PERSONAL FINANCIAL PLANNING

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PERSONAL FINANCIALPLANNING

• When Should You Start?

M. Piczak January 2006
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WHY A PERSONAL FINANCIAL PLAN?

• As an employer, no one else does it for you
• Need retirement income
• Help choose your priorities between home,
  vehicles, vacation property, childrens
  education, travel, early retirement
• Pay less income tax

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• Evaluate your personal, current financial
  situation
• Estimate current net worth
• Estimate income from all sources
• List all recurring expenses

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• 2. Choose financial goals.
• Time frames are important
• Separate wants from needs

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• 3. Develop saving/investment strategy
• For desired retirement income
• For goals between now retirement
• Make assumptions regarding income and
  expenditures over future years
• Identify alternative action plans (contingency
  planning)

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• 4. Evaluate alternative action plans considering
• Economic employment factors
• Risk factors financial other
• Opportunity costs
• Lifestyle choices
• Your values
• Family situation

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• 5. Develop your plan by
• Choosing from alternatives
• Using professional advice
• Remember the family life cycle
• Ensure you have a wise budget
• Remember tax considerations

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THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL
PLAN

• 6. Implement by
• Evaluating periodically
• Changing your plans as needs change
• Changing as external factors change
• Focus on goals

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WEALTH CREATION IN OUR CAPITALISTIC SOCIETY

• Creation of wealth is encouraged so that
  individuals take care of themselves rather than
  by the state
• System is designed to control the rate of
  wealth creation to promote stability and induce
  hard work and risk taking

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WHAT YOU CAN DO WITH YOUR

• 4 options exist
• Spend it its gone forever
• Give it away you feel better but its also gone
  for good
• Bury it youve outsmarted the tax man but
  lowered your worth because of inflation
• Invest it participating in the power of the
  time value of money (interest and capital
  appreciation)

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THE TIME VALUE OF MONEY

• Money grows according to the force of interest
• Future Value P(1 i)n
• Interest is paid on interest resulting in a power
  function
• Consider that 1,000 invested annually into an
  RRSP accumulating beyond the reach of CCRA will
  grow to 1.5 million depending on the interest
  rate used
• Remember, that it will be taxable when drawn out
  at retirement although at a lower rate of tax

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GETTING TO 1,000,000

• Contrary to easy jokes, 1 million is still some
  serious money
• How much money must be invested to get to the
  magic 1 million?
• The answer is_________________

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DEPENDS

• Depends on
• A. Investment return assumptions
• B. Amount contributed
• C. Time involved
• Consider the following piece
• Future Value Calculations Getting to 1,000,000

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INCOME SOURCES

• Salaries
• Employment insurance benefits
• Self employed income
• Business income
• Rental income
• Pension income
• Interest and investment earnings
• Inheritances
• Unexpected windfalls

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ITEMIZE YOUR EXPENSES

• Food
• Shelter
• Car
• Children
• Medical care
• Meals outside the home
• Entertainment
• Travel
• Beer

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WHEN TO START?

• NOW!

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EASY INVESTMENT OPTIONS

• Starting an RRSP and making regular contributions
• Do what Esther Pauls didget off your lease,
  purchase the building reducing your present costs
  and owning the building after 7 years
• Starting up a mutual fund of your own
• Play with stocks on e-trader sites limiting
  yourself to a particular sum
• Buy a house (appreciates tax free for your
  principal residence)
• Do forced savings using CSBs and then investing
  it at the end of the year in some other
  investment instrument

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DEVELOP MULTIPLE INCOME STREAMS

• Rent
• Residual income streams
• Having several activities that generate income
  simultaneously

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CONTROLLING YOUR SPENDING

• Budget and stick to it
• Learn to say no
• Dont have too many credit cards
• Use a line of credit
• Stop impulse buying
• do you really need it?
• Dont go shopping
• Control dining out
• Dont carry cash
• Pay down debt ASAP so you can do other things

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CUT DOWN AND SAVE BIG OVER A LIFETIME

• How much money is generated by cutting down on
• Taking own lunch 3 days/week
• 95,000
• Buying bottled water 3/dozen bottles rather than
  at convenience store at 1/bottle
• 57,000
• Park car, take bus
• 110,000
• SUM TOTAL gt 260,000
• (See Spec article Jan. 27, 2006)

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THATS ALL THERE IS TO IT

• Decide what you want
• Look at where you are now
• Establish your priorities
• Cut down your spending
• Make the investment/saving commitment
• Go relax in the sun

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THE ANSWER TO OUR SKILL TESTING QUESTION WHEN
SHOULD YOU START?

• START NOW WHEN YOU ARE YOUNG TO PUT TIME ON YOUR
• SIDE

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PERSONAL FINANCIALPLANNING
THE END

• M. Piczak
• January 2006