Save Money by doing your own financial plan

Financial planning doesn’t have to be complicated – it’s just taking a clear-eyed look at your situation. Here’s a DIY process for you to get a good sense of your finances in private. 

This process will help you figure out the realistic steps to take to meet your goals.  

First, get a sense of your assets and liabilities. 

Keep this at a high level, you’ll dig into the details in future steps. 

Make a list and add up what you own in savings accounts, investment accounts and real estate. Use the assessed value of real estate, not a guess at the likely sale price. Do not include your personal use items like jewelry, art, and sports equipment. 

Make a list and add up what you owe in remaining mortgage, student loan, credit card, line of credit, everything. This is not the payments you make, it’s the total amount you owe; you’ll consider your debt service payments later. 

Subtract what you owe from what you own.

If you’re in the plus, great. If you’re in the minus, it’s not that uncommon, especially if you’re just starting out, were recently divorced, or are putting kids through school, but it does point out that you have some work to do. Whatever it is, this is the number that tells you “where” you are now, financially. 

Second, get a handle your cash flow.

Very simply, cash flow means money-in (your income) and money-out (your expenses). 

Record how much money you take home after tax pay cheque and the dates on which you’re paid. 

Record your lump sum annual expenses. This could include expenses such as property insurance, car insurance, vacations, and memberships. These annual lump sum expenses catch people off guard sometimes. 

Record your regular monthly expenses. Is your credit card statement about the same every month or does it fluctuate a lot? What about your monthly automatic debits, is that fairly stable throughout the year? 

Do not get hugely detailed here, that’s coming in a future step. 

You want to see if you have a surplus or deficit. If you have a deficit, that’s an urgent problem to fix because you’re spending more than you make. 

Third, zero in on your budget.

Separate your essential expenses from your less-essential expenses. 

Drill down into your less-essential expenses and break them into categories that make sense to you. The categories can be broad or narrow, whatever will serve you best in identifying areas to be improved. 

It is critical that you record your expenses based on your actual spending. Do not base this on your hoped-for or budgeted spending. 

Does what you’re spending your money on align with what is most important to you? Can you free up cash by cutting back in areas that are less important to you? 

Next, focus on debt management.

Some debt, like a mortgage, can work in your favor if you’re not overextended to cover monthly payments. It's high-interest consumer debt that you want to avoid in the first place and eliminate if you have it already. 

A crucial priority is to identify and pay down your highest interest debt. 

Look at your debts and write down interest rates you’re paying. 

Create a pay down schedule and be patient but consistent when working toward becoming debt-free.

If you have what you think might be ‘problem debt’, figure out the root cause of your over-spending. 

Get your savings on track.

List the total amounts of money in each of your savings account and briefly describe the purpose of each account and how it’s invested. For example: education investment in a balanced mutual fund, or emergency savings in a cashable GIC. 

Do not include money that is ear-marked for monthly expenses; only include in ‘savings’ the money that you’ve been able to set aside for the future. The key to this step is to establish a clear picture of your starting point for your goals. 

List the amount you are currently saving every year or month, whatever your actual frequency and amount. 

Yesterday was the best time to get serious about saving, but today is the second-best time. Think small: allow saving to become a habit by doing it in ways that are not too painful. 

Finally, think about insurance and taxes.

Pull out your insurance files and list your coverage (if you can’t decipher the policy code, call the number that you’ll find on your policy and ask). Think about the illness, disability and life insurance you own compared to your risks and exposure and make a common-sense judgment. 

Tax planning is fairly straightforward for most people. Log on to your Canada Revenue Agency dedicated “My Services” account. Make a note of the contribution room you have available in your Registered Retirement Savings Plan and Tax-Free Savings Account. Look at your budget and see where you can find the extra cash to make those contributions. Commit to maximizing these shelters.