Most weekends, my son and I load up the car and head for the mountains to hike. Perhaps we are not the best route finders, but trail descriptions rarely seem to meet our reality. A few hundred metres in, the trail turns rocky, muddy, and slippery with gnarly roots grabbing at our feet. As the mountain looms off in the distance, the trail becomes steep. My legs and lungs work to keep up as my heart pounds hard in my chest. This is often when I start questioning my decision to haul my 11-year-old up the trail alone.
After willing myself onward, a slow, almost imperceptible change takes place. My heart calms and my legs find rhythm. I have come to understand a slow and steady pace, ever forward, with the occasional rest, is the way ahead. We hike on adding miles to our boots.
The last stretch always tests my mettle. Often there is some sort of scramble, requiring hands-on navigation and careful decision making. There is the added terror of looking back down the unforgiving mountain. But we carry on, any goal worth pursuing comes with doubt, difficulties, and despair.
Just when it seems we cannot take another step, the trail levels out, the views are incredible, and the pain and sweat of our efforts fade. We are standing in a place, where only our feet can take us. We do our best to take it in.
However, the lesson of the mountain is not over yet. Hiking down, presents its own challenges. You are tired, aching, and looking forward to getting back to the car. Yet, an opportunity opens to encourage those you meet on their own way up. A simple “keep going, you’ll make it”, “the view is worth it” can offer so much to those still making their way. In my opinion, financial planning is a lot like hiking.
1. Both have ups and downs. Uphill challenges include things like, health care issues, aging parents, changes in plans, market declines, college expenses, etc. The way down can represent getting a raise or promotion, a child getting a job and contributing to their own expenses or a strong market.
2. Preparation is required. In a financial plan, preparation is key. Have a plan but be prepared to change. Do not set off on your hike to retirement without a good understanding of your situation, your spending needs, your ability to generate income and your overall goals and objectives. Map the course, keep track of your net worth, and ensure its on the right trajectory.
3. The proper gear is required. In financial planning, there are many tools. From how we allocate our assets to understanding how different financial products can serve our goals. Financial Planners are a guide. With professional advice comes improved savings behavior and the opportunity to identify tax-efficient investment vehicles, counsel against poor financial decision-making, as well as objectives that help mitigate emotional investing habits.
4. Sometimes it hurts. You must continually make savings decisions that delay gratification. Balancing the long-term priority of a financial goal against the short-term goal of living is an ongoing lesson in sacrifice.
5. Rest is required along the way. Sometimes, you need to rest. This can mean prioritizing family vacations or an experience along the way. Life must be lived in the moment and for the longer term. Have a balance. You cannot go the whole way with out stopping to catch your breath.
6. The hikes not over at the top. Achieving retirement is not the end. It is a new beginning, a new chapter. Works as much on your bucket lists as you do your spreadsheets.
Hiking like financial planning, is a great adventure. Grab a hold of your financial plan. Enjoy the process. Rest along the way and plan for the hills you will climb. In the end, with adequate preparation, you will have a great journey!
-Allison Stone
Taking back Control.
The year that was 2020 brought with it the Coronavirus. A pandemic that in my opinion, highlighted some of the weaknesses in our system. In the beginning it seemed as though Canada struggled to grasp the potential toll the virus could take, and so followed inconsistent rules and policy. One important tool in fighting the spread was recurrent lockdowns. While many were able to work from home and maintain their salaries, others such as small business owners, retail operators and frontline service people did not have that option. While some lost their jobs and businesses, others were forced into risky work environments. To support those in need, governments unleased significant monetary and fiscal support. While imperfect, they acted out of an abundance of caution. Sadly, even with the stimulus, many have been set back financially, permanently.
We are now facing a third wave and while the vaccination is being administered the economy is slowly recovering. Supply chains have been disrupted and, in some cases, closed. The economy and jobs are returning. In the meantime, our federal government will have spent almost $400 billion more than what they received in taxes on covid relief. These funds will need to be repaid and new and increasing forms of taxation will likely follow suit. While government policies can have outsized effect on businesses and individuals through regulation, taxation, and policy, we have much more control over our financial well-being than most people think. If we apply a business-like process to our finances, taking control is simple.
Establish priorities. Like a business, we need to set both long and short-term priorities. Planning for short term priorities such as education or travel and longer-term needs such as mortgage repayment and retirement will help us understand how much we will need to commit to savings. Income must exceed expenses by an amount large enough to provide the surplus for savings.
Manage your Lifestyle. It seems common practice today to spend more than you bring in, financing the rest of your lifestyle via debt. Living this way provides instant gratification but offers little financial flexibility. One mishap (health issue, auto repair, pandemic) can cause major financial consequences. Living below your means by spending less than you earn, produces free cash flow to address your priorities of saving or paying down debt. Having clear priorities simplifies lifestyle choices. Possibly the easiest way to free up the funds for savings is to simply pay yourself first. Setting up a preauthorized payment plan from your bank account for savings forces you to reduce your lifestyle expenses to what is left of your income.
Tax Minimization. As discussed above, governments will likely need to increase taxes to pay for money spent supporting their Covid policies. It is possible to reduce your exposure to some of the tax by ensuring that you maximize RSP and TFSA contributions.
Build your Net Worth. At least annually business owners prepare financial statements. These report revenue and expense numbers to determine the amount of free cash flow available for investment or debt retirement. At the same time a balance sheet is prepared to list assets and liabilities to provide a picture of growing or shrinking net worth. By preparing your own net worth statement every six months you can track the progress that you make toward achieving your goals.
Thank you for your continued loyal support. We wish you and your family a warm and restful summer.
-Don Stone