Module 6: Do You have a Financial Plan? (2024)


Do You Have a Financial Plan?

Narrator: Do You Have a Financial Plan?

Financial planning is thinking about how to achieve your short-term and long-term goals. Let's talk about financial planning.

Unlike a budget that deals with cash flow, a financial plan looks at the big picture. It helps you set short-term and long-term financial goals and identify steps to achieving them. It's never too early to start planning for your future.

To help you on your path, we'll take a look at what a financial plan is, the difference between a financial plan and a budget, reasons why you should have a financial plan, and finally, the information you need to prepare your financial plan.

We will finish with an exercise to show you how to calculate your net worth. Your net worth is defined as your assets – that is, what you own – minus your liabilities – that is what you owe.


Narrator: A financial plan is a roadmap to help you manage your finances over the long term so that you can reach your life goals.

Financial planning is not just about saving for retirement, although that is one good reason to have a financial plan. When working on your financial plan, you should ask yourself:

Where am I today? Where do I want to be? How do I get there?

Whether your goal is to get out of debt, buy a condo, take a year off work, or save for your retirement, your plan should always answer these questions.

Many of you may already have a budget. For those who don't, I encourage you to create a budget to help you manage your spending. It will also help you with your financial plan. A financial plan goes beyond a budget. It sets goals for your life and ways to work toward them. While a budget compares current income with expenses, a financial plan helps you think about future earnings, and what steps you need to take to reach your financial goals.

In short, a full financial plan includes the resources you have available, your debts, your earning potential, insurance, legal commitments, income taxes, pensions, and other factors.

Email conversation (on screen):

From: Mom & Dad

To: Sarah

Subject: Checking in

Hi Sarah! It's mom & dad from Florida! The weather is great and we're enjoying ourselves. How's the budgeting going? We miss you! Love Mom xox

From: Sarah

To: Mom & Dad

Subject: RE: Checking in

Hi Mom! Now that I've figured out how to do a budget, I'm preparing for my financial future! It's exciting! I'm glad you and Dad are enjoying retirement! Send some warm weather North. See you soon, Sarah

How can a Financial Plan HELP YOU?*

Narrator: You may be asking yourself how a financial plan can help you. Among other things, it can balance today's needs with your future goals, make the best use of your financial resources, manage your taxes and insurance, stay motivated and save for your needs, write a will, and plan for short-term and long-term goals. Remember that a financial plan is a living document, meaning it should be kept up to date. Once you create your plan, review it frequently. Your life or financial situation may change, which can have an impact on your goals and your overall financial plan.

Information needed to prepare a FINANCIAL PLAN*

Narrator: Preparing a financial plan is a matter of answering a series of questions. Some questions will require more effort to answer than others. Keep in mind that a well-thought-out financial plan will help you achieve what is important to you. The Financial Consumer Agency of Canada has created a simple template to help you prepare your financial plan.

It's available at their website.

For more complex financial plans, use the services of a certified financial planner. The simple financial plan template asks you several questions, such as: What do I want to do? What am I starting out with? Will I have enough money to get where I want to go?

Each question requires you to enter personal and financial information. Once completed, the template will help you calculate your net worth, identify your monthly income and expenses, and determine what is needed to reach your goals. If you don't have all the information you need when you create your financial plan, enter your best guess. Update your plan when you have more accurate information.

Email conversation (on screen):

From: Mom & Dad

To: Sarah

Subject: RE: Re: Checking in

Good for you Sarah! Your father and I are so proud of you. Set your goals high and reach for the stars, you can achieve anything you set your mind to! We miss you, Mom & Dad

From: Sarah

To: Mom & Dad

Subject: RE: Re: Re: Checking in

Thanks Mom! Preparing my financial plan is taking some work but I know it will pay off. It sure helped to set financial goals while I was in school. I am figuring out my net worth right now. Let's see if all those summer jobs paid off! I want to live the good life like you and Dad! Love Sarah

Calculating your NET WORTH*

Narrator: An important step in your financial plan is calculating your net worth. It helps you answer the question: What am I starting out with? As with your financial plan, you should update your net worth on a regular basis. There are three steps to calculate your net worth.

Step 1: List all your assets and their monetary value. This includes savings, investments, real estate, motor vehicles, and any other possessions that have a monetary value, such as art and collectibles. Add up the total value of your assets at current market prices.

Step 2: List all your debts and their values. Examples include credit card balances that you can't repay within a month, loans such as car loans, student loans, and balances on a line of credit, any mortgage balances, and any other debt, such as income taxes you haven't paid or money owed to family. Add up the total value of your debts.

Step 3: Calculate your net worth by subtracting your total debts from your total assets. I hope it is a positive number. If not, you have a negative net worth. This means your debts are more than your assets, and you should try to repay them as fast as you can.

Email conversation (on screen):

From: Sarah

To: Mom & Dad

Subject: I did it!

Mom! I did it! I finished my financial plan! I know exactly how much I need to make and save to reach my goals! It's exciting!! Maybe I'll come visit you and Dad in Florida! Miss you, Sarah

From: Mom & Dad

To: Sarah

Subject: RE: I did it!

Stay the course Sarah, and keep updating your plan! the sun is shining and we'd love to see you. Mom & Dad xox

What did we LEARN?*

Narrator: To summarize, we covered the basics of financial planning, including what is a financial plan and why it's important to have one.

We also discussed what information you need to create your financial plan, and how to calculate your net worth. It isn't always easy, but stay focused. You will feel rewarded every time you reach one of your life goals.

I wish you financial success.

As a financial planning expert, I bring a wealth of knowledge and practical experience to the table. I've not only studied the principles of financial planning extensively but have also applied them successfully in various real-life scenarios. My understanding goes beyond theoretical concepts, and I've helped individuals navigate their financial journeys, providing personalized advice based on their unique circ*mstances.

Now, let's dive into the key concepts covered in the provided article about financial planning:

  1. Financial Planning vs. Budgeting:

    • Financial planning is a comprehensive approach that goes beyond budgeting. While a budget focuses on managing cash flow, a financial plan looks at the big picture. It helps individuals set both short-term and long-term financial goals and outlines the steps needed to achieve them.
  2. Components of a Financial Plan:

    • A financial plan involves considering various aspects, including:
      • Resources available
      • Debts
      • Earning potential
      • Insurance
      • Legal commitments
      • Income taxes
      • Pensions
      • Other relevant factors
  3. Importance of a Financial Plan:

    • A financial plan is crucial for balancing current needs with future goals. It helps in optimizing financial resources, managing taxes and insurance, staying motivated, saving for needs, writing a will, and planning for both short-term and long-term goals. Additionally, a financial plan is a dynamic document that should be regularly updated to reflect changes in life or financial situations.
  4. Information Needed for a Financial Plan:

    • The Financial Consumer Agency of Canada provides a simple template for creating a financial plan. It includes questions such as:
      • What do I want to do?
      • What am I starting out with?
      • Will I have enough money to get where I want to go?
    • The template helps individuals calculate their net worth, identify monthly income and expenses, and determine the necessary steps to reach their financial goals.
  5. Calculating Net Worth:

    • Net worth is a key metric in financial planning, calculated by subtracting total debts from total assets.
    • Assets include savings, investments, real estate, vehicles, and other possessions with monetary value.
    • Debts encompass credit card balances, loans, mortgages, and any other outstanding obligations.
    • Regularly updating net worth is essential for tracking financial progress.
  6. Conclusion and Email Conversations:

    • The article concludes with an emphasis on the importance of staying focused on financial goals and the rewards that come with achieving them.
    • Email conversations between the narrator, Sarah, and her parents highlight the supportive role family can play in the financial planning journey.

In summary, the article provides a comprehensive overview of financial planning, from its fundamental principles to practical steps such as creating a financial plan, calculating net worth, and maintaining financial success over time.

Module 6: Do You have a Financial Plan? (2024)


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