What Can Financial Planning Do for You?
Sebastien Chevrier - Jan 18, 2020
So, what are your goals for 2020?
The start of a new year – indeed, a new decade – offers a perfect opportunity to take stock of where you are and where you want to be. And like many physicians, you likely have goals in mind for your professional development – such as the learning you’ll pursue so that you can continue to advance patient care and even improve the health system.
But for all of us, our sense of purpose is also tied to goals that over-arch our day-to-day work. For example, building a retirement nest egg, supporting your children’s education now or in the future, and saving to buy a house or make some other big purchase. While these are common money goals, there are many others, including some that may be unique to you.
That’s where financial planning comes in.
Examine Your Goals and Chart a Course to Them
Contrary to common misconceptions, financial planning is not only for the ultra rich. Nor is a financial plan the same as a budget (although a budget may certainly be an important component of a financial plan). Every physician should have a comprehensive financial plan in place.
Financial planning answers the question of what your money goals are, helps determine how much you need to achieve them, and creates a process to address your current and future income and spending needs.
In addition to the common goals of saving for retirement and funding education, there are other equally important but easy-to-overlook aspects that must be addressed by financial planning. Here are a few to get you started thinking.
At Physicians Wealth Advisory, we spend a lot of time working with doctors to help ensure they reach their financial goals. Over the years, we have come to realize that debt is no small matter, especially for recent medical graduates. And even for those who have moved beyond this significant early challenge, it can be confusing to know where to start and how to proceed when it comes to mortgages, lines of credit, credit cards and the multitude of loan options. Knowing when and how to use which type of debt is important because it can have a considerable impact on your overall borrowing costs and credit scores. (Watch this blog-space for an in-depth exploration of this topic in the future).
No matter how much you plan, there are some things in life you’ll never be able to control – illness and disability, for example. That said, there are strategies you can employ to mitigate the potential upheaval of the unexpected. Having an emergency fund or access to a low interest line of credit is one way. Another important way to lessen the risk is to ensure you have the right insurance in place to protect against unpredictable, unforeseeable situations. All physicians should have adequate disability insurance. Term life insurance and critical illness insurance are commonly used strategies that may be appropriate for you depending on your circumstances. Other strategies may or may not be appropriate for you. Making sure you understand the cost and consequences of policies you purchase is important. Be sure you are receiving reliable information from a fiduciary source.
Wills and estate planning
Having excess wealth is admittedly a nice problem to have yet it’s important to recognize that such a situation involves much more than a feeling of extra personal financial security. Whether you decide to help the next generation(s) of your family, your community or otherwise create an enduring legacy, it makes sense to consider all aspects of all your options … that means not only looking at the most tax-efficient ways to transfer your wealth but also ensuring that you have chosen a path and beneficiary that are meaningful to you.
Speaking of meaningful wealth transfer, according to the CanadaHelps online donations hub, the number of Canadians who give to charity is on the decline, standing currently at around 20 per cent. Yet charitable giving can be a win-win as there are significant advantages to both donor and recipient. While philanthropy is itself a reason to give, Canada’s generous tax credit system is also an incentive. This enables a donor (or their spouse), who gives to a qualifying organization, to claim a federal and provincial non-refundable tax credit.
Deciding to invest for your future is only the first step. For example, not only is it important to get the level of investment advice that’s right for you (see our earlier post on determining what level of financial advice is right for you.), you must also choose the best location for your savings and investments – tax free savings account (TFSA), registered retirement savings plan (RRSP), medical professional corporation. Where to best invest will depend on your personal circumstances and future needs. Then, determining which type of investments to hold, in appropriate allocations based on your risk tolerance, at a reasonable cost, is yet another important consideration.
Financial planning is a critical and substantial component of comprehensive wealth management. You should be sitting down with your Advisor or Planner on an ongoing and regular basis to review and update your plan and discuss critical financial planning topics to make sure you are financially optimized. If you don’t have a plan, ask for one. Every physician needs one.
Sebastien Chevrier leads Physicians Wealth Advisory, a multi-disciplinary practice offering tailored financial planning and investment services for MD’s. If you want to learn more about any or all the areas of your personal finances outlined here, please contact us to start the conversation.