The Five Basic Steps to Financial Independence - Year-End Reviews and the Year Ahead

 

As the calendar year draws to a close it is important to review the financial steps you have taken to date and to consider what to do for the year ahead. The best approach to this is to consider the five basic steps of the financial planning process. You can follow this process yourself or ask a financial planner to help you.

Step 1: Collect all your financial data to get an overall view of where you are with your finances. This includes assets, debts, a monthly budget, and your insurance coverage. Another key part of this step is to make a list of your financial goals and prioritize them. Without clear goals you will not know which road to take in order to achieve your objectives.

Step 2: Conduct an analysis of your goals and financial situation in order to identify problems and opportunities. This will enable you to see what financial issues must be addressed first. Examples include: deciding whether to pay off some debts or calculating how much you would like to contribute to an RRSP or to your children's education.

Step 3: Establish a clear course of action. You can do this on your own or with your Financial Planner and involves answering the following questions: What will you do, when will you do it, and what dollar amounts will you apply to your specific strategies? As part of this step, it is important to spend some time to review your risk tolerance if your plan involves investing any monies. Taking the time to do this will give you peace of mind with your investment strategy and will help you decide what type of investments you should make.

Step 4: Take action. Ensure that all the actions and transactions necessary to achieve your goals are firmly in place. Your financial institution or your financial planner can help you to finalize and implement your financial strategies.

Step 5: Regularly review your plan to ensure that changes in your financial situation are addressed and that you are still on the right track to achieve your goals. This can be done as often as you like, but at least once per year. Therefore, within the next year, you will only need to review your plan and be proud of what you have achieved.

This article is for general information purposes only and is the opinion of the writer.

Phil Marcus, Senior Technical Officer and Branch Manager
SISIP Financial Services, Ottawa