Posts Tagged ‘Financial Planning’

Money Management

Friday, November 11th, 2011


Doubling your savings you could retire 10 years earlier, but if you have no control over how much you save, it’s purely a theoretical consideration. You could say the same for financial planning. Many times we’ve pointed out the benefits of having a financial plan – but they’re no good unless you actually follow them. And we have a sneaking suspicion that a lot of people don’t. Once a year they may sit down with their planners and pledge to spend less, sort out their investments, and set up that RESP, but how many actually do it?

To find out, just over two years ago we set up a little experiment. We invited Canadians from across the country to take part in a week-long financial boot camp we called the Seven-Day Financial Makeover. From more than 200 entries, we selected four participants – three couples and one single woman.We flew them to Toronto, put them up at the Fairmont Royal York hotel for a week, and told them to brace themselves for the most intense personal finance workshop of their lives.

Nine of the country’s top financial experts put our participants through a grueling series of sessions covering everything from budgeting and bank fees to insurance and investing. When they were done, we asked a top financial planner – to draw up a comprehensive and personalized long-term financial plan for each participant. Then we sent them home and waited.

We learned a lot about how financial planning works from the experience, and we think you can learn a lot from reading about it. But we also knew that the real value of the exercise wouldn’t be revealed for a while. As they left, all of our participants told us that our boot camp would change their lives. But would it really? It has now been more than two years since the Seven-Day Makeover and it’s time to find out. Can an impulse shopper really become a bargain hunter? Can a couple who always argue about money live happily together? Can a woman with almost no investment knowledge stick to a sound investment plan? Read on to to find out the five key pieces of advices that succeeded – and three approaches that don’t work at all.

 

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3 Ways to Sabotage Your Financial Plan

Thursday, August 11th, 2011


  1. Focus only on the numbers. The mechanics of figuring out how much you have to save and how you should invest will only get you halfway there. Common goals to which both you and your spouse are committed are what’s really important. The numbers are details.
  2. Go for the quick fix. Financial planning takes time. You have to set your long-term goals first, then look at the steps you need to take to get there. If you don’t put together a complete plan, you could end up focusing on short-term goals, such as juicing your returns, that could cost you money in the long run.
  3. Force someone to change who isn’t ready. You can’t bully a spouse into accepting a financial plan he or she isn’t ready for. Both of you have to really believe in the destination. It will take time, sacrifice and compromise – from both of you. If the goals are too ambitious for one spouse, you might have to ratchet them down to start.

 

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Inflation Impairs Long-term Financial Planning

Thursday, December 24th, 2009


By steadily eroding the value of the dollar, inflation will, over long periods of time, drastically reduce the purchasing power of the dollar, and thus seriously affect long-term financial planning. One example of this problem is pensions, which are discussed above. Another is life insurance planning. The essence of life insurance is to provide a sufficient amount of money to be invested to provide the survivor (say, widow) with enough investment income to live reasonably well. Suppose that a widow, age 32, invests the $200,000 of her husband’s life insurance benefits so as to earn $20,000 per years of interest income. While this may seem quite comfortable, inflation of 9 percent per year will reduce its purchasing power to $10,000 by the time she is 40, $5,000 when she is 48, and $2,500 at age 56 – one-eighth of its original value.

What can be done about this? By planning for far greater pensions and life insurance, this effect can be offset – but few people can afford to put aside that much out of today’s income for tomorrow. Consequently, most people cannot protect themselves against this problem, and remain very vulnerable to inflation over the long term. By eroding the purchasing power of money, inflation undermines the role of money as a store of value, making it difficult to plan for the future and to provide for protection against future financial risks. Rather, inflation encourages short-term thinking: “Spend, don’t save, and let the future take care of itself.”

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Lifestyle vs. Reality

Wednesday, October 14th, 2009


The boomer generation is tremendously optimistic about the future and their retirement years. However, are they prepared? As it turns out, not really.

A Forrester Research study in the US found that three in 10 boomers between 51 – 61 haven’t started any financial planning for retirement. In US, Strategic Guidance found that only 15% of its citizens felt fully prepared financially.

There is a new reality for boomers going into retirement.

Two thirds of boomers will be carrying debt into retirement rather than paying it off beforehand.

Instead of savings, real estate accounts for a great deal of boomer household wealth. This may lead to insufficient cash balances from which to draw on for retirement income.

Almost 45% believe they’ll be helping their children financially for the next seven to 10 years.

More than half of those surveyed don’t expect an inheritance. Their parents are living longer – and depleting the assets.

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