Understanding Financial Planning: From Debt to Saving for Your Dreams

Do you have a plan for your money? When you’re in debt, it can be hard to see the forest for the trees. You’re scrambling to pay bills and keep up with debt payments, and you may even be dealing with calls from collection agents. A plan for the future might be the last thing on your mind.

Financial planning isn’t just for those with cash to spare. It can also be a powerful tool for getting out of debt faster, balancing your priorities, and making the most of the money you already have.

What Is Financial Planning?

Financial planning is the process of deciding what to do with your assets and income to reach your goals. It balances your current wants and needs with where you want to be in the future, laying out the steps you need to take to get there.

Budgeting is an important part of financial planning because it helps you redirect your money toward your goals, but financial planning is more than just keep track of your money. It’s about finding the best possible uses for your money so that you can achieve your personal goals.

Financial planning makes your goals attainable and makes you think about a timeline. A plan shows you your options and the costs of choosing one thing over the other. For example, your plan can tell you how long you need to save to pay for your wedding – or how much sooner you could buy a house if you scaled back your wedding plans. It shows you the long-term cost of saving a five percent down payment instead of twenty. It’s all about knowing what you’re getting into and what you could do differently.

What Are the Steps in Financial Planning?

Successful financial planning takes a comprehensive overview of your finances and your goals and finds a way to bring them together. These are the steps you need to take to put your plan into action and make sure that it’s working for you.

#1 Outline Your Goals

Financial planning starts when you set your goals. Financial goals aren’t separate from your life – they are the life you want to live. These are goals like buying a car, saving a down payment for a home, having children, going on an overseas vacation, and retiring. Part of financial planning is researching the costs of your goals and what else you need to accomplish to make them happen. It’s answering questions like:

  • How much do you need to save before you can buy a home?
  • How much do you need to earn to cover your mortgage, car payments, and raise a family without going into debt?
  • What do you want your retirement to look like? How much do you need to make that realistic?

#2 Budget Your Income

Now that you have your goals, it’s time to navigate your way toward them. You can’t will money out of nowhere, so you need to sit down, look at what you have, and create a plan. A budget will help you save money above and beyond your basic expenses, allowing you to pay down debt and build some savings that you can use to invest and grow until you can afford your goals.

#3 Pay Off Your Debts

Getting out of debt is often the first big financial achievement people plan for. Credit card debt can hang around your neck like a weight, while student loans can get in the way of qualifying for a mortgage or taking other important life steps.

Depending on how much debt you have, you may want to speak with a Licensed Insolvency Trustee at David Sklar & Associates. There may be a smarter, faster way of getting out of burdensome debt, such as bankruptcy, insolvency, or certified credit counselling services

#4 Save an Emergency Fund

An emergency fund is your best defence against going into debt again. Once you’ve paid off those high-interest debts, you can focus first on saving a buffer between you and emergency expenses. An emergency fund can protect you from debt when you have sudden home or car repair expenses, need to take time off work due to an illness or injury, or help you bridge a period of unemployment.

It’s a way of protecting yourself so that unexpected events don’t disrupt the financial planning process. With an emergency fund, you don’t have to let a setback derail your plan.

#5 Invest Your Savings

When you save, you set money aside for the future. When you invest, you’re buying assets with the goal of earning a profit or income. Some goals are unrealistic with just the money you’re able to set aside each month – such as retiring. Investing allows you to grow your wealth beyond your own personal ability to save.

#6 Assess Your Progress

An important part of the financial planning process is changing with the times. Not everything will go according to plan. For example, your mortgage payments may change when your mortgage comes up for renewal or if your mortgage is on a variable rate due to inflation and interest rates.

In addition to higher expenses, you also want to look at the performance of your investments. You may want to replace underperforming funds or assets.

Things change, and that’s why financial planning should be flexible. You can adjust your plan and your timeline to reflect changes in your finances.

Does Bankruptcy Fit into Financial Planning?

Before you can start saving money, you need to get over your debt. Good financial planning doesn’t just help you plan for your savings, it also helps you find the smartest way out of debt.

There’s more than one way out of debt, and talking to a debt expert can help you find it. People often think of bankruptcy as a last resort, but that’s not always the case. If you’re dealing with high-interest debt that will take you years to pay off, or if you’re struggling to keep up with payments already, insolvency can make a lot of sense, even if you’re younger.

One reason millennials should consider bankruptcy is that they have more time to restart. They’re further from retirement, may not be at their peak earnings yet, and often own fewer assets that have to be sold in bankruptcy. If you can clear your debts sooner through insolvency, you can start rebuilding and working on planning your personal finances.

A debt-free strategy might even be as simple as taking the initiative to talk to your creditors about a more affordable payment plan. High-interest lenders such as credit card companies may be able to offer lower interest rates if they think you might otherwise file bankruptcy. When it comes to student loans, there are also repayment assistance plans if you are under a certain income threshold.

Money isn’t the only thing that goes into financial planning in Canada. There’s also your credit report. Your credit is a record of your payment history, public records that affect your creditworthiness (such as bankruptcy), and inquiries into your credit history.

There are tools individuals with a low credit score can use to rebuild their credit. Using a secured credit card is an effective way to establish a positive history of using and repaying credit on time. It’s one of the steps you can take after bankruptcy to get back on track to reach your financial goals.

Financial planning starts with a strategy for getting out of debt. To find out more about the tools and plans you can use to get out of debt sooner, give us a call and book a free consultation. You can also provide us with more information about your financial situation in the form below, and we’ll help you take the first step toward a debt-free life.

Should You Work with a Financial Planner?

Working with a Certified Financial Planner in Canada makes a lot of sense when you want to start investing and saving. There is an important distinction between Certified Financial Planners and professionals who call themselves financial advisors. Anyone who helps you manage your money can call themselves a financial advisor.

However, a Certified Financial Planner has passed a national exam and obtained three years of qualifying experience to become certified. A CFP has a fiduciary duty, which means that they must put your financial interests over their own. Unlike a financial advisor, they can’t push you toward investment products that benefit themselves.

Your financial planner can help you decide how to invest your money and help you prepare for your greater financial goals. They can help you navigate contributions to your RRSP and TFSA, as well as deciding what to do with your investments. They can recommend different mutual funds, investment assets, insurance policies, and strategies to make your goals a reality.

They’ll begin by talking to you about financial goals and timelines. This information will inform how much risk you can take on with your investment. They will recommend investments with lower risks and lower returns if your timeline for using the money is in the next 5-10 years. But your long-term goals can bear higher risks because they have more time to recover.

Start by Getting Out of Debt

Don’t worry if this all sounds like it’s a world away. When you’re in debt, it’s hard to think about saving and investing. You can start financial planning by coming with a plan for getting out of debt. Talk to a Licensed Insolvency Trustee and start your plan today.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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