For most young professionals fresh out of post-secondary education, living independently can be liberating, but it also raises several questions. How do you juggle your first career with your social life? What is the proper way to budget? Where should you be putting your savings? When is a reasonable time to purchase your first home and start family planning?
These inquiries are all too common in our line of work, and uncertainty is nothing to shy away from. If you’re asking these questions, you’ve already taken the first step toward building the future you want—life is a journey, and a financial plan roadmap is an investment that can help you make the right decisions to stay on track.
Charting your financial roadmap and investment goals
Progress is difficult to measure without knowing where you're going. By setting tangible, achievable goals, you’re more likely to shape your behavior in a way that puts them within reach. Acknowledging how far you’ve come can inspire you to keep going as you near financial objectives or investment goals. This, along with tallying your assets, liabilities, expenses, and the like, is the basis for establishing a comprehensive financial plan.
Although the what is important, two equally valuable factors are the how and the why behind your decisions. A good financial plan knows your goals, but a great one understands the motivations behind them. Taking a comprehensive look at your overall financial situation, from tax planning to your investment portfolio, can inform how you establish milestones and deal with setbacks. A healthy understanding of your personal finances, after all, is an investment in peace of mind.
The What
This is where most people start, and regrettably end, when it comes to setting objectives. The idea of “I want to buy a house” is perfectly fine on its own, but without further context, it may be more difficult to achieve.
The How
Once you have your goal in mind, it's important to strategize exactly how you plan on achieving it. To afford your future home, you may need to set up rules in your financial plan, such as “I’ll put away 20% of my income in a First Home Savings Account” to help fund your purchase.
The Why
Ask yourself why you set this goal and if it aligns with your values, priorities, and overall outlook on life. If you plan on finding employment in another country or hope to work remotely as a nomad, does buying a house make sense? Conversely, if you plan on raising a family, being a homeowner is actively contributing to what you want out of life.
Building a financial plan for major life stages
Ultimately, your priorities and goals in life are subject to change based on what stage of life you’re in.
Breaking it down into stages can help make sense of your life’s overall trajectory. While everyone wants something different out of their years, this exercise assumes the majority—home ownership, having children, and retiring after a fulfilling career.
Stage 1: Wealth accumulation
As you start your career, a regular paycheque can feel like a magical thing after being a student without much money to speak of. While it's important to enjoy the fruits of your labour, whether through travel or dining out, starting a systematic savings plan early can make a massive difference.
Establish a budget and do your best to stick to it when possible. Calculate your income, subtract your expenses, and place a healthy amount of the surplus into various savings accounts, such as an FHSA, TFSA, RRSP, and the like. The added benefit is that once you’ve done so, you can spend leftovers guilt-free.
The primary goal here is to put aside savings for your first house, followed by investing in life experiences, and finally establishing the foundation for retirement savings.
Stage 2: Home purchase
At this point, you’ve built up enough capital and credit for a down payment and mortgage. Redistributing most of your savings will be necessary, but this is what you've been working toward.
As mortgage payments and the costs of furnishing, maintaining, or repairing your home likely eat into what was previously considered excess income, it's normal for the pace of systemic savings to drastically slow down, if not pause altogether. Home or life insurance premiums can also impact your budget.
The obvious goal here is the deed to your very own property. Secondary to that is getting your pace of savings back on track when it makes sense given your circumstances.
Stage 3: Family planning
Many young professionals with a home and an established career begin thinking about starting a family at this juncture. Through promotions and salary increases, you’ll likely be generating more income. That said, systematic savings tend to drift toward the cost of raising children.
RESPS, daycare costs, clothing, food, activities, lessons—with a new stage, and potentially a growing family, come new expenses. It’s worth noting that drafting a will, designating a power of attorney, updating beneficiaries for pensions or accounts, and taking other legal action are recommended.
Debt levels tend to peak around this time, but on the plus side, you’re improving your home equity, building a family, creating memories, and crafting the life you want. The primary objective is singular—set you and your family up for long-term happiness and financial security.
Stage 4: Shifting perspectives
Your children, much like you once did, grew up and went off to higher education or straight into the workforce. Now you're in your peak earning years with fewer dependents to take care of under your roof.
With a higher income and lower costs, systematic savings can begin to find their way back into your long-term retirement savings plans. You may even find that your newfound time and reduced responsibilities give you the opportunity to do what you’ve been putting off. Travel, social lives, personal hobbies—they all become a possibility again.
During this portion of your journey through life, the first priority is to keep building retirement savings. Second to that is to get some practice in for the big last day in office—go enjoy yourself. Finally, revisit your will, investment strategy, and forecasted retirement income regularly to make the appropriate changes.
Your financial advisor: a trusted co-pilot for personal finance
Navigating life can be complicated, but with a proper plan in place, it doesn’t have to be. Whether it's estate planning, setting financial goals, assessing your risk tolerance, or getting a head start on retirement planning, preparation can help with most financial decisions in life.
Whatever part of your financial journey you find yourself in, having a trusted financial advisor or planner can make an even bigger difference to help ensure everything is going according to plan and make adjustments if need be.
Today’s exercise was just one generic example. Regardless of whether or not you plan on purchasing a home and starting a family, your priorities will likely shift. Periphery goals may fall to the wayside, and our job is to bring them back into focus.
From one stage to the next, we’re here to support you in everything you do. When you achieve one goal, we’re already looking at how we can help you reach your next one.
