Numbers don’t lie, and the truth is that young Canadians are having a much harder time than their parents or grandparents.
Persons under the age of 65 are much more likely to be struggling to meet their financial commitments, according to a survey by Canada.ca. That’s 39 per cent vs. 22 per cent for those aged 65 and older, the survey said.
Individuals who are under the age of 65 — or have household incomes under $40,000 — are more likely to feel they’re falling behind on their bill payments and other financial obligations. Family circumstances are also important to note, as lone parents or divorced individuals were more likely to report falling behind financially.
However, regional differences matter. Winnipeg, in particular, actually has a long history of being economically strong and diverse. It offers a robust workforce that’s skilled, talented, and productive. But even Winnipeg’s upcoming young residents need a financial plan.
While there are many ways to go about developing a financial plan – be it DIY, using a robo-advisor, working with a financial planner, or a combination of those options – there are some critical components every plan should include, and especially for those trying to improve their Winnipeg financial planning.
Financial goals
You can’t make a plan until you know what you want to accomplish with your personal finances. So whether you create a plan yourself or work with a professional, you should start with a list of goals, both big and small. It can help to organize them by how soon you’ll actually need the money.
- Short-term goals: These are goals you hope to achieve in the next five years, such as paying off debt or buying a new car.
- Medium-term goals: These are goals you hope to achieve in the next 10 years, such as the down payment on a home or starting your own business.
- Long-term goals: These are goals that are 10 years or more away, including college, and of course, retirement.
For each goal, specify a dollar figure and a target date.
“The more specific you get with your goals, the easier it will be to measure your progress toward them,” says Clinton Orr, Senior Wealth Advisor and Senior Portfolio Manager with Canaccord Genuity Corp. in Winnipeg.
There are a host of online tools that can help you run the numbers, weigh your competing priorities, and determine the best course of action for you. And, if you have multiple goals you’re working towards, a robo-advisor, or automated investing platform, can help you weigh the importance of each goal by ranking them by needs, wants, and wishes. Of course, if you have the budget, you can also work with a financial advisor to help manage your finances.
There’s never a bad time to start developing a financial plan. Ideally, you start investing for financial goals early in life, but sometimes circumstances get in the way. It’s always a good idea to analyze your current financial situation and assess how well you’re doing. Are you still on track? Do you have other goals you haven’t considered? Having a financial plan helps you to assess where you currently are and where you want to go next.
Net worth statement
Every plan requires a baseline, so the next thing you should do is determine your net worth. Make a list of all of your assets and liabilities (bank investments, real estate, valuable personal property), and (credit cards, mortgages, student loans). Your assets minus your liabilities equals your net worth.
“Try not to be discouraged if your liabilities outweigh your assets,” says Orr. “That’s not entirely uncommon when you’re just getting started – especially if you have a mortgage and student loans.”
Budget and cash flow planning
Your budget is really where the rubber meets the road, planning-wise. It can help you determine where your money is going and where you can cut back in order to meet your goals.
A budget calculator can help ensure you don’t overlook irregular yet important expenses, such as car repairs, healthcare costs (if applicable), and real estate taxes. As you compile your list, separate your expenses into two buckets: must-have items such as groceries and rent, and nice-to-haves, such as eating out and gym memberships.
Financial planning for the average person, whether you’re from Winnipeg or elsewhere, is necessary for anyone — regardless of budget.
When considering how your goals fit into your budget, you may want to pressure-test it using “What if?” scenarios. For example: What if you want/need to retire earlier? What if you downsize your mortgage? Some robo-advisors offer tools that allow you to adjust certain variables to see how they could impact your savings. A financial advisor, on the other hand, can be more hands-on in addressing your financial plan.
Debt management plan
Debt is sometimes treated like a four-letter word, but not all debt equals bad debt. A mortgage, for example, can help build equity and boost your credit score along the way. High-interest consumer debt such as credit cards, on the other hand, weighs heavily on your credit score.
Plus, every dollar you pay in finance charges andi interest is one you won’t be able to allocate to other goals. If you have high-interest debt, make sure you create a plan that can help you pay it off as quickly as possible. If you’re not sure where to get started, a financial advisor can help you prioritize your debts, then determine how much of your budget should go towards them each month.
Retirement plan
An old rule of thumb says you need at least 80% of your present income for retirement. However, this assumes that retiring will free you from any work-related expenses and taxes, that you’ve paid off your mortgage, and your children are financially independent.
It’s also important to keep in mind you may spend more on other things in retirement, such as travel, gifts, finding out, or financial support for a relative or friend. So, be sure to sit down and fine-tune your retirement budget as time draws nearer. This should be your top priority, since you can borrow for most other goals, but not retirement.
“When it comes to retirement, I highly recommend working with a financial professional. We’re trained to consider all manner of things when it comes to your retirement,” Clinton Orr said.
Emergency funds
When something unexpected happens, such as losing your job, for example, or getting hit with an expected expense (think car repairs), an emergency fund can help you avoid tapping into your long-term savings to make ends meet.
It’s generally a smart idea to save enough to cover at least three months (ideally six months) worth of essential living expenses. Save this money in a highly liquid checking or savings account so you can access it in a hurry should the need arise.
Estate plan
At a minimum, you should have a will, which states your final wishes with regards to your assets, dependents, and who you want to administer your estate to.
You should also keep the beneficiaries of your insurance policies and your retirement accounts up to date. Consider establishing powers of attorney for financial and health care decisions, in case you become incapacitated.
For help getting started or tackling something more complicated, consider working with an attorney or qualified financial planner.
