Financial planning is the process in which coordinated, comprehensive strategies and solutions are developed and implemented for the achievement of an individual’s or family’s financial goals. Financial planning is a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:
1. Assessment: One's personal financial situation can be assessed by developing simplified versions of statements of financial position and cash flow. A personal statement of financial position lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal cash flow statement lists personal income and expenses.
2. Setting goals: Two examples are "retire at age 65 with a personal net worth of $200,000 and "buy a house in three years paying a monthly mortgage servicing cost that is no more than 25% of my gross income. It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.
3. Creating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market.
4. Execution: Execution of one's personal financial plan often requires discipline and perseverance. Many people obtain professional assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments.
A comprehensive financial plan will address, at a minimum, your current cash flow and financial position, retirement projections, insurance needs analysis, tax and estate planning, investments and a list of recommendations. In a cross-border context, a comprehensive plan could also include discussions about immigration, Canadian vs.
U.S.
taxes, steps to take before you leave
Canada
or the
U.S.
, and steps to take after you establish residency in the other country.
