Financial planning is an ongoing process that takes into account all of you. This includes your financial life – income, assets, liabilities and the like – as well as your personal life – values, dreams, wants and needs.
For example, consider the following scenario: Sarah and James are twins. Sarah is 25, busy and has a decent job. She decides to begin an RRSP, contributing about $150 a month through an automatic plan. By the end of the year, her contributions total $1,800. Over the next 10 years her nest egg builds to approximately $25,000 – assuming an annual rate of return of six per cent. At the age of 35, Sarah decides to focus on paying down her mortgage, as well as investing in a Tax Free Savings Account, rather than continuing to contribute to her RRSP. Even if she doesn't make any further contributions to her RRSP, it should grow to almost $153,000 by the time she turns 65.
Sarah's twin brother James takes a different approach. Like his sister, he has a steady job. Unlike Sarah, James only decides to start investing in an RRSP at the age of 37. He does contribute the same $1,800 a year. However, in order to try to keep up with Sarah, he has to make those contributions for 29 years, compared to Sarah's 10. By the time he turns 65, his nest egg should be just under $140,500.
"Our advice is to start saving as early as possible and we also advise that a good way to do that is to set up an automatic savings plan," says financial planner Jason Round. "A Financial Planner can work with you to develop a custom-tailored strategy to help you to achieve your financial goals."
