In these days of economic uncertainty, the topic of personal finances can rouse feelings of anxiety and unease. When will the economic climate stabilize? How much money should I be saving, investing or spending? What will happen to my family if I lose my job? While the issue of money management may be stressful to many people, I believe that it doesn’t have to be, as long as we follow some important strategies.

When dealing with financial matters, it is essential to follow a thorough planning process. Establishing a personal financial plan may not eliminate the risks associated with uncontrollable events, but it will provide a greater awareness of where you are financially, where you want to be and how you’re going to get there. In essence, your plan is your road map to financial health and stability.

As well, when we set our financial house in order, we have greater flexibility to give to others, engage in mission and invest in the things that matter. We find balance in our relationships with our spouse, family and friends. And when we’re not preoccupied with money or stressed about our financial situation, we have the freedom to do all that God has planned for us.

When creating a financial plan, there are some factors that need to be addressed:

Cash Management
Do you find that you live paycheque to paycheque? Are you spending more than you earn? We live in a society where debt is common and socially acceptable, and credit is readily available. In fact, some of the problems we’re dealing with in the economy right now can be attributed to runaway debt and the lax underwriting standards used by some institutions.

People these days accept levels of debt that previous generations would have shunned. Our society encourages us to live for the now. We have “don’t pay a cent” or “no money down” programs for major purchases. Consumers are encouraged to buy things on credit that they can’t afford, and then they pay huge amounts of interest over long periods of time.

Have you established a budget? If so, what are your monthly expenses (such as mortgage/rent, food, transportation, insurance, health costs)? How much money do you have available for spending or investing? Do you have a plan for the future? These are important questions to answer in order to effectively manage your cash flow.

Risk Management
If you are 25, collect a paycheque every two weeks and plan to work until you are 65, you will receive 1,040 paycheques in your lifetime. Your greatest asset in these early years will be your ability to earn and accumulate income.

What if you were to get sick or disabled and could no longer work or had to accept a lower-paying job? What if you were to die? Do you have a plan in place to ensure that you, your family and dependants would be protected and looked after?

Some people wonder whether insurance is worth the money—they doubt they’ll ever need it. But sadly, injuries, illnesses and death often occur unexpectedly and to unlikely people. Hopefully you will never have to utilize an insurance policy; to do so would imply tragedy or affliction. However, having adequate protection is preferable to coupling personal catastrophe with financial uncertainty. The relief I’ve seen on people’s faces when they receive a benefit cheque reinforces the importance of risk management.

Retirement Planning
While retirement planning has become quite popular over the past few years, many people have been reluctant to address it seriously. Even though tax-advantaged personal savings programs are available, most of us do not utilize them to the degree we could. In the 2007 tax year, only 31 of the 88 percent of tax filers eligible to contribute to RRSPs actually did so. The average contribution was $5,412, despite the fact that we were eligible to contribute 18 percent of our income or $19,000 (whichever was less).
I believe there are three main factors that affect a long-term investment strategy: 1. Amount of money invested; 2. Rate of return; and 3. Time.

We have limited control over the first two. We can only invest what we have, and we can’t guarantee the rate of return we’ll get on our money over the long term. But we can control when we start investing. It’s never too early to start saving. Don’t worry if the amount is small; the important factor is to establish the habit of saving. If these habits are firmly established, you’ll set aside more money as your income increases.

Tax Planning
Most people would prefer to pay lower taxes. While I certainly wouldn’t advocate higher taxes, I do believe we have to pay for the benefits we enjoy in this country. However, most of us are eligible for legitimate tax deductions through specific savings strategies, such as RRSPs. With all the attention focused on market performance these days, it’s important to also pay attention to the taxes you pay and look for ways you can legitimately reduce them.

Investment Planning
What kind of investments do you have? What companies have you invested in? Many people hear media reports about companies and wonder whether they are included in their investment portfolio. This uncertainty can be stressful, so it is important to know what you can do. First, you need to determine your risk tolerance level. This should be reviewed regularly as it can change over time. Then, your investment portfolio needs to be created according to comfortable parameters and then reviewed and rebalanced on a regular basis to take advantage of current market conditions. It should also be diversified by asset class, asset type and on a geographic basis. If you hold investments outside of your pension or RRSP, they should also be diversified according to the kind of income they earn.

Estate Planning
Do you have a will and powers of attorney? Many Canadians don’t, which can create numerous problems if your family loses a loved one. A will is a legal document allowing the directions of a person or persons to be legally expressed after death. This can be extremely beneficial, particularly if family dynamics are such that there would be arguments about your estate and the care of dependants. It is also important to ensure that your estate has the cash necessary to cover any taxes that will apply to the assets left to your beneficiaries. In addition to leaving portions of your estate to family or friends, consider contributing some of your assets to charitable organizations such as The Salvation Army.

These are the major points that need to be addressed in any financial plan. Here are a few other points to consider.

If you are married, ensure that each of you is aware of your current financial situation and participate together in your family’s financial decision making.

Tithe to the Lord. A lot has been said on this topic but I ask you to reflect on the words the Lord spoke to Israel through Malachi (see Malachi 3:8-12). I believe that if we understand that all we have belongs to God, and we treat our finances that way, we will feel less stress when it comes to money matters.

Lastly, consider meeting with a financial advisor. These advisors are trained to help you develop a plan that will help you realize your goals. It doesn’t cost you for this service, and the results can bring huge financial and emotional rewards. 

William Way is a Salvationist and a Division Director, Investors Group