Confessions of a Financial Advisor: Preface

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Let me set the record straight from the get-go.  I make my living in financial services working for one of Canada’s largest banks.  While I most certainly have an obligation to support and protect my employer and our business activities, I truly feel that providing unaltered and unbiased information is what makes our company who we are.  People need to know what to do with their money; it’s just that simple.  Canadians today need a financial advisor and more importantly need the right financial advisor.  My previous role was as a personal financial advisor and I have some things to discuss.  Let this be the first instalment in a multi-article series related to personal finance.

Through this series I hope to provide as much information and unbiased advice as possible on all aspects of your financial picture.  Today, we will talk about why it’s important for you to start thinking about your financial plan right now and not tomorrow, the next day or for your New Year’s resolution.  Later, we will tackle topics such as investment strategies, tax planning, whether to buy or lease a new vehicle, whether to rent or own a home, and several more juicy topics.  I just love this stuff.

First, let’s talk about what a financial plan actually is.  If you think about any goals you have set for yourself in your life, you should agree that setting incremental, smaller milestones along the way is a sure-fire way to increase your likelihood of meeting your main goal.  A financial plan is a series of steps or milestones that allows you to reach the biggest financial goals in your life, such as retiring to a comfortable lifestyle, putting your children through university, or eliminating personal debt.  The financial benefits of having a financial plan and sticking to it will be explained in more detail through future posts, but I truly feel that the greatest benefit of having a plan in place is peace of mind.  Nobody likes paying bills or looking at their credit card’s balance but I can assure you that it’s much easier to sleep at night knowing where you stand and that you are moving in the right direction.

I stated earlier that it’s crucial to have the right financial advisor.  The reality is financial services is one of the most lucrative industries in North America and financial advisors are often compensated in different ways.  Some advisors are paid purely through commissions while others are salaried and potentially earn bonuses.  I wont stand here and tell you that you should choose your financial advisor based on a particular compensation model nor based on whoever charges the lowest fees, but I will definitely tell you to get a clear understanding of how your advisor is compensated.  Hold us accountable for the advice that we provide and if we are not providing fair value for the cost of our services, take your business elsewhere!

Here’s your homework.  Set up a budget and be extremely conservative with your numbers.  Your budget should include disposable income (salary minus taxes and other government deductions) less your fixed expenses (rent/mortgage, other monthly debt payments) less your variable expenses (everything else).  What you will have in front of you is invaluable information to start with.  See below, a sample budget for Joe, a recent university graduate making $55,000/year:

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This budget, like yours, provides two main areas of information. First, it shows you areas where you have an opportunity to reduce your monthly expenses.  If you notice, “$250 is a lot of money to be spending on entertainment in a month” you will be more likely to limit your monthly spending on entertainment.  Second, it provides a usable “discretionary income” number, which is the money left over to work towards your long-term financial goals.  A useful tool to help in creating your own budget can be found at www.mint.com, which is a fully secure website that links all of your banking products to one website and tracks your income and expenses against your monthly budgeted targets.  I highly suggest using this website as it does the bulk of the work for you on a daily basis.

I’ll leave you to it.

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