What To Do Until The Financial Planner Gets There

What are the basic first steps of financial planning? These are the ones that require no particular knowledge or skill. They are the things that everyone can and should do and few actually do. They are fundamental but not always fun. Let’s see what is there.

Life is about time. If you get a lot of it then many financial things will happen almost by default. But what if you don’t get a long time? The liabilities to provide lifestyle to your children and spouse and to repay financial institutions will not go away. Your ability to fund them will. So arrange insurance.

In a similar way, insure your income in case you are sick or injured and cannot earn it.

Who should control things when you cannot? Have a will and powers of attorney.

Know where you are going and roughly when. Have a long term plan. The principal components will be a decision about lifestyle (consumption) and timing. How do you want to live, when do you want to stop working, will lifestyle change in the future? Will there be a career upgrade somewhere in the future? When do you want to be out of debt? When do you want to have walk-away money?

Have a short term plan. A budget. You cannot know with certainty that this month’s spending is right without one. Just because money is left over does not mean that you have extra. Similarly, just because you are short does not mean you have overspent. One month is not necessarily the same as every other month. There are lumpy expenditures. A budget keeps these in context.

Have a fund that cushions the cash flow irregularities. In the short run a line of credit will do but emphasis is on the short run. The fund will absorb the monthly spending variations. They should net out if you did the budget reasonably well. In addition to fluctuations, the fund should, for a short time, be able to deal with some of the more shocking things that could happen. Sick, laid-off, injured, car broke, need furniture, Grandma is sick so must buy daycare for a while. Life is filled with these. Without the fund, things can get a little too exciting.

Learn how to shop. Shopping is about value at a price. It is not necessarily about cheaper. Shopping applies to everything. The best deal is the one that reliably achieves your goal for the smallest give-up on your part. Not just money. If you save money but give up time, you may have made a bad bargain. Include all the cost elements when you assess value.

It is fun and exciting to think financial planning starts with portfolio decisions, retirement and succession options, or tax minimizing plans. It does not. Financial planning starts with awareness of the what happens over a long time and what you can do to influence the outcome in your favour.

The final and principal component is discipline. You should learn that skill before the financial planner comes.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

don@moneyfyi.com | Twitter @DonShaughnessy | Follow by email at moneyFYI

3 Comments on “What To Do Until The Financial Planner Gets There

  1. Mr. Shaughnessy is quite correct in his comments and suggestions. What it comes down to is that the first step in the financial planning process is to build a vision of what you want your life to look like in the future. Almost nobody knows how to do what he or I are suggesting. One needs a step by step organizes process that forces you to think your way through a wide range of issues. It takes time and a lot of thought and decisions do not come easily. Ideally your spouse or partner should be a part of this process which will hopefully lead to agreement on key issues. Compromise is critical. We have been delivering our “Lifestyle Transition Planning Program” to corporate employees for many years and it never ceases to amaze me that the vast majority of people have given very little thought to the huge question of “What am I going to do in retirement ?” Without a process, answering key questions becomes very difficult.

  2. An effective financial advisor can help tremendously. They can ask the client questions that the client may have never asked herself. Another great help is to meet frequently with the plan and monitor how the client is progressing and help her continue in a disciplined fashion. See the Giesbrecht case in which neither the advisors nor the clients were disciplined about the plan.

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