the strategic level. Everything centres on your money goals. Your financial plan is the place where you enumerate these goals. Some might include:

  • Retire by 55
  • Travel Europe like you’re in a Sun Life commercial
  • Pay for your kid’s education
  • Not pay for your kid’s education and disappear without a trace when he turns 18
  • Eliminate your consumer debt, if you’re foolish enough to have any

Your plan should look a lot more like Dave Ramsey’s ‘Seven Baby Steps’ than a pro forma financial statement.

Sure, your plan needs some numbers, including your assets, liabilities, and net worth. Don’t forget to include your gross income and to calculate your savings as a percentage of your income. With this information, take a look at your short- and medium-term goals. Does this savings rate need to change if you want to send Junior to university in a decade? The sooner the event, the easier it is to figure out.

Run some numbers for your retirement scenario, too. List any pension incomes that you expect to receive – check out CPP projections online or, if you’re lucky, just look at your defined benefit pension statement. If you really, desperately need to calculate “the number” (that is, the amount of savings you’ll need for retirement) then you’ll probably want to read a book or consult a planner. Personally, my number is “as much as possible”, but I have thirty-one years until I can collect my pension – assuming, optimistically, that it still exists.

2) Your financial plan sucks because you didn’t even read it.

If your investment advisor wrote your entire financial plan, I’m going to guess that you weren’t enthralled by the binder spit out from his computer. At best it’s sitting on your shelf collecting dust. At worst you round-filed it.

Preparing a basic financial plan doesn’t require a degree in finance or a special credential. I’m not telling you to fire your advisor. They’re extremely useful details people – they can fill very large gaps in your financial plan like tax planning and portfolio allocations. A good Chartered Accountant’s advice is more than worth the cost. What I’m saying is that you owe it to yourself to walk into your investment consultant’s office with a big picture already in your head.

3) Your financial plan sucks because it ignores your mortality.

Do you have critical illness and disability insurance? If you said “I think I have it through my work,” then you just failed the test. Find out. Get it. Same goes for term life insurance. These should be written into your plan because they’re essential components of your financial health. Reviewing your plan from time to time will remind you to reassess your coverage levels. And unless you don’t care about your family, spend $300 and get a will.

4) Your financial plan sucks because your assets blow.

Real assets generate an income.

Sorry, your primary residence doesn’t count. It doesn’t produce cash flow unless you have a basement apartment (in which case, enjoy the parties you aren’t invited to). And if you’re relying on hypothetical capital gains, think again. The Canadian housing market is in a bubble. Ignore that. Let’s look 20-years down the road. Boomers will be selling their houses en masse. Do you think the debt-laden, unemployed Echos (this blog’s namesake excluded) will be able to afford their parents’ homes in Podunk?

If your home comprises over 40% of your “assets” and you want to retire anytime soon, you’re screwed. Still got a mortgage? You’ll be joining the 59% of retirees who are in debt. Want to be triple-screwed? Buy a cottage with your HELOC.

Related: Is It A Good Idea To Buy A Timeshare?

If you want to include your vehicle, make sure to put it under a separate heading: “Faux Assets”. We’ve all heard the obnoxiously-repeated truism that cars lose most of their value in just a few years. But it’s a truism because it’s true. Do I put my 2003 Chevy Malibu (a glorious American-built machine) on my balance sheet? Not since the left fender got a dent that matches the right fender. If you have a car loan, please don’t click on the link to visit my blog unless you’re a glutton for punishment.

If you don’t have any real assets to list, start building wealth. Save up cash. Buy a junk bond index fund. Construct a dividend-focused stock portfolio. Buy an apartment building in Florida. Just please don’t flip condos and call yourself an investor.

5) Your financial plan sucks because you’re counting on an impossible rate of return.

Financial plans get very complicated when there’s something to hide. Usually it’s the fact that a person’s current savings rate is insufficient to fund their goals. The non-solution? Increase the fictional rate of return.

Investors face a new reality of lower returns on the open market. You can plan to beat inflation. You can plan to earn inflation plus two-percent from dividends or corporate bonds. Squeeze everything from your returns by reducing your investment management fees. Just don’t plan on 10% annual returns from the TSX.

Direct investments (e.g. buying a rental property or a business) and leverage can help super-charge your returns. Nevertheless, they’re risky. If your financial plan has a funding shortage, fill it with increased saving. Speaking of which…

6) Your financial plan sucks because you’re not pushing yourself to save more.

The National Film Board should do a Canadian history moment about saving money. It’s part of our heritage and nobody does it anymore. Unless you have a gold-plated pension, saving 20% of your gross income (an unimaginable amount for most people) is insufficient. You must max out your RRSP and your TFSA while you’re working, each and every year. It doesn’t get easier.

If your financial plan doesn’t suck, congratulations. Put it into action. If you’re drafting or revising a financial plan, follow these rules and don’t make it an excuse for failure. That would suck.

Joe Wood writes at TimelessFinance.com, a personal finance blog that’s focused on proven strategies for building wealth.

Print Friendly, PDF & Email


  1. Beth on July 27, 2012 at 7:38 am

    Ouch! I’ll be checking out your blog! (And my financial plan…)

    I’m one of the many who isn’t able to max out the RRSP and TFSA every year for retirement savings — but it’s not for lack of trying. Kudos to you for being able to make it work!

  2. Adina J on July 27, 2012 at 8:08 am

    Great post Joe!

    Oh boy! Where to even start? No. 5 is a harsh lesson for most people with minimal exposure to PF gurus, because a lot of the more visible, mainstream ones (ahem, GVO) are still throwing around numbers like 5, 7 or 8%. Walking into a bank with the expectation that the desk jockey (ahem, financial advisor)there will be able to point you to an off-the-shelf product that will get you that kind of return is heartbreak waiting to happen. But you already know how I feel about banks 😉

    I have to confess that the weakness of my plan lies in No. 3. I know, I know! One thing I would add is that, in thinking about a will, parents also need to consider (and specifically address) guardianship issues. For most people (who own property together and are beneficiaries of each other’s accounts, RRSPs, etc.), a will comes in particularly handy in the event of both partners dying at the same time – precisely the type of situation that requires guardianship to be settled.

    As for No. 6, you know my stance on saving. I will say, though, that saving is infinitely easier to do when you have more money coming in. For someone earning $30K/year, saving 20% of gross income will leave them with very little to live on; compare that to the situation of someone making $100K/year and saving 20% of their gross income. So, I think that for people making a small income, the focus should be equally on saving AND trying to find ways to increase their income.

    • Beth on July 27, 2012 at 8:34 am

      I was thinking the same thing 🙂 For someone earning 50K (I like round numbers) maxing out the TFSA and RRSP each year just for retirement is $14K. That’s 28% per cent of one’s gross income.

      However, earning more income often means people spend more too. I think in order to get ahead, we have to resist lifestyle inflation.

      So here’s to more years of rarely traveling and living in a run down apartment! 🙂

      • Joe on July 27, 2012 at 8:48 pm

        Absolutely. Great thoughts all.

        Saving, hypothetically, gets easier as income grows. Because of the lifestyle inflation issue Beth raises, saving often stagnates or decreases. As I said, it doesn’t get easier. Excuses today will turn into excuses tomorrow.

  3. Dave McPhee on July 27, 2012 at 8:11 am

    Great Timing. I just wrapped up my ten year plan. To quote Beth; Ouch! But, after the reaction, at least I know which goofy day dreams to toss, and what needs to be done.

  4. Koala on July 27, 2012 at 8:38 am

    7. You make your plan individually, but you have a spouse or common-law spouse. It makes sense to do some planning together, especially when there are tax implications.

    You were kidding when you said that of the 3 of you, only 1 of you has a financial plan, right?

  5. Kathy on July 27, 2012 at 11:06 am

    Nice post. Umm yeah I better get on that… I am pretty sure my financial plan at the moment is a mental one that says “Earn as much as you can. Try to spend no more than half and try to have fun while you’re doing it” Eeek!

    • Gerard on July 28, 2012 at 11:23 am

      Kathy, if you’re actually doing that, you’re freakin’ miles ahead of most Canadians.

  6. Bettina Em on July 29, 2012 at 1:27 pm

    Great tips here… especially pushing yourself to save more. A lot of people seem to be in denial about their debt/financial situations!

  7. Sam McGee on July 31, 2012 at 7:26 am

    Fantastic… but why stop at 20% aim for at least 50% and two gold plated federal pensions.. common people join the 1%!

  8. AverageJoe on August 1, 2012 at 12:14 pm

    I think you forgot an important one: your financial plan sucks because it includes no benchmarks to follow. It’s dead the moment you created it. A good financial plan will tell you where you need to be each year along the path to reach your goal.

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.