10 Essentials of Financial Security

Life is the greatest adventure, and I can help you be prepared.

When I’m not working with clients, a large portion of my time is spent on the trails, hiking and running in the mountains and forests. I’m keenly aware of my own vulnerability and the need to be properly prepared for the elements and any problems that may arise while out on my adventures. As in hiking, we can preserve our financial well-being and avoid dire consequences simply through preparation and good planning. I have taken inspiration from North Shore Rescue’s list of 10 Essentials and present to you the 10 Essentials of Financial Security:

1. Find an Advisor You Trust
One of the keys to financial success is to find an advisor you trust. This is the person who will guide you through planning and difficult decisions. A good advisor will also balance current needs with future needs, keep the big picture in mind, educate you, and talk you off the ledge when you want to panic. How do you find the right advisor? One of the best ways is through referral by someone you already know. Then ask questions: make sure you and your advisor share the same values, that you feel understood, and that the advice is tailored to your own personal situation, personality, goals, and risk tolerance. Some people want an advisor to keep them accountable, some want reassurance, some want education, some want direction. Make sure that your advisor is able and willing to provide what you need in order to be successful.

2. Pay Yourself First
We’ve all heard the age-old rule to “pay yourself first”. This means setting aside a portion of your income to go into your financial plan for both savings and protection. If you do this, you buy yourself options for later and avoid being blind-sided by unexpected things that happen along the way. How much should you save? At least 10%, but realistically it’s better to aim for more. If you’re not currently doing any monthly savings, then just start with something. Even $25 or $100 per month going into your plan is better than nothing.

3. Have an Emergency Fund
Experts say we should have at least 3 to 6 months of expenses set aside in case of emergency. Most Canadians do not have this (credit cards and parents don’t count!). If you do not have an emergency fund then this should be one of your first priorities. Ensure that this money is safe and easily accessible, and don’t give in to temptation to use it for non-emergencies. How much you should have set aside is up to you; if you were to lose your income tomorrow, how long would your savings need to last? How much do you need in order to feel secure? Aim for that.

4. Protect Your Greatest Asset
Do you know what your greatest asset is? Some people think it’s their home or their retirement savings. In truth, your biggest asset is your ability to earn an income. Example: If you are 30 years old and will make an average of $80,000 per year for the next 30 years, that works out to 2.4 million dollars that you will earn. That means that if something happens to your health today that prevents you from earning an income, you have 2.4 million dollars at stake. If you do not have disability and health protection from your employer, it’s a good idea to explore private options. Even if you do have protection through your employer, review it with your advisor to ensure that it is sufficient.

5. Educate Yourself
Education is the all-purpose tool. If you are well-informed, you will know what your options are and the best way to take advantage of them. Information about personal finance, financial products, investment principles, and your own situation will be invaluable for you as you navigate. To get started, check out my free educational workshops.

6. Have a Life Boat
If you do not already have one, you need a strategy that will give you options throughout your life and give your family options when you pass on. It needs to be safe, secure, and immune to market fluctuations. I can help you achieve this.

7. Have a Written Plan
A financial plan is your map and compass–don’t leave home without it! It tells you where you are, where you’re going, and how you’re planning to get there. It will encompass both big picture and immediate needs, and address all areas of your life including family, debt, tax planning, estate planning, retirement planning, and your other goals and dreams. Your advisor will help you construct and maintain this plan (and if you’re my client, I’ll put it in a nice leather binder for you).

8. Don’t Forget the Tax Man!
Taxes may not be a fun part of financial planning, but they are a crucial piece. If you are not using the tax-advantaged options available to you, then talk to your advisor about how you can. The obvious ones are TFSAs, RRSPs, and RESPs; there are other options as well that can help you build your wealth in a tax-advantaged way. Another area that requires thought and planning is the tax liability for your family and estate when you die: make sure that you have a plan for that.

9. There are Perks to Being a Business Owner
If you are self employed and/or a business owner, there are options available to you for financial planning that are not available to individuals. Talk to your advisor about your own situation and find out how you can use your business to pay some of your expenses, save for retirement, transfer wealth to your family, and pay less tax in the end.

10. Get on the Same Page
Accountability can be a major factor in any kind of success, including financial. Are you and your spouse/partner on the same page when it comes to saving and spending? Do you have people you can count on to help motivate you toward your goals? Or will they question every decision you make–or worse, sabotage your effort? Make sure you have at least one person in your life (could be a spouse, partner, family member, friend, or colleague) who can light a fire under you and keep you accountable for your goals.