Myth #1: I Have Substantial Assets Therefore Planning Is Not Necessary
That’s true if you aren’t concerned about the future value of your assets, paying more tax that you have to, or leaving a big piece of your children’s inheritance to the government. If you are affluent, it could easily be argued that financial planning is that much more important for you because you have so much more to loose. Financial planning is not what people do when they need more money; it’s just what wise people do with their money.
Myth #2: Financial Planning Means Retirement Planning
No doubt, retirement planning is an important part of the overall plan. After all, when your income stops you’ll be happy that you saved and invested well in advance. Financial planning is also about the short term future and your life-long security. Think of it as a safety net for any unexpected financial crises. It can also be a fund for building your dreams, putting the kids through college, buying a new home or car, starting a business or even taking a relaxing vacation. They can all be accomplished more effectively with sound financial planning.
Myth #3: Financial Planning Is The Same As Investing
So you think you need to have significant investments to merit the need of a financial advisor? Investing is only part of your financial planning picture. Other pieces include budgeting, risk management, insurance, income tax planning, retirement planning and estate planning. Without these important components of financial planning you may not be able to reduce your insurance expenses and income taxes or develop the strategy and discipline to save enough to build your wealth. Using your logic you may never have enough investments to need advice about.
Myth #4: Everyone In The Financial Services Industry Is A Financial Planner
That may be what some financial institutions would like you to think. Their marketing is designed have you believe that all you need to do is drop in to their office, fill out a quick questionnaire, move your money into a couple of their investment products and in only 15 minutes you’ve been financially planned!
Proper financial planning is a very detailed process and can only be done by someone with the proper designations. Look for PFP or CFP designations on their business card. They are issued only to advisors who have passed certain industry exams. In fact you should entrust your future only to an advisor that has a full “securities license” and a “level-2” life insurance license. These licenses allow them to recommend all products currently available.
Myth #5: Financial Planning Is Not Necessary Because My Accountant Prepares My Income Tax Return
Many people either don’t know what a financial planner does or don’t believe anything can be done to change the net value of their income. They bring their T4 to a tax preparer and hope for a refund. That’s not financial planning. Tax preparers will make sure your tax return is filed correctly but they are not financial strategists qualified to create a plan to grow your wealth and minimize the taxes you pay. If you want to keep more of what you earn, you need a prudent financial strategy. The earlier in the year you begin, the bigger the difference you’re likely to see at tax time.
Myth #6: Financial Planning Can Wait Until I’m Older
Nothing could be further from the truth. Here’s why: it wasn’t long ago that average life expectancy was 75 years. Now, many financial planners are using 90 years as average life expectancy, yet retirement age hasn’t changed much. Living longer, but not working longer makes long-term financial planning more important than ever before. For every 10 years that you delay saving for retirement, you'll have to save up to three times as much in order to end up with the same size nest egg. Do yourself a favour and start your financial plan as soon as possible.
Myth #7: My Estate Is Not Subject To Tax
While that is likely to be true for the first spouse to die, it won’t be true for the surviving spouse. You can’t get away without paying tax after death but if you’re properly insured, your life insurance can pay most, if not the whole tax bill. Other than your primary residence and the first $500,000 of capital gains on a small business, taxes will be due on all other capital property after both spouses have passed away. If you don’t have a spouse, or your spouse has already passed away the Canada Revenue Agency will come to collect their share of your estate.
Myth #8: I Am Properly Insured
A large percentage of our new clients come to us with inadequate limits and inappropriate deductibles. Some are even paying for more coverage than they need. It’s probably safe to say that most people don’t like to buy insurance and as result don’t research it thoroughly before they buy. As a consequence they are generally unaware of all the factors that need to be considered for each type of policy whether it’s life, disability or critical illness insurance. Chances are the insurance you have is not optimal given your personal situation – especially if you haven’t reviewed it for more than two years.
Myth #9: I’m Saving Enough For Retirement
Simply put - most Canadians aren’t. They are unknowingly underestimating the amount of money they’ll need in retirement. Guesswork doesn’t cut it. The only way that you can know how much you’ll need at retirement is to create a financial plan; one that takes into account the future cost of your desired lifestyle. That will quantify how much money you’ll need on hand at retirement. Using that as a target and taking into consideration variables like how much you owe, how much you have now and how many months until retirement, your financial advisor can calculate how much you need to save each month to enjoy retirement the way you want. Only then will you know if you’re really saving enough.
Myth #10: Financial Planning Is Only For Wealthy People
You don't have to be rich to have a solid plan for your money. A 40 year old earning $65,000 a year will gross $2.5 million from now to age 65. The choices they make now decide how much they keep from the tax man. The purpose of financial planning is to reduce your taxes, protect your assets and grow them. A good financial plan will also put safeguards in place to protect you in the event of illness or injury. We’re willing to bet these are important considerations to anyone - regardless of financial status.
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