I’ve been asked before when the best time to engage financial planning advice is throughout a person’s life. My biased answer is that anytime is the best time. For people looking at retirement around the corner and worrying about having enough money, the old Chinese proverb is perhaps the most applicable: “The best time to plant a tree was 20 years ago. The second best time is now.”
Realistically, there are four main stages of life when engaging a financial planner is most beneficial. Each stage commonly has its own set of financial obligations and financial priorities.
Stage One: Getting Started
This stage generally begins when a young adult joins the workforce. A new income and new life goals make it an important time to establish financial priorities. However, I encourage parents of teenagers to introduce their kids to a financial planner before making their first major financial decisions, such as getting their first credit card or taking a student loan. Avoiding making early mistakes with money can save years of financial stress down the road.
Common financial obligations during this stage:
– Rent
– Purchasing and maintaining a vehicle
– Purchasing household furniture and necessities
– Repaying student loans
Common financial priorities during this stage:
– Learning basic budgeting
– Applying for a credit card
– Saving to purchase property
– Beginning investment accounts such as a FHSA, TFSA and RRSP
Stage Two: Family Years
The changes in financial priorities can be substantial when you begin a family. Your financial decisions no longer impact you alone and engaging with a financial planner can alleviate a lot of stress.
Common financial obligations during this stage:
– Mortgage payments
– Household expenses
– Debt repayment
– Raising children, including daycare costs
Common financial priorities during this stage:
– Maximizing savings while meeting obligations
– Life insurance
– Establishing RESPs
– Estate planning – will and power of attorney
Stage Three: Peak Earning Years
As your career progresses and you enter your peak earning years, maximizing your savings to fund your current and future lifestyle becomes extremely important.
Common financial obligations during this stage:
– Mortgage or line of credit payments
– Assisting college-aged or Stage One children in becoming established
– Caring for aging parents
– Income taxes
– Purchasing and maintaining recreational property
– Costs of a more affluent lifestyle, such as vacations and leisure activities
Common financial priorities during this stage:
– Reducing income taxes
– Maximizing RRSP and TFSA contributions
– Retirement planning
– Estate planning
Stage Four: Retirement
In this stage your lifestyle will usually change significantly as your income shifts from employment income to income from your retirement savings. Spending patterns change and health care needs take a higher priority.
Common financial obligations during this stage:
– Converting retirement savings into retirement income
– Increased travel and leisure expenses
– Increased health care expenses
Common financial priorities during this stage:
– Budgeting retirement income
– Maximizing tax efficiency
– Detailed estate planning
These are the four most common life stages for financial planning, but other life milestones should also trigger a review and updates to your financial plan. A marriage, divorce, birth of a child, death of a spouse, new job or career, job loss, major illness, or inheritance should all cause you to rethink your financial strategy and seek advice.
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