Dave's retirement journey

Three types of plans you need for your money

By Dave Dineen, BrighterLife.ca

If finances were simple, it might take only a calculator to handle them. But they’re not simple, so it’s important to have plans as well.

Three types of plans you need for your moneyLet’s talk about three kinds of plans:

  • Investment plans
  • Financial plans
  • Retirement plans

What’s an investment plan?

Beginning investors often simply plunk their money into a mutual fund registered retirement savings plan (RRSP) or a tax-free savings account (TFSA), with no hint of strategy or discipline. After a few hot tips gone cold — or a market downturn that reveals you have more bravado than risk-tolerance — you may begin to see the value of a plan.

So what’s an investment plan? It’s created with a financial advisor and starts with a know-your-client questionnaire that establishes your appetite for risk, your knowledge level and when you will need to access the money. It introduces the “not-all-your-eggs-in-one-basket” principle of asset allocation. With a well-crafted investment plan, you’ll have appropriate portions of your money in appropriate types of investments.

Back in 1999 and 2000, I was in love with biotech stocks. The more exciting the stories about them, the more I bought. I filled my wife’s RRSP with the things and 14 years later, her RRSP still hasn’t regained its size. Stupid, stupid, stupid! I should have had an investment plan or something even better — a financial plan.

If your idea of financial success is having a nice bunch of investments, an investment plan sounds like it will serve your purpose. I’ll caution you, however, that it’s probably not broad enough.

What’s a financial plan? 

A financial plan does everything an investment plan does … and more. With the help of your advisor, it also addresses:

  • Your goals and dreams. The plan prioritizes your finances with those goals in mind.
  • Your long-term priorities. How will you prioritize saving for retirement vs. saving for kids’ education vs. buying a bigger home?
  • The rest of your money. Because it’s not just about investments, a financial plan can also address important financial matters such as day-to-day cash flow, credit card or other debt, rainy-day savings, budgeting, minimizing taxes, and using insurance to protect your family’s finances from catastrophes like accidents, poor health or death.

What’s a retirement plan? 

A retirement plan is a financial plan with two key differences:

  • It’s life-stage-specific, to help you transition into retirement or to make the most of your money while you’re retired.
  • It’s also a lifestyle plan, addressing how you’ll spend your time, grow as a person, pursue your interests, be as healthy as you can and leave a legacy.

In fact, some of the most important parts of my retirement plan have nothing to do with my finances:

  • “I’m going to go for a vigorous walk five times a week.”
  • “I’m going to volunteer at the local crisis hotline.”
  • “I’m going to learn to cook.” (My wife has been waiting 32 years for me to cook a decent meal, so I think I owe her one or two.)

Having these three types of plans is valuable whether your income is big or small, your debts huge or non-existent, your dreams grandiose or modest, your investments impressive or puny — and whether you’re young or old.

Financial planning Check out more financial planning tips and tools.
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