11.2.5 Financial steps to reach goals

From Financial Consumer Agency of Canada

Step 5 gives you an overview of your finances. This page and the ones following help you decide what steps you can take to get your finances the way you want them.

Savings

Saving is a key step to achieve your financial goals. You need savings to reach the goals you identified in Step 4. It's also a good idea to put money aside for your financial security.

  • First, plan to save at least 10 percent of your income for basic savings, to provide for emergencies, retirement and similar needs. Save more if you can.
  • Build up an emergency fund of three to six months' income in case you lose your job or face a major expense. Set aside 5 to 10 percent of your budget until you build up your emergency fund.

Saving

Use this page to review the savings you need to meet your goals and for financial security. Don't forget: You may be able to increase your income by working extra hours, getting a new job, starting your own small business, etc.
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Be sure to save at least 10% of your income if possible to provide for emergencies and retirement.
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This provides for unexpected expenses or loss of income. Try to build up three to six months income in your emergency fund. Then continue to save the money for other goals.
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To meet your savings goals, you need to save a total of: $0.00
If you don't have your emergency fund yet, you'll need to build that up, too.
Your monthly income and expenses surplus or shortfall is: $0.00
If the savings you need is higher than your monthly surplus, you may be unable to meet your spending plans. You may have to reduce your goals or your expenses, save longer or increase your income. If the savings you need is lower than your monthly surplus, you'll have money for other goals.

Mortgages and other debts

Paying off debts is often the best start to financial planning. This page summarizes your mortgage and other debts, and the payments you need to pay them off. If you have extra income to pay off debts, you'll reduce the high costs of debt and be able to allocate your money to your other goals.

Make at least your minimum required payments every month to avoid penalties. Pay off the debts with the highest interest rates first, such as credit card debts. Then allocate the payments to the debt with the next highest interest rate.

Mortgages and other debts

Use this page to review your mortgage and other debts. Take the amounts from Step 2 (Liabilities). Enter the monthly payments needed. Can you reduce the cost of your debts? For information see the modules titled Credit and debt management and Mortgages.
Income that could be used to pay down debt $0.00
Debts Total debt Minimum monthly payment Interest rate Extra payments permitted Extra payments
Mortgage
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Second mortgage
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Taxes owing
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Credit card balance #1
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Credit card balance #2
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Credit card balance #3
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Bank loan #1
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Bank loan #2
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Bank loan #3
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Other loan #1
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Other loan #2
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Other loan #3
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Total $0.00 $0.00 $0.00

Use income that's not committed to other goals to pay down debt, starting with the debt with the highest interest rate.

Insurances

Insurance can be an essential step in managing financial risks and passing wealth to future generations. (See the module titled Insurance.)

Check whether you have insurance through your employment, credit card or other sources. List the coverage you need and the monthly cost of the insurance. (If you pay an annual premium, divide the premium by 12 to place it in the chart.)

Insurance

Insurance can help you manage financial risks. Use this page to review the insurance you hold or need. For more information, see the Insurance module.

Property insurance
Coverage to insure your home and other property.
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Medical insurance
Coverage for medical, dental or extended benefits.
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Disability insurance
Coverage to provide income if you are unable to work. If you need disability insurance, research the cost to cover 75% of your monthly expenses. (Your expenses will likely be reduced if you can't work.)
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Life insurance

Coverage to provide for family after death. If you need life insurance, research the cost to provide for expense at death (funeral costs, medical costs, debts, etc), plus replacement income for survivors.
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Other (travel, medical, etc.)

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Total insurance payments needed $0.00

Investments

Review your investments and investment goals on your own or with a financial professional or an investment advisor to be sure that your holdings are appropriate for your situation.

Investments put your money to work to earn you more income. Use this section to review the short-term and longer-term investments you have. Count all of your assets that earn a return. For more information, see the module titled Investing.

Investments

You Partner
Chequing/savings accounts total $0.00 $0.00
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Registered Retirement Savings Plans (RRSPs)/Registered Retirement Income Funds (RRIFs) total $0.00 $0.00
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Non-RRSP investments total $0.00 $0.00
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Life insurance (cash value) total $0.00 $0.00
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Employment pension plans total $0.00 $0.00
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Personal totals $0.00 $0.00
Household total $0.00

I don't think this applies because I have no significant assets that earn a return

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I know My risk tolerance:

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years

Review how your investments match your goals:

Checkboxes Investing goals checklist
My investments match my risk profile
My investment return matches my expectations
My investments are within the top 25 percent for their type
My investments are on track to pay out when expected
My relationship with my investment advisor is satisfactory

If you could not enter a check for any questions, review your investments with a professional adviser.




Retirement

Plan early for your retirement—it will be too late when you're about to retire. Consider what income you'll need when you retire and how you'll get it. (See the module titled Retirement and pensions.)

Retirement and pensions

Use this worksheet to review your retirement readiness and the money you expect to have when you retire.

In addition to your age, when you plan your retirement, consider your health, whether you enjoy working, your financial responsibilities and what other things you'd like to do with your life.

Current annual income:
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x 70% = $0.00
Start with 70 percent of your yearly income as a rough approximation. Adjust it for inflation and any other costs you may have to account for. Or better yet, work out a detailed budget.
My retirement income sources per month:
Income source You Partner
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Total $0.00 $0.00
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Less income tax (except GIS and TFSA) $0.00 $0.00
After-tax income $0.00 $0.00
Household total per month $0.00
Household total per year $0.00
Difference between projected annual income and required income $0.00

If the difference is negative, you won't have the income you'll need when you retire. Your options include:

  • Continue working.
  • Look for alternative sources of income (part-time work, home-based business, etc.)
  • Modify your lifestyle expectations.
  • Adjust your investments for higher returns.

Taxes

The taxes you pay are a significant part of your household and personal finances. Plan what you will do with any tax refund you receive so that it strengthens your financial position.

Check that you have all the benefits and deductions you are due. File on time to avoid penalties.


Tip

Plan your taxes to ensure that you pay only the amount you are required to pay. Use this page to check that you can minimize the taxes you owe. For more information, see the module titled Income taxes or Income taxes Quebec.


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Tip

Your average tax rate is the income tax you pay divided by your total income.


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Tip

Your marginal tax rate is rate of tax you would pay on any additional taxable income you earn.


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Checkboxes Tax planning checklist
I've filed and sorted all the tax forms and related documents I need to complete my taxes this year.
I've claimed the benefits such as goods and services tax/harmonized sales tax (GST/HST) Credit and the Child Tax Benefit through my T1 tax return (and in Québec my TP-1-V).
I've checked that my employer deducts the minimum amount required from my paycheque to pay my taxes for the current year.
I've claimed all the deductions and exemptions that I'm entitled to.
I've reviewed my options for splitting income and sharing exemptions among family members.
I've made use of TFSAs, RRSPs, Registered Education Savings Plan (RESP) and similar plans to shelter my income from taxes wherever possible.
I've claimed for tax refunds in previous years that I may have missed.
I've consulted with a tax professional for more complex issues that could reduce my taxes to the minimum allowable.

Estate planning

Estate planning is an important part of planning your finances to ensure that you achieve your goals for your family and survivors in the way you want them. Careful planning is essential since you won’t be there to fix any problems that come up.

Tip

Don't forget to plan for finances after your death. You'll make things easier and less expensive for your family and friends. See the Estate planning section of this module for more information.

Review the tips below. Decide if each one is suitable for you or not. Check the ones you need to work on.

Checkboxes Estate planning tips
I have made a will.
I've appointed a representative in case I cannot make decisions.
I've named beneficiaries in my insurance and other policies.
I've preplanned my funeral.
I've prepaid my funeral.
I've bought life insurance to cover funeral expenses.
I'll consider giving gifts before my death.
I'll spend assets that are not tax-sheltered before sheltered ones.
I've arranged my RRSPs to minimize taxes to my survivors.
I'll consider transferring property to joint ownership.
I'll consider setting up a trust fund(s).

Financial review

A plan is only useful if it is realistic. Your ideas may change or the facts that they are based on may change. Your plan will be stronger if you think ahead about problems that could come up, and how to manage them.

  • Lost your job? Your emergency fund will help with expenses.
  • Unexpected health expenses? Extended health insurance may cover the costs.
  • Didn’t make your savings goal this year? Put off the big-screen television for another year.

Check your plan whenever there’s a major change in your life and adjust it if needed. Your goals and plans will change over time, so set a date to review your financial plan once a year and mark the date in your calendar.


I've completed a financial plan and I think that: Are okay Needs more work
My income and expenses
My savings
My mortgages and other debt
My insurance coverage
My investments
My retirement and pensions plans
My tax planning
My estate planning

Personal values, emotions and behaviours

Setting goals and plans is an activity that includes many personal factors, such as your values, emotions and behaviours. These factors may support your plans, but they can also work against them. It's important to understand your personal strengths and limitations and how your relationships with others affect your decisions. Then you can take them into account when you make your financial plans.

Example: Lisa enjoys going out with her friends after work for drinks, a meal and sometimes dancing. She wants to save more money, so she decides to cut out the after-work gatherings. She's okay for the first week, but by the second week she feels lonely without her friends, and starts going out again. Her plan is in trouble because it does not take into account her social needs. She might achieve her goal more easily if she plans to go out just one night a week, or arranges to meet her friends for dinner at home.

You may not like to think about the future because it's so uncertain. You may feel overwhelmed by the amount of information you'll need to gather for a financial plan. You may not want to make sacrifices in your current spending in order to achieve future goals. These common human responses make it harder to plan for your own future when you are dealing with day-to-day realities. But when you think through your plans and find a strategy that works for you, you will feel more in control and be more able to manage your future.

Tip

Many personal factors, such as values, emotions, habits and other behaviours can affect your finances. Identify those that will strengthen your plans, and build on them. Look for ways to minimize the impact of personal factors that might weaken your plans. See the module titled Saving for more information.

Check off any steps below that would help you make—and stick with—your financial plans.

Checkboxes Personal values, emotions and behaviours checklist
I will start an automatic savings transfer at my bank, credit union, caisse or trust company.
I will talk to an advisor at my bank, credit union, caisse, trust company or other financial institution in January every year to learn about my savings plan and other financial options.
I will make a plan (in writing or electronically) to set aside enough money for my future goals, and check once a month to see if I am on target.
I'll set a savings target with a group of friends, and ask them to help me meet my target.
I’ll give myself an inexpensive reward (see my favourite video, make my favourite meal) every month that I meet my savings target.
If I spend money on something when I know I should save, I'll put an equal amount into my savings account before I make any more expenses.
I will "pay myself first" and set aside a certain percentage of my income (e.g., 5%, 10% or 15%) for savings every month.
List any other steps you could take to help you stick with your financial plans:

Congratulations!

Someone celebrates completing a financial plan.

You've completed your financial plan. If you keep it up-to-date, it will help you identify and achieve your goals.

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