Guide to Financial Planning

A Guide to Financial Planning

Money makes the world go round and it may even drive you insane when you can’t control it. Fortunately, effective financial planning is within everyone’s reach with just a little effort.

In this guide, we’ll list down the top steps for fellow Torontonians creating a financial plan. We’ll also talk about hiring a financial planner to help with that, its benefits, its costs, and tips to find the right one.

8 Steps to Creating a Financial Plan

Struggling to create a financial plan? Here are eight simple steps to get started:

Set realistic financial goals

Concrete financial goals are necessary to steer your actions in the right direction. These goals will also serve as the blueprint for all the financial independence you want to establish.

Although there is no universal format for making goals, it’s always vital to make them achievable. They must also be boxed in a reasonable timeframe with quantifiable tools to measure the progress.

Note that your financial goals must contain both your wants and your needs. Prioritize the latter but never forget the little rewards you want to give yourself.

Gather your financial information

Now that you’ve built your goals, it’s time to collect your financial information. This includes data that outlines your sources of income and expenses as well as the assets and liabilities under your name.

In this, it’s important to have a second party verify all the information you’ve gathered. That way, you avoid over- or underestimating any figures that will affect your entire financial plan.

In this case, a financial planner can easily help you go through each detail in a more timely manner. We’ll talk more about them in a later part of this guide.

Analyze financial information

Your financial circumstances will define the foundations of your plan. In general, you must find certain ratios that will reflect your current financial standing.

The first is the solvency ratio, which describes your financial capacity to meet long-term debts. The second one is the savings ratio, which is the ratio of your personal savings to disposable personal income.

You must also determine your liquidity ratio or your ability to meet short-term debts. Finally, there’s debt service ratio, which basically refers to your available cash flow to meet current debts.

Create a budget 

At this point, you already have your goals and an analyzed set of financial information. So, creating a budget will be much easier for you.

The ideal budget is set within a monthly term to make it more manageable. But you can also do it annually, depending on your financial profile and objectives.

At its most basic form, a budget must outline your fixed expenses and variable expenses.

Fixed expenses refer to your expenses that do not change over time such as housing rent and subscription to certain services. These are the opposite of variable expenses, which are expenses that fluctuate within a short period of time.

There are other variables you can include in your budget if you want to make it as comprehensive as possible. These are:

  • Budget for personal taxes
  • Allocation for emergency funds
  • Savings for insurance and investments
  • Expenses for travel and weekend trips

Manage your debt

Whether it’s a personal loan or just quick cash you borrowed from a friend, it’s important to manage your debt. Depending on the types of debts you have, you can organize them based on the balance or interest rate.

Ideally, you must list each lender first then create tables that represent the factors of the debt. This includes balance, interest rate, and payment.

Then, you can reprioritize your list based on which lender has the highest interest rate. You’d want to deal with that first so you can avoid piling up interest.

By managing debt wisely, you won’t drown in a pile of unpaid obligations. What’s more, this will also allow you to build your credit history positively.

Buy insurance policies

Insurance is your best protection against the unexpected. There are many types of insurance you can get as well as coverages that make up each policy.

If you want an idea of the basics, here are the main types available here:

  • Life Insurance
  • Health Insurance
  • Auto Insurance
  • Disability Insurance
  • Travel Insurance
  • Property Insurance
  • Motor Insurance
Look into investments

Look into investments

You’re probably tired of hearing this but multiplying your income is just as important as (if not more than) your savings. The ideal financial plan involves a plan to grow and venture into other cash flow sources.

Some of the best examples of investment are in real estate since land is something that does not depreciate in value. You can also look into building businesses if you have more of an entrepreneurial spirit.

Map out a retirement plan

Finally, the key to a successful financial plan is laying it all out from start to finish, i.e. to plan from now to the foreseeable future, including retirement. 

It all boils down to where you want to spend your hard-earned money. Do you want to allocate it for your long-term care or just have reckless fun with it? Do you want to put it in investments so that you can have money growing and ready even when you retire?

Naturally, if you have a family, you’d want to leave them behind with something as well. So, find out what you want to do in the future so you can map out your plans during your youth.

Hiring a financial planner

With all the steps we’ve laid out in the previous section, financial planning may seem easy. But the truth is, it’s a lot more complex than one can imagine.

Fortunately, you can hire a financial planner who can straighten things for you. We’ll introduce you to the basics of getting a professional for this too:

How can a financial planner help?

A financial planner assumes many responsibilities. In general, they can help you manage your finances and keep you accountable if you don’t commit to your goals.

To tread more specifically, here’s a list of things they can do for you:

  • Assess and evaluate your financial information
  • Motivate you with systematic saving
  • Help you make sound investments decisions
  • Create a financial plan for you
  • Coach you in making financial decisions
  • Ensure tax-efficient actions
  • Help you understand your risk tolerance and capacity
  • Find financial products that match your financial profile

The Cost of hiring a financial planner

Like most things in life, the specialized advice of a financial planner doesn’t come for free. In fact, they may even cost you $200 to $400 per hour.

Depending on your needs, you can hire a financial planner for one whole year. A flat rate is usually used as a pricing structure, in this case, costing you about $2.000 to $7,500 per year.

See, financial planning isn’t a cheap service, but do think about the value you get from their expert opinion. A single bad financial decision can easily cost you everything you’ve worked hard for – so do mull over this matter since it can be a serious investment.

How to choose a financial planner

With the costs associated with hiring a financial planner, it’s only reasonable to hack through a long list of planners without excuses. Below are a few tips to help you find the right financial planner:

  • Know your needs first – The truth is, a financial planner isn’t for everyone. It’s always a smart choice to narrow your financial goals first and see if a financial planner is necessary for your financial life.
  • Assess credentials and education – Check if this professional is qualified enough to give financial advice to clients. It won’t hurt to ask for proof of their knowledge to verify if they’re the right professionals to hire.
  • Find the right type of financial planner – Choose a financial planner based on your goals and budget. Do you want an online financial planner or would you prefer a traditional one?
  • Choose the services you need – Some of these services include investment advice, tax planning, debt management, budgeting help, insurance coverage, and more. Focus on the ones you need the most to reach your goals.
  • Ask for recommendations –  Ask your friends or family members if they know a trusted financial planner. If you trust their judgment, then searching can be a lot easier for you.
  • Get to know financial planners – It’s better if you conduct interviews among the financial planners you’ve chosen. Get one-on-one with them and find out what they can offer you in the long run.

Alternatives to Direct Hiring a Financial Planner

It’s common for banks to offer financial advisors who can help clients with their investments. And if you have a bank account, it’s technically the easiest way to get connected with a financial planner.

Note that while you get certain incentives, their services aren’t free. In most common cases, you have to maintain a certain amount of investment to keep their services.

In addition to these professionals, most banks also have financial planning tools. The most common ones can be accessed through the bank’s mobile app.

For instance, some mobile bank apps have a money tracker to help you see where you are going. It’s usually very basic, but it does help regardless of the type of bank account you have.


At the heart of every successful financial future is effective financial planning. Start young and start today so you can reap the benefits with peace of mind.