5 ways having a financial plan can give you peace of mind

Article content

By Chantal McNeily

Article content

Article content

I analyzed every decision when I was younger. From the insignificant decisions to the big life decisions, I performed an intricate game of mental gymnastics, analyzing every permutation and combination of potential outcomes ad nauseam before moving forward.

Analyzing the potential risks, both positive and negative, provided me peace of mind and a sense of control. I felt confident that I was prepared regardless of the outcome. At points in my life, I viewed this level of analysis as a weakness, but now I see it as a strength, especially in times of unrest such as we are in now.

Article content

The skills developed over a lifetime have enabled me to remain calm in times of uncertainty, prepare for a multitude of potential outcomes and have the confidence to know my clients will be “OK.”

The one universal truth of life is that the only constant is change. There is a lot of uncertainty in the world and uncertainty causes anxiety. Nationwide, 61 per cent of wealthy Canadians cite achieving or maintaining their retirement plans as an area of concern.

Achieving our desired financial outcome relies on accepting that a large portion of the risks we face as investors are out of our control.

So, what can we do to instill peace of mind?

Having a financial plan provides clarity, control and confidence about your financial future. Money is one of the most significant sources of stress, and the uncertainty about managing it can feel overwhelming.

A financial plan acts as a roadmap, helping you navigate your finances with purpose and clarity. In essence, a financial plan is not just a technical tool; it’s a psychological anchor that helps prevent you from making short-term emotional decisions that have significant long-term implications.

Article content

Article content

As Morgan Housel indicated in his book The Psychology of Money, “Planning is important, but the most important part of every plan is to plan for the plan not going according to plan. A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality. A good plan doesn’t pretend this wasn’t true; it embraces it and emphasizes room for error. The more you need specific elements of a plan to be true, the more fragile your financial life becomes.”

Building a robust financial plan means building in a margin of safety to ensure you plan for the things you cannot control, such as lower investment returns, a market correction, inflation, an unexpected illness or a shorter or longer life expectancy. The larger the margin of safety, the more confidence the plan exudes and the less likely you will be to emotionally react, especially in times of extreme market volatility.

Here are five reasons you should have a financial plan:

Provides clear goals and direction: A financial plan defines specific measurable goals. It lays out actionable steps to achieve those goals, giving you a clear path to follow. It eliminates an element of uncertainty and forces you to focus on what you can control versus worrying about all the factors that are out of your control.

Article content

Builds financial security and preparedness: A financial plan includes essential safety nets such as an emergency fund, insurance coverage, retirement savings and income, and lifestyle goals for the future. It prepares you for life’s uncertainties.

Improves decision-making: With a plan in place, you can make informed financial decisions based on long-term objectives. Humans are not mathematical equations. There are a lot of emotions tied to money that are not always rational. We have to weigh both the “numbers” and the psychological impact when planning. Your goals and objectives are unique to you, and that needs to be incorporated for your plan to be successful.

Tracks progress and builds confidence: Financial plans include milestones to track progress, such as becoming debt-free or accumulating enough wealth to comfortably retire. Regular updates to the plan show how small, consistent actions lead to significant results, boosting confidence and motivation.

Enhances relationships and communication: For couples or families, a financial plan fosters transparency and collaboration around money matters. It reduces conflict by aligning everyone on shared priorities and expectations. Open communication about finances builds trust and strengthens relationships.

Article content

It is important to remember that a plan is a living, breathing document. It must be frequently revisited to account for any changes that arise. Having a plan does not ensure we won’t face challenges along the way, but a financial plan empowers you with clarity, control and confidence while providing a roadmap to financial freedom and peace of mind.

Chantal McNeily is an investment adviser at RBC Wealth Management.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content