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Alumni News

New Year's Resolution: Manage Financial Goals

January 10, 2013

Peter Watson, MBA, CFP, R.F.P., CIM, FCSI

Oakville Beaver, January 2, 2013

If there is a time to make a New Year’s resolution, the first column of the year is a good place to start. Allow your New Year enthusiasm to spill over into the management of your financial goals.

There are three important tasks you can do to help ensure your life goals are achieved: complete a statement of net worth; create a financial plan; and decide you will manage the business of purchasing financial services to your advantage.

The first task is to complete a year-end statement of net worth. This is a summary of your assets and liabilities as of Dec. 31, 2012. Investment assets may include your RRSP, TFSA, mutual funds, stocks, bonds and GICs. Personal assets may be a house and automobiles.

Liabilities will be bank loans, credit card debt, car loans and mortgages. It is a good idea to record the interest rate you pay on each debt. Interest on credit card debt is approximately 20 per cent per year, so pay that off now or at least transfer that debt to a less costly alternative, such as your line of credit.

Calculating your net worth is simple. Subtract the total liabilities from the total assets.

This one figure can be used to compare with last year’s net worth figure to monitor your financial progress during the year. You can be more specific by tracking your debt reduction during the previous year.

The second step is to create a financial plan. Begin by listing all important life goals, such as retiring with enough wealth to ensure you will be able to maintain your desired standard of living. Goals may include your wish to assist your children with their costs for post-secondary education or determining when to pay off your household debt.

Now that you have defined what you hope to achieve, develop a plan for each goal. You might have to get your financial planner to help with the math. There are computer programs that make this exercise extremely easy.

The final task of your financial plan is creating an Investment Policy Statement (IPS), which outlines your investment strategy and the important details on how you plan to achieve your objectives.

Planning your financial affairs can be that simple. First, decide your life goals, then define each specific financial goal and finally record your investment strategy in the IPS.

Now that you have your plan in place, it is time to look at how you manage that process. As the financial consumer, use your business acumen to determine the specific financial services you need to purchase for achieving your life goals.

Understand what services you want from your financial planner. Assume control of your own destiny by outlining what needs to be done during the year, who will be suitable for completing that task and when will each specific task be completed.

You might find it useful to sign a letter of engagement with your advisor outlining specific duties. You might also want a more detailed list of specific items to be completed.

Purchasing a financial service is no different from purchasing other services. Discuss fees — that means all fees, both visible and hidden. Make a consumer decision and determine if they are fair, given the services you want to purchase.

We recommend investing some time at the beginning of the year to establish a plan on how you can achieve your lifetime goals. Eliminate debt, assist children with the cost of a post-secondary education and plan for retirement.