Canadians with solid financial plans feel better off emotionally and financially than those who don’t, according to research.
The biggest mistake many Canadians make when it comes to financial planning is avoiding it altogether, says Cary List, president and CEO of the Financial Planning Standards Council (FPSC).
“They have an aversion to sitting down and planning their financial future,” he adds. “Quite often, the main reason is because they don’t know where to turn for good advice. They know they need help, but are unsure of where to get it.”
That’s one of the reasons why the FPSC recently launched a new website financialplanningforcanadians.ca that provides information on how to go about selecting a suitable financial planner and starting the process.
“Most people need help to wade through a whole host of issues related to financial planning so that they can see the bigger picture,” says Cary. “Financial planning involves short, medium and long-term goals, needs and priorities. Having an adviser who provides guidance on only one or two aspects of the bigger picture is far from ideal and is not what we mean by financial planning.”
Cynthia Kett, principal at Stewart & Kett, an advice-only financial planning, investment consulting, and tax services firm in Toronto, says understanding the concept of financial planning can be a challenge for some people.
“It’s much more than just budgeting, saving or having a good investment strategy,” she says. “Financial planning is a long-term process towards achieving personal goals, needs and priorities through the proper management of your financial affairs.”
She too believes the reluctance of many people to develop a financial plan is the biggest mistake they make.
“Some people don’t even have an idea of how much money they spend each month, let alone what they need to do to manage their money effectively and plan for the future,” says Cynthia. “It’s like any other problem; if you don’t know where you’re at, how are you going to know if you are improving?”
Knowing how much we spend is a great place to start, she adds, because it tends to drive all the other aspects of financial planning.
“Once we know what we are spending it’s easier to set both financial and life goals and to put strategies in place to achieve them.”
FPSC research has shown that Canadians who engage in comprehensive financial planning report significantly higher levels of financial and emotional well-being than those who do limited planning or no planning at all.
People with comprehensive plans say they feel more on track with their financial goals and retirement plans, have improved their ability to save, are more confident that they can deal with financial challenges in life, and feel better able to indulge in their discretionary spending goals.
To get the most out of a financial plan, the process should begin as early as possible and should be linked to broader financial literacy initiatives, says Cary.
“We would like to see the concept of planning being instilled in a meaningful way as early as grade school, but it certainly shouldn’t be delayed once you are in the workforce,” he adds. “That’s the time to sit down and start developing a relationship with a financial planner that is going to last for the rest of your career and throughout your life.”
Even people who believe they are careful with their money and are saving for retirement would probably benefit from professional advice, says Cary.
“Sometimes it’s a case of we don’t know what we don’t know and we can develop a false sense of security about just how prepared we are for the future. A financial planner can help expose potential weaknesses and get the plan on the right track.”
Cynthia says choosing the right plan and the right planner go hand in hand.
“Good financial plans need to be designed for the specific needs and objectives of individuals,” she says. “If a planner suggests a cookie cutter approach, it’s probably not the right plan or the right planner.”
What’s important is to choose a path that you know you can follow for the long-term, she adds, but it’s just as important to have a planner you can trust and with whom you can feel comfortable for the long run.
Helping Canadians select a planner that suits them is a priority for FPSC, says Cary who hopes that the new Financial Planning for Canadians website will go a long way to doing that.
“We list 10 questions for people to ask, such as what kind of service am I looking for, what kind of advice do I need, and what homework should I do before I look for a planner. This is important because if I don’t know what help I’m looking for and need, then I don’t know if I’ve made a good match when I select a planner,” he adds.
But even after the match has been made and the plan written, work must go on, says Cynthia.
“Some people make the mistake of thinking that once they have a financial plan they are done, but that’s not the case. You have to implement it, revisit it, follow the recommendations, and monitor progress. It’s a living document and keeping it alive is crucial.”