This is the time of year to review your financial plan

By Special to MoneySense on December 22, 2016
Estimated reading time: 3 minutes

This January, make a date with your advisor

This article is 8 years old. Some details may be outdated.

TORONTO — While some people may usher in the New Year by nursing their hangovers, Bruce Cartwright spends it by making a January date with his financial planner. The 77-year-old Oakville, Ont., man says the annual appointment has been a tradition of his for the past 20 years and a way for him to keep his yearly budget in check. “It gives me peace of mind,” said Cartwright, who still continues to work part-time in the insurance industry. “I wanted somebody else to look over my shoulder and say ‘That’s okay or it’s not (okay) and we could do it this way.”’ Certified financial planner Cynthia Kett advises clients to do a checkup on their finances at least once a year to ensure they’re on track with their goals.

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January is often a good time to conduct a budget review because you’ll have the benefit of the full year’s receipts and expenses, she says. “It’s good to review partway through the year too, because then you can take some corrective action instead of waiting until the end of the year and go ‘Oh my goodness, that was a disaster,”’ says Kett, who is also an accountant at Stewart & Kett Financial Advisors Inc. “If you’re on a roll and things are going well, it’s good to assess that too.” Kett advises clients to live under their means, and spend less than they can afford. “You shouldn’t try to live within your means. That basically means you’re running in place,” she says. “You should really aim to live below your means so you have the financial flexibility to do other things than just living for today.” Kett suggests people try to live with 80 per cent of their net income, and put the remaining 20 per cent into investments, or paying down debt. It’s also important that financial goals are grouped into three time horizons — short-term, medium-term and long-term — because it makes it easier to determine how well you’re achieving them.

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Short-term goals such as vacations should have a time horizon of one to two years; medium-term goals such as taking a year off work are usually three to five years and long-term goals such as taking a trip around the world and retirement are often 10 years or more. Alim Dhanji, a senior financial planner with Assante Wealth Management in Vancouver, says another piece of advice is to re-evaluate discretionary spending every year. “When you do a budget, you’re consciously aware of where your money is going and how much you have left over at the end of the month,” he said. Money spent on coffee, eating out, cellphone and cable TV packages can often be readjusted to fit changing budgets, Dhanji added. In the end, the most important exercise in reviewing an annual plan is to ensure that you know, at the very least, how much money is coming in and how much money is going out. “ It’s a good time to revisit your life goals, your cash flows,” Dhanji says. “A budget is kind of tedious and not too many people want to do it but it could be as simple as writing your expenses in a calendar or a piece of paper and just to be conscious of where your money is going.”