SMART MONEY: Fail to plan, plan to fail
By Brad Brain
It’s easy to dismiss the expression “Fail to plan, plan to fail” as a cliché. But I can tell you that many, many people do not really plan their finances.
Here is a typical Canadian financial story. It’s late February so you go into the bank and get an RRSP right before the deadline. You speak to a bank employee, and you end up putting your money in that bank’s balanced mutual fund. The next year a different bank has a poster for an “escalator GIC” in the window. You don’t know how it works, but you are promised good returns with no risk, and that sounds good to you. The year after that you skip the RRSP altogether because your friend on Facebook said that RRSPs are a rip-off, and everyone should use TFSAs instead. And so it goes…
Does this sound familiar?
Don’t get me wrong. Good on you for thinking about the future. But this is not financial planning. It is doing a series of things that seemed like a good idea at the time.
Here’s a simple analogy. Let’s say you need to get to Vancouver. You are not going to just wake up one morning and say, “I sure hope I get to Vancouver today,” and then make a bunch of random decisions.
Instead, you are going to make some plans. You are probably either going to fly or drive.
If you fly you are going to book a ticket, pack a bag, show up at the airport on time, go through security, and board the right plane. None of these steps happen by accident. You have to give some thought to it. And if you miss even one simple step you might not get to where you want to.
If you drive you are going to have different decisions to make, but you still need to think about it. What roads you are taking, where you are getting fuel, what you are going to if an engine warning light comes on.
When it comes to travel, the need for planning is obvious. You don’t just get into a car, and hope it is going to Vancouver.
Financial planning is like planning a trip. The very first thing is deciding where you are going to go. Then you decide how you are going to get there, what you need to do to make it happen, and you make adjustments for unexpected developments.
That typical Canadian financial story I shared is more common than you’d think. People will buy investments with the best of intentions. They want to grow their money, protect their family, retire comfortably. But without a framework—a plan—these good intentions can lead to a fragmented portfolio and a lot of second-guessing.
A financial plan changes all that.
Markets go up. Markets go down. When markets take a turn, many people react in ways that don’t make a lot of sense. They will sell quality investments at a loss because they are scared of losing money. They chase past performance. They abandon long-term thinking for short-term panic.
Why does this happen? Simple. They didn’t have a plan.
A proper financial plan starts with understanding where you are today. It takes a clear-eyed look at your current assets, liabilities, income, and expenses. It identifies your financial strengths and the areas that need attention. Most importantly, it gives context to your decisions.
Financial plans focus on your objectives. What are your Great Goals in life?
Retirement? Buying a vacation property? Helping your kids with university? Leaving a legacy? These aren’t just numbers on a spreadsheet—these are your why.
With your destination in mind, a financial plan spells out the how. It maps out what needs to happen for you to move from where you are to where you want to be. That includes things like how much you need to save, how to invest appropriately for your timeline and risk tolerance, how to optimize taxes, and how to prepare for the unexpected.
When the markets get bumpy—and they always do—it’s your plan that keeps you grounded. Instead of reacting emotionally to short-term noise, your plan reminds you of the big picture. It tells you, “Here’s where you are, here’s where you are going, and here’s what you need to keep doing to get there.”
Because the real risk probably isn’t market volatility. The real risk is wandering aimlessly without a strategy. And when it comes to your financial future, hoping for the best is not a plan.
As the saying goes—fail to plan, plan to fail. That doesn’t have to be you.
Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.