Financial Planning Mistakes to Avoid

On a recent podcast, I had the pleasure of interviewing Vince Murton, VP Longevity Planning at Raymond James Ltd. and he provided some great insights about smart financial planning.

I first met Vince two and a half years ago when I joined Raymond James. At that time, my wife Robin was planning to leave her job and join me in my practice. We felt it would be beneficial to go through a full financial plan ourselves to determine how we were tracking toward our goals and any adjustments we’d need to make based on her initial loss of income. I found it to be a fantastic exercise because it showed us exactly where we were and what we needed to do to achieve our goals.

If you’ve been following me for a while, you’ll know that I practice a life-first financial planning approach. Clarifying and setting your goals is a critical first step. Obviously, once you've done this there is a financial element that needs to be considered. That’s where dollars and cents come in. Here, it’s important to focus on the areas you can control:

1. How much are you currently spending and saving?
2. When do you plan on retiring?
3. How much do you plan on spending in retirement?

When it comes to retirement planning, there are lots of figures thrown around about how much you will need, but in truth, these numbers are all very generic and definitely not one size fits all. To determine how much you’ll actually need in retirement, Vince suggests you start by looking at your lifestyle today and then comparing it to how you’ll want to live in retirement. Depending on your stage of life and your plans for the future, you may need more or less each year. When you start the planning process, aim high. Think about everything you may want to do in retirement. Do you want to travel? Buy a vacation home? Pay for a grandchild’s education? You might not be able to do everything on your wish list but it’s a good start. From there you can begin to prioritize and make choices based on what is most important to you.

You’ll also need to plan for the unexpected. What if you get sick or require long-term care? This is an area too many people don’t prepare for and it can prove to be a costly mistake. The related expenses can wipe out your savings, leaving your spouse or other family members to carry the burden.

People also make the mistake of focusing too heavily on factors they can’t control, such as their short-term returns on investments, market fluctuations and changes in tax rates. Focus instead on the things you can do to really move the needle for your long-term finances, such as the amount you are saving, the mix of your investments and making the best use of tax-advantaged vehicles like among others, your TFSA, RRSP or RESP.

Another mistake we see is ‘analysis paralysis.’ This happens when you don’t know how to get started, so instead you do nothing at all. But here’s the thing. As long as something is contributing to your balance sheet, it’s better than doing nothing. If you really don’t know what to do, this is where a financial advisor or planner can really help. Even if you don’t work with anyone, doing something will be better than doing nothing at all.

The earlier you start planning the better. Remember, your financial plan is not a one shot deal, so don’t worry if you aren’t sure what the rest of your life will look like. Your plan should evolve with your needs and your desires. To listen to my full interview with Vince on the topic, listen here.

Mark Shimkovitz is a financial advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. is a member of Canadian Investor Protection Fund.