Recent research indicates that financial planning is underutilized in North America. Indeed, Charles Schwabā€™s 2019 Modern Wealth Survey found that only 28% of respondents had a written financial plan, a surprising figure considering that taking even the simplest steps to construct a financial blueprint can significantly improve feelings of economic well-being.

It seems that one of the underlying causes is a lack of education about how financial planning helps to achieve personal goals. It should therefore come as no surprise that without a clear understanding of how financial planning works, so many fail to implement it. 

A Roadmap to Financial Success

Financial success looks different to everyone, but most people have some idea of what it looks like to them. Financial planning, then, is the map that leads to that destination, and wealth generation, tax mitigation, and wealth preservation are the three vehicles used to get there. 

Wealth Generation

Wealth generation is the accrual of income and assets over time. The maximization of wealth creation requires careful budgeting and evaluation of various investment and asset management strategies. 

Professional analysts aid individuals, households, and institutions in developing budgets, managing cash flow, allocating their funds across different savings accounts, and selecting various investment instruments to engineer diversified portfolios that maximize risk-adjusted returns within their own personal risk tolerance parameters. 

Portfolio diversification, when implemented properly, consistently helps to minimize losses and capture gains, even during periods of global economic distress. The assistance of an experienced financial planner is useful in making the most of diversification and wealth generation strategies.

Tax Mitigation

Getting the maximum return on your investments and retaining as much of your income as possible requires minimizing overhead costs, including taxes. Through careful financial planning, Canadians can reduce their tax exposure and make the most of their investments and income. 

Indeed, implementing a strategy that increases after-tax returns by even 1% per year can drastically improve long-term growth.

There are numerous investment strategies and savings structures that can minimize oneā€™s tax burden. For example, if you are planning to pay for your childā€™s secondary education, you may benefit from a Registered Education Savings Plan (RESP), which provides tax-deferred growth opportunities. Financial planners can help you wade through the many other tax-mitigating options that are available, such as Tax Free Savings Accounts (TSFAs), tax-exempt life insurance policies, and Registered Retirement Savings Plans (RRSPs). 

Wealth Preservation

Wealth preservation strategies aim to maintain wealth and assets. Often, there is a specific focus on planning for retirement and ensuring that oneā€™s financial legacy will be properly passed down to their descendants.

Overall, wealth preservation concentrates mostly on minimizing risks through the establishment of an emergency fund, portfolio diversification, and the purchase of annuities, segregated funds products, and various insurance products, such as Term insurance and Universal Life Insurance. Creating a financial plan is essential to selecting the right options to achieve oneā€™s long-term goals. 

Key Takeaways

Financial planning helps people reach their short-term and long-term financial goals by implementing strategies that maximize wealth generation, tax mitigation, and wealth preservation. Many Canadians can benefit from working with an experienced Advisor who can help them create an effective financial plan.

Connect with your Echelon Investment Advisor to Discuss your needs, this information or any other questions you may have. 

Sources:

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/info.html

https://content.schwab.com/web/retail/public/about-schwab/Charles-Schwab-2019-Modern-Wealth-Survey-findings-0519-9JBP.pdf

  1. Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. 
  2. Unless publications are specifically marked as research publications of Echelon Wealth Partners Inc. (“Echelon”), the views expressed therein (including recommendations) are those of the author and, if applicable, any named issuer or investment dealer alone and they have not been approved by nor are they necessarily those of Echelon. Echelon expressly disclaims any and all liability for the content of the any publication that is not expressly marked as a research publication of Echelon.

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