Financial planning is a process that can have a magnificent, meaningful impact on your quality of life. Some people equate financial planning with getting an adequate rate of return on your RRSP. That's fine as far as it goes, but it's an inadequate definition of financial planning.
Financial planning is a six step process that involves examining a client's position, setting some objectives, identifying obstacles, designing a plan, implementing the plan, and monitoring the plan to make sure you are on track. Each of these steps is a necessary part to maximize the likelihood of obtaining your goals.
Is it worth it? Absolutely. It's your roadmap to reaching your own personal Great Goals in Life. It's about living a life of significance.
Here's an example. Warren Buffett is the world's greatest investor. As a consequence, he has amassed a fortune that is pretty much incomprehensible in its magnitude.
If he wanted, Buffett could have two of anything that he ever set his eyes on. Cars, houses, yachts, jet airplanes, private islands, trophy wives, you name it. He could live a life of prodigious consumption.
But that kind of stuff is not important to Buffett. Instead, Buffett has pledged to give 99 percent of his wealth to philanthropy.
Buffett says, "Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends. My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the U.S. were at least 30 to 1. My being male and white also removed huge obstacles that a majority of Americans then faced.) My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I've worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate's distribution of long straws is wildly capricious. The reaction of my family and me to our extraordinary good fortune is not guilt, but rather gratitude. Were we to use more than one per cent of my claim checks on ourselves, neither our happiness nor our well-being would be enhanced. In contrast, that remaining 99 per cent can have a huge effect on the health and welfare of others. That reality sets an obvious course for me and my family: Keep all we can conceivably need and distribute the rest to society, for its needs."
Giving away your treasure to help others. That's a great goal.
But not only is Buffett doing this with his own fortune, he's encouraging other billionaires to also give back to the society that made it possible for the accumulation of their vast sums of wealth. So far 91 other billionaires have taken up his pledge to give; including Bill Gates, George Lucas, Ted Turner, Paul Allen, Charles and Edgar Bronfman, Larry Ellison, and Mark Zuckerberg.
Charitable gifting is one example of a great goal, but there are many others. Being financially stable so you can enjoy time with your family. Having a retirement income that you can't outlive. Ensuring your family will be taken care of if you are hurt or sick or dead. Helping with your grandchildren's education, or caring for your aged parents. Ensuring the multigenerational transfer of wealth.
Financial planning is a clearly defined process that moves you toward your objectives. Having a plan and then implementing it is critical if you want to accomplish your objectives. Sometimes people know what they want, but have no idea how to make it happen. Or they know what to do, but never get around to doing it.
What's important about money to you? What do you want to accomplish in life?
What are you doing about it?
Financial planning goes beyond trying to get eight per cent from your RRSP.
Financial planning is about working towards your personal great goals. Financial planning sometimes takes some time and effort, but great goals are worth it.
The opinions expressed are those of Brad Brain, CFP, R.F.P. CLU, CH.F.C., FCSI. Brad Brain is a Senior Financial Advisor with Manulife Securities Incorporated, in Fort St John, BC. Manulife Securities Incorporated is a Member of the Canadian Investor Protection Fund. Brad Brain can be reached at [email protected].
