7 Basic Financial Planning Facts
Here are 7 basic financial planning facts that should light a spark under most procrastinators:
Think of these basic financial planning Facts as strategies to get you to start taking control.
The principles and concept to Financial planning are an essential undertaking that many people know they have to do, but it tends to be procrastinated.
The two key elements are time and money and it seems that people feel they have enough of the former which should eventually result in enough of the latter.
When they learn the true power of time and money and how it can either work in their favor or to their detriment, they then develop the motivation to take action.
1. As baby boomers get older, retirement is the number one reason people begin financial planning.
For many people today, especially those nearing retirement, their biggest concern is the possibility that they might outlive their income sources.
This is followed by planning for short-term emergencies and reducing debt.
2. The price tag of retirement today say for example is $1,000,000 (for some it may be less it depends on your long-term vision).
If you are a non-smoker and you reach the age of 65 you are likely to live another 20 years to 23 years depending on whether you are a male or female.
In order to maintain a modest lifestyle on $50,000 a year of income you would need to have a lump sum of $1,000,000 dollars at retirement age.
This assumes you can achieve a 4% return on your assets and the inflation rate averages 3%.
3. The odds are one in ten that you or your spouse will become a centenarian. If both you and your spouse reach the age of 65, there is some chance (10%) that one of you will live until 100, and possibly beyond.
4. The retirement price tag doubles for thirty-somethings. If you are less than 35 years old today, your price tag for retirement at the same modest level is $2,000,000 based on the same assumptions with inflation being the key factor.
5. Waiting one year can cost you $3,500. That’s the difference in the amount of money you would accumulate after just 10 years of saving just $200 per month.
If you started saving today, you would have $29,500 saved versus $26,000 if you waited one year to start saving.
6. There is more than just one kind of risk. Most people associate risk with the possibility of losing their capital due to market losses.
Because you would have to actually sell your shares in order to incur a loss, market risk is not as certain as other kinds of risk such as the inflation risk, taxation risk or interest rate risk which can have a negative impact on your finances over time.
7. The best way to reduce all risks is through diversification.
A combination of investments with varying degrees of growth and safety attributes will generally produce the best overall return while providing stability over time.
The fact is even with this certainty, many people do not adequately plan for their eventuality.
Basic financial planning concepts can have an impact now and in the future.
This is a true story about how basic financial planning concepts can make a difference.
Jo-Anne (not her real name) about 15 years ago wanted to make sure as she progressed in her career she would be able to make the best use of her money.
She had just begun in the Food Distribution industry as a sales rep and having purchased her first house out in the country her vision was always to pay down her mortgage.
She loves her gardening and travel.
While retirement was talked about, in her mind it was a long way off, but she still felt it was something she needed to at least dream about.
Part of her financial planning 101 was to make sure to be disciplined and she never had a lot debt besides her mortgage.
All the while she made contributions to her RRSPs, used the refunds to pay down her mortgage and to put aside in non-registered investment vehicles.
This did two things; she was able to build up over time an emergency cash reserve and create another pool of long-term savings which would be there in the future.
With life's twist and turns, three years ago Jo-Anne was laid off from her job.
While it was an emotional shock, financially she was in good shape to weather any long lay-off.
That was because of her cash reserves, and she had no major debts besides mortgage.
This made her job search easier as she had no financial pressures and allowed her to sleep better at night.
About 3 years ago she found the job she was looking for after being out of work for more than 7 months, luckily in the same industry and it's a job she really loves.
Based on applying some basic financial planning and having a vision that has evolved over time, today at age 43 she now has options. She really wants to take a sabbatical at age 50 and go to Italy to take art classes.
By then her house will be paid off, her non-registered savings will allow her take time off.
All the while her RRSPs continue to grow within the plan tax-free until she is ready to withdraw in retirement.
With the career setback she encountered, Jo-Anne's priorities and outlook also have changed.
She now realizes that the importance of basic financial planning and having a plan, but more importantly taking responsibility for your own financial well-being. Because no one else will.
More Ideas and Shortcuts For Basic Financial Planning
See why people say "I hate financial planning"
7 Easy Financial Planning Steps for Beginners
Financial Planning Budget - 5 Essential Elements to Setting a Budget
An Overview of Canadian Financial Planning
Effective Strategies for Using 4 Personal Financial Planning Tools
Financial Planning 101 - A Step by Step Guide
Importance of Financial Planning - 5 Fundamental Laws
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