Country Routes - July, 1998

FIRST and foremost is not developing a financial plan. A plan is vital to your financial well-being. It can help you identify and accomplish short and long-term goals and avoid many personal financial mistakes. Most people spend more time planning their vacations than they do their entire financial future. No one would think of building a house without a set of blueprints, yet many people try to reach a financial objective without an organized financial plan. Failure to think in terms of the "big picture" can have devastating results. Many people think of financial planning as choosing the next "hot" investment or investing in a mutual fund. A financial plan has many components - including investments - that should work together to help you achieve your goals. By not keeping a handle on day-to-day cash flow, knowing your monthly income and expenses, you cannot see how realistic your goals are. Distinguish between fixed (those you can't control) and discretionary (those you can control) expenses. Don't try to keep up with your peers when it comes to spending money. Maintain a lifestyle that's compatible with your budget. Be careful your outgo does not exceed your income. Along with this, a failure to maintain a savings account can derail your plan. You should try to save at least three to six months of your salary in a savings account to cover unexpected expenses. We call this an emergency fund.

Carrying credit card debt. Credit cards should be paid in full each month. If you can't pay for an item, don't charge it.

Not considering the impact of inflation in your planning. We often plan for retirement, education of our children, etc. on the basis of today's dollars without considering the possible increase in the cost of living. Many people look for a guarantee of their dollars rather than the conservation of their "purchasing power".Remember when phone calls were a dime? When will they cost a loonie?

Taking unnecessary risks by being either too conservative or too speculative. Some try to obtain such a high return on their money that they dramatically increase the risk of losing much of their capital. On the other hand, others risk losing some of their "purchasing power" through too conservative a guaranteed program. It's a risk/reward scenario. We are all different in this. But, balance is the key. Set up a portfolio of investments that best suits your risk tolerance. Try to prevent making investment decisions based on emotion rather than logic.

Failure to diversify your assets. Many investors can get all excited about one type of investment and commit all their investment capital to it. It's the cliche' about not having all your eggs in one basket. I remember talking to people in the late 80's who did that with real estate.

The impact taxes play on their savings. Many don't take advantage of the methods available to legally defer or avoid taxes. Seek out a qualified professional to explore the various methods to do this.

Another big one is procrastinating about making financial decisions. Too many people are waiting for the "time to be right" before starting a plan. The time will never be "just right" and valuable time can be lost through this deadly enemy.

Not allowing enough time for successful results. Too many people want immediate results. They become dissatisfied with an investment in a matter of months rather than being patient and allowing several years needed to produce the results they hoped for. There is no such thing as a good "one-year" investment program.

And finally, not seeking professional advice on their overall financial program. Most people have been sold life insurance by an insurance salesperson, stocks by a stockbroker, etc. They deposit their savings in a bank or trust company because of the guarantee. They have no organized financial plan clearly laying out their financial goals - considering such factors as their age, children, emotional temperament, income, tax bracket & retirement objectives. Getting the right financial advice from an experienced advisor is crucial in fitting it all together in a way that makes sense.

If you have any questions, please call Reg Borrow at (519)855-6639. He is an Independent Financial Consultant for Regal Capital Planners since 1983.