Discover Your Lifestyle and Financial DNA
Hello and welcome back to our financial literacy series on financial planning. In the last post I outlined how to engage the right kind of financial planner for the job you need done. Today we jump right into the second step in the planning process commonly referred to as “Discovery”. This isn’t like the discovery we see in TV legal dramas. You know, the ones where lawyers dig up all kinds of information and “dirt” on the defendant to win their case.
Instead, this step in the process is driven completely by you. It’s where you get to document what’s important to you, what you really want to “do, be and have” in life. It’s a chance for you to share your values, your hopes, your dreams and fears for the future, in other words – your goals. But what does this have to do with money or a financial plan? In a word – everything!
Money by itself is boring, we don’t even get to touch it much anymore - it’s just ones and zeros in a computer somewhere. That said money is important – like Zig Ziglar says “money isn’t everything, but it’s right up there with oxygen”. What brings money to life though is what it can do for you. Once you know what you value and what your goals are, then you need to determine how much that will cost.
This in essence is what a professional financial plan is all about. Figuring out what you want from life (lifestyle) and then determining how much it will cost and how you’ll pay for it with the resources you have throughout the various stages of your life.
Discovering the Financial DNA of your Current Lifestyle
Whatever stage you’re at in life now, you’ve created a certain lifestyle that you’ve become accustomed to. This is the starting point for your financial plan, but that lifestyle isn’t free it costs money. These costs in turn must be funded somehow, either by employment, self employment, business income or pensions and retirement income, if already retired.
In simple terms, your Financial DNA is determined by taking stock of your current financial situation. Your planner needs to know how much you earn, how much you spend, and what’s the gap between the two? This will enable the creation of a cashflow analysis which is a critical component of your plan. Depending on whether your cash flow is positive or negative, will determine the strategies needed to help you reach your specific goals.
Then they’ll need to know what you own in the way of financial assets – real estate, savings accounts, and investments (RRSP, TFSAs, Taxable Accounts, business interests, rental properties). On the other side of that coin, they’ll also need to know what you owe in the way of debt (personal loans, mortgages, lines of credit, credit cards). This will enable the creation of a Net Worth Statement and projections on how these assets can be best used to fund your goals.
Discovering the Financial DNA of your Retirement Lifestyle
If you’re already retired or about to make that major life transition, there are some differences in the information you’ll need to consider. When you wake up on day 1 of retirement, what will you be doing in this new season of life? What’s your new purpose and how will the costs associated with it be different than when you were working?
There are bound to be expenses that you will no longer have to pay. This might include contributions to retirement plans, transportation costs for work or fewer lunches out. On the other hand, you may have new costs like an increased travel budget, membership fees for clubs or sports. It might even include tuition costs for a course at the community college to learn that “thing” you always wanted to learn but never had the time. Remember there is a direct link between what you want to “do, be and have” and your money. You’ll need to spend some quality time at this step figuring out how much the “new you” might cost.
Tools to help you in your Financial DNA discovery!
To help you compile the financial information needed there are a wide range of tools you can use. A simple budget tool can be useful to help document your income and expenses. Try to be as detailed and accurate as possible. Likewise, a basic net worth calculator or spreadsheet is a great way to document all your assets and liabilities. Depending on the financial planner you work with, they will have their own forms or data collection methods.
Here at True North Retirement Counsel, we use our proprietary Retirement Lifestyle Discovery™ and Financial DNA Discovery™ tools to help you at this stage. If you’re interested in talking to us about this, you can schedule a no cost, no obligation “Fit Meeting” here
Summary
As my high school data processing teacher used to say, “garbage in, garbage out”. Yes, I am that old and used “punch cards” for programming. At this step in the process, you want to be as complete and accurate as possible with the information you provide. Otherwise, the plan output will be of little value. Honestly, this will be a bit of work and may take considerable time, but it will be worth it. Next time we’ll take a deep dive into what’s involved in Step #3 – The Financial Diagnosis. I look forward to our continued educational journey together, helping you get started on your financial plan.
Until next time, remember ……..Without a Plan – It’s Only Money!
Additional Resources:
If you would like additional detail on these steps, or the broader financial planning process, check out our future posts in this series. Or you can e-mail me at info@truenorthretirement.ca and ask for our The Fearless Retirement BlueprintTM.
Also, you can visit the FP Canada website for the Canadian public at: https://financialplanningforcanadians.ca
