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Werner C. Duever

Financial Security Advisor
Investment Representative
Banner for independent advisor associated with Canada Life

5 components of a sound financial plan

saver or spender

A sound financial plan takes into consideration your present situation and creates a road map to help you get to where you want to be as well as protect what you already have. It also includes recommendations of how much money you will have to put away to reach your goals.

Goals & Objectives:

Initially you will have to determine your present and future wishes financially. You should establish SMART (specific, measurable, achievable, relevant and time-based) goals.

Analyze your Present Situation:

Create a “Statement of Net Worth” to determine your financial net worth by listing all assets (home, business, investments and savings) and liabilities (mortgage, loans, credit cards). To calculate your net worth, subtract your liabilities from your assets. Your net worth helps you understand your financial health. Also determine your cash flow situation by writing down all your income sources and what your expenses are each month by creating a “Cash Flow Statement” (also called a budget).

Determine your investment and insurance needs that are necessary to reach your goals. A good financial security advisor or financial planner can help you with this analysis.

Identify Issues & Problems:

At this point you can discover your weaknesses and strengths financially. Through reviewing your needs and goals you will be able to determine the gaps in your plan and how much you might have to save and what insurance protection you will require.

Create and Implement a Plan:

When you put a plan together make sure your have a security plan first which includes an emergency fund. Income may vary for business owners from month to month so prepare for the lean months by establishing an emergency fund of at least 6 to 12 months of living expenses. A good way to do this is a saving principle called “pay yourself first”. From your earnings put a percentage of your pay into a savings or an investment account before paying your bills.

Make sure you include the proper level of insurance coverage. A sudden unexpected event can upset even the best prepared plan unless you have anticipated and planned for catastrophic events.  Insurance products are instrumental in offsetting these risks.  Make sure you evaluate your life, disability, critical illness, and long-term care insurance to ensure you are fully protected.

Put your financial plan in writing and not simply verbal. There is a lot of strength in having it in writing. After all, if it has to be revised in the future you will be better able to make the changes, if you have your plan in writing. Napoleon Hill, the author of Think and Grow Rich made this statement: “Reduce your plan to writing. The moment you complete this, you will have definitely given concrete form to the intangible desire.”

Obviously, your budget will determine how much you will be able to save, invest and purchase the right level of insurance. You might have to sacrifice your retirement or purchase goals in the short term to make sure you have the right amount of insurance in place.

Continue to Monitor the Plan:

Once a plan is put in place it becomes obsolete. It is only a snapshot in time. Life events like the sale of a business, the birth of a child, purchasing a home or getting a divorce can change your needs dramatically. Your plan should be reviewed at least once a year to see if it still meets your goals and objectives.

Finally, make sure your plan includes planning for inflation and taxes. Inflation increases can affect your future purchasing power. Utilize experts like a financial security advisor or financial planner, accountant and lawyer to help you develop your plan.