3 Essential Components of a Solid Financial Plan

Money is one of those topics that so many people struggle with, either at some point in their lives or throughout their entire life-time.

A couple of years ago, a really good friend of mine interviewed me for his podcast channel called Moving Millennials. You can listen in here: Listen to Audio

Here are three basic principles I would walk a client through on our first financial meeting:

1. Lifestyle Outline

What kind of a lifestyle would you like to have? Outline a lifestyle that is ideal (and somewhat practical) for you to feel happy and fulfilled.

Once you figure out what kind of a home you want to buy, what type of a car you want, and/or what kinds of experiences you want to have in your life – whether it be travel, learning how to fly a plane, or going back to school = BREAK IT DOWN so that it’s small and manageable – I call this process ‘chunking’ – so that you can start working towards it right away! The more focused your goals, the more manageable they are.

2. Create Your Money Management Plan

What will you do with your money on payday? Is there a plan for the how much will go into Savings? Debt repayment? Retirement? Daily expenses? Do you have a reasoning behind this?

Here are some guidelines to make your Money Management Plan:

1. Savings and Long-term: It is safest to save at least 10-20% of your income towards your long-term goals. For example, if you want to save up to start your own business, buy a home or a car, or travel the world, it is best to start saving for that right away!

2. Paying-off Loans: It is also important to allocate a good chunk to paying off your student loans or credit-lines if you have any. A high-interest debt will stunt your power, and getting rid of it will liberate you emotionally.

3. Giving Back: Sometimes we get stuck in the ‘not-enough’ cycle: we keep thinking we don’t have enough. Slowly, this becomes an attitude we live our lives by. By giving a portion of your income to charity – around 5-10% – you will start building an abundance mentality – which is important for your financial well-being.

4. Daily Expenses and Investing in Yourself: Some of your money will obviously go into your day-to-day spendings. But some part of it should also be used towards learning new ideas and educating yourself. Don’t be afraid to invest in yourself. Have some fun – learn a new hobby!

3. Smart Investments

The third component I walk my clients through is taxes. It is important to learn how much of your money goes into taxes, and how to save as much of it for yourself as possible. There are several government-approved ways of doing this. One such way is investing in an RRSP or TFSA account, and Life Insurance based investing is another. It all depends on your tax bracket and savings rate. But there’s almost always more you can do. So keep learning, or reach out to a Certified Financial Planner.