Importance of a Financial Plan fpconnect.ca/2019/03/importance-of-a-financial-plan
Financial planning is not just opening an Excel spreadsheet, typing in some numbers and calling it good. There are many benefits of a financial plan that you may have never considered or even knew were possible.
By monitoring spending patterns, appropriate budgeting, and some basic tax planning, you’d be surprised how much added cashflow you can generate in a month. This added cashflow can be put to some wonderful uses; if you can commit to not spending it frivolously. You can begin generating an emergency fund, followed by some short-term goals like a vacation or a new gadget, medium-length goals like a new car, new house or savings for a child’s education, followed by some long-term goals like retirement savings. There are no rules whatsoever saying what your extra savings need to be put towards, but I’m going to assume you want it to be for something productive if you’re reading a blog about financial planning. It’s no secret a financial plan helps you save for your goals, and through some numbercrunching, you can determine how much you need to start saving today to achieve these goals. You may be surprised how saving as little as $50 a month can have on you reaching your goals. $50 a month will add up to $600 a year, and if you let that number generate interest in an investment account, compound interest I might add, that number 1/2
will amount to a lot more. For example, $50/month over 10 years will generate $6,000 in savings, but compounded annually at 8% (historical market returns) in an investment account, over that same 10 year period amounts to $9,006.21. That’s over 50% more money than you would have had if not investing at all! But this is only possible if you begin saving that extra money, otherwise you can kiss those extra earnings goodbye! Okay, enough of me geeking out over these hypothetical numbers. Financial planning makes achieving your short and long-term goals possible. But a financial plan has many more benefits than just achieving your goals. It reduces stress, frees up cashflow, creates financial security, sets a good example for your kids, creates opportunity for further growth, provides a better standard of living, etc. I could go on for days about the advantages of a plan, but the point is that everyone could benefit from a plan in some form or another.
To further back up my opinion, a 2017 poll from CPA (Canadian Payroll Association) found that 47% of respondents (all employed Canadians), are living paycheque to paycheque. This is an alarming number, but to a cognizant financial planner, it is not shocking. With the growing accessibility to consumer debt, it’s no wonder Canadians are overleveraged! If only these Canadians had financial plans… It’s easy to think you need to start saving a couple hundred extra dollars a month, but without putting it into a formal plan, there’s no accountability! A financial plan gives you that guidance and sets up an obligation to yourself. Commitment will put your mind at ease, knowing you are well on your way to achieving your goals.
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