What is a financial plan?

A personal financial plan can help you reach your goals. It is a document that identifies your financial goals and maps out a plan to achieve them. A financial plan can help you if you’re hoping to purchase a home, pay off your student loans or prepare for retirement. It can also help you stay on track with your investing financial goals.

Everyone’s financial plan will look different. That’s because no one’s financial situation is the same. Ideally, your financial plan should cover major aspects of your financial life. This includes saving, investing, paying down debt, retirement planning, estate planningEstate planning The plans you make to build and manage wealth for your lifetime and thereafter. Goals…+ read full definition, and staying up to date with your taxes.

You don’t need to plan every single aspect of your life at the same time. You can start your financial plan with the goals that are most relevant to you. And you can build your financial plan one piece at a time. If it would help, consider working with a financial plannerFinancial planner An individual who looks at your financial situation and builds a complete plan to help…+ read full definition or financial advisor.

Why should you have a financial plan?

It’s worth taking the time to make a financial plan for several reasons. It can help you:

• Prioritize your financial goals – If you have multiple goals, your plan can help you rank which are the most important.
• Save money to reach your goals –You may find it easier to save when you know what you’re saving for.
• Focus on the bigger picture – Your financial plan considers everything from watching your spending to managing your investments to minimizing your taxes.
• Stay organized – A financial plan can help you balance spending and saving, keep track of expenses and manage debt.
• Worry less about money – A plan can help you see where you are today and create a path to get to where you want to go.

Know your why
If making a financial plan feels daunting or stressful, take a moment to consider why it could help you. Having a clear sense of your personal motivation can help you get started.

What information do you need to make a financial plan?

You will need a few important pieces of information to build your financial plan. Working with a financial planner can help you get started. However, even if you do have a financial planner, you’ll still need to gather details from four main areas of your life:

1. Your assets – what you own 

This includes big items like your home, car or boat, savings and investments. You’ll find this information in bank and investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition statements, retirement savings and other pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount…+ read full definition papers.

2. Your debts – what you owe  

This includes student loans, mortgageMortgage A loan that you get to pay for a home or other property. Often the…+ read full definition, car loanLoan An agreement to borrow money for a set period of time. You agree to pay…+ read full definition, boat loan, credit cards and other bills. Your online banking may have all of this collected in one place. If not, you can find this information in your mortgage records, loan papers and credit card bills.

3. Your income – what you earn  

This includes your employment income as well as any other income from freelance work or benefits (such as Canada Child BenefitBenefit Money, goods, or services that you get from your workplace or from a government program…+ read full definition or GST/HST credit). Your taxTax A fee the government charges on income, property, and sales. The money goes to finance…+ read full definition returns and pay stubs can help you tally this information, and CRA MyAccount can help you find information on tax returns and government benefits.

4. Your expenses – what you spend

This includes basics like food, clothing, utilities and car costs, as well as extra expenses like eating out, insurance, health or dental bills, and money you donate. Look at your bills, receipts and credit card statements.

Your current financial picture shows your assets, debts, income and expenses. Once you’ve collected this information, consider:

• How do you feel about your financial situation?
• Did anything surprise you?
• Are you able to continue to cover all expenses and debt payments?
• How much do you have available to save each month?

Considering questions like these can help you identify your most important financial goals. Try the financial goals worksheet.

Remember
If reviewing your financial information uncovers surprises, or areas that you don’t know how to manage on your own, consider what type of support would help you. Debt professionals, tax specialists, financial advisors, or lawyers can help you with different financial needs.

How can you define your financial goals?

Defining your goals starts with knowing what you would like to achieve. Your goal could be to buy your first home or save enough to retire.

The next step is to make your goal specific and realistic. If your goal is to buy a home, for example, be realistic about what type of home you’ll be purchasing, given where you’ll be buying and how long you have to save. Your refined financial goal might then look like: save $120,000 for a down paymentDown payment The money you put into buying a large item like a car or home.+ read full definition on a condo over the next eight years.

Being specific helps you create goals that are also measurable. Once you have a number in mind, and a time frame to get there, you can break the goal down into smaller steps.

Here are some more examples of specific financial goals that are measurable:

1. Pay off your $3,000 credit card debt within the next 12 months.
2. Save $5,000 for a vacation next year.
3. Pay off your mortgage three years faster by paying down an extra $5,000 each year.
4. Save $10,000 for an emergency fund within the next two years.
5. Save $40,000 for your child’s education by the time she turns 18.

Notice that these goals aren’t all the same size — some are for smaller amounts of money than others. Some also have shorter time frames. It’s normal to have both short-termTerm The period of time that a contract covers. Also, the period of time that an…+ read full definition and long-term goals in your financial plan — these usually require different strategies to reach.

Once you have specific and realistic goals in place, you can plan how much you need to save or investInvest To use money for the purpose of making more money by making an investment. Often…+ read full definition towards those goals each month.

Remember
Your plan can change as your financial situation changes. For example, if you pay off more of your debt, it may free up more money to save or invest. Set aside time once a year to review your financial plan and make adjustments as needed.