Change happens

For most people “financial independence” is a goal. Achieving it relies on gradually converting our “Human Capital” capacity to work, through savings, into a lifelong cash flow. Having financial security or freedom of choice, means having an income, independent of government, employer and family, throughout our lifetime.

Change will happen whether we are ready for it or not. To mitigate the downside of unexpected, potentially catastrophic change, we should anticipate the possibilities and have a plan to adapt. Anticipating risks helps us respond with appropriate behavior when things take a turn for the worse. By thinking about potential problems and planning for solutions before they occur, we can likely make logical informed decisions without undue urgency or emotional limitation. So, what changes should be anticipated in a financial plan?

There are only three financial problems that negatively affect income flow, that are potentially permanent and out of our control. All the other impacts on independent income are temporary, or within our control. Can you think of what the three are?

1. We can die too soon, leaving lenders and dependents.
2. We can become disabled from sickness or accident eliminating our monetary lifeblood, or;
3. We may stop work because of health, capacity, or forced retirement.

Fortunately, there are financial tools designed specifically to deal with these changes, unexpected or not. All the other income interruptions (changing jobs, family sabbaticals, short term illness or injury, starting a business) are generally solved by having adequate emergency reserves or credit capacity. But for premature death, long-term disability, and longevity-protected retirement, the unique attributes of Life Insurance, Disability Insurance, Pension Plans and RRSPs are must-haves at the foundation of any plan built to stand the test of time. Properly applied, these tools ensure goals-based plans can be met in spite of change.

A good financial plan must also address documentation of our wishes and who should carry them out. In addition to an Investment Policy Statement outlining your portfolio management principles, a Will, Power of Attorney, and health care directive are all critical when the need arises. Remember, a good plan should shift catastrophic financial risks away from you and your family to third parties, let you retain those that you can afford to self-insure and document your intentions before change happens.

Estate Planning Misconceptions

In this 5-minute webinar, we explore an important but often misunderstood area of financial planning.

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