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Your finances, beyond just finances - DFSIN - SFL

Your finances, beyond just finances

How a more comprehensive approach to your financial security could result in a very effective game plan.

January 27, 2022

Judging by the statistics, most Canadians know where they’re headed with their finances. As shown here, slightly more than 6 in 10 people say that they have a plan to guide them. However, looking a little closer, it would seem that for a good 80% of these people, this plan is limited to one area: investments.

Incorporating additional components into the thought process could help optimize planning. Here is an overview.

Pie chart showing that 61% of Canadians say they have a financial security plan. However, of these, 80% specify that this plan is based strictly on investments.

The financial security plan: a more holistic approach to needs

A financial security plan may incorporate a broader, or more holistic, view that goes beyond saving and investing. This approach is based on the observation that the wealth a person is trying to build is at the centre of a huge constellation of needs, plans, values, dreams, beliefs and even feelings. Moreover, all of these elements may vary over time – sometimes in unexpected ways – as the person moves through life’s various stages.

This is why it is generally thought that a financial security plan should abide by three main principles:

  • It should be personal
    The plan should take into account the person's worldview, personal circumstances and the many life events they experience.
  • It should be continuous
    It should also evolve with the person and be updated at least once a year.
  • It should be comprehensive
    And it should include all the factors that may determine whether or not the person will be able to realize his or her plans and dreams.

But what are these factors?

Seven pillars

In the big picture, a holistic plan will focus on both building wealth and protecting it. To achieve this, the plan will generally cover the following elements:

  • Personal finance
    Including budget and cash flow management, building an emergency fund and managing debt.
  • Investment
    Including establishing goals, an investor profile and an investment strategy based on appropriate asset allocation.
  • Insurance and risk management
    Including the need for life insurance as well as living benefits: wage loss, disability, critical illness.
  • Taxation
    Including an evaluation of the household tax burden, tax optimization of investments and corporate structure (if any), and the use of government programs.
  • Legal issues
    Including attention to marital status, matrimonial regime, protection mechanisms for minors and adults incapable of giving consent, and various types of mandates and powers of attorney.
  • Retirement
    Including setting goals, planning an accumulation strategy and implementing a disbursement strategy.
  • Estates
    Including making a will and planning to transfer wealth using the appropriate tools, such as a trust, foundation or life insurance policy.

A holistic plan does not necessarily have to be put together all at once: it can evolve. If, like a majority of Canadians, you have a plan based on your investments, you may already have one component covered. If you have a will and an insurance policy, two more boxes might already be ticked, at least partially. But do you have an integrated vision of all the components and are you really sure that they’re consistent with your dreams, plans and values?

Don’t hesitate to discuss this with your advisor.

The following sources were used to prepare this article: 
Fidelity Investments, “Three Principles of Holistic Wealth Planning.” 
Investment Executive, “Too few Canadians have or understand in-depth financial plans: study.” 
Investopedia, “The Advisor Value Add: Holistic Financial Planning.” 
IQPF, “Financial planning.” 
Yahoo Finance, “What Is Holistic Financial Planning?.”