The financial planning process is built around five key planning areas depending on the stage of life a person has reached.
Lifestyle needs: Financial planning helps people organise their personal or corporate finances so they can enjoy the lifestyle they envision for themselves and their family. It provides education on how to negotiate mortgages, loans and lines of credit with lenders and manage debt. It helps people understand the financial commitment when considering the purchase of a house, vehicle or RV. It ensures that people have the protection they need to mitigate the huge financial risks in case someone gets sick, disabled or dies.
Income replacement: Financial planning helps people prepare and protect themselves for the possibility of a work layoff, inability to work because of a critical illness or disability, or premature death. Many people understand the consequences of premature death, but may not understand that prior to age 65 they are at a much greater risk from illness or disability than of dying. So they understand the importance of life insurance but not disability or critical illness coverage. If the possibility of all that premium being lost is a concern, one can chose options that return the premiums if no claims have been made, or convert the policy to long term care coverage. Personal insurance can be used to economically fill in the gaps or enhance group coverage at work.
Health care: Financial planning helps those working as contractor workers, or employees who have had their benefits cut back to have the health and dental plans that they need. There are a huge variety of choices from simple health spending accounts to full coverage options. As mentioned above, many employee group plans come with gaps or limitations in coverage.
Wealth accumulation: Financial Planning encourages people to “pay yourself first”. If everyone put aside 10% of what they earned into savings, all would accumulate very significant net worth over their lifetimes. RESPs RRSPs, TFSAs or non-registered accounts are all tools that can help anyone with discipline to accumulate wealth.
An important part of wealth accumulation is having a financial risk management plan in place to ensure what you accumulate doesn’t get wiped out because of disability, ill health or premature death.
Legacy planning: Financial planning helps people arrange their affairs so that they can pass on the maximum amount of their wealth to their family after death by way of conserving one’s estate against shrinkage due to taxes or debt. It can help ensure an equitable estate distribution when one or more sibling takes over the family farm or business, the other siblings get cash in lieu of ownership. It also can make it possible for families who want to gift to a favourite charity on death.
All life stages require working with financial, accounting, legal or other professionals either individually or as with a team depending on the complexity of one’s situation. And as always, it’s better to start soon to be able end up with the results you desire.
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