Planning your money future
A financial plan is a roadmap from where you are now to where you want to be. It connects budgeting, saving, debt, investing and insurance into one strategy.
Step 1: Know where you stand
Net worth = assets − liabilities
| Assets | Liabilities |
|---|---|
| savings and chequing | student loan |
| investments (TFSA, RRSP) | car loan |
| car (market value) | credit card balance |
| home (market value) | mortgage |
Example: Assets $28,000; liabilities $19,500 → net worth $8,500.
Track your net worth each year to see progress.
Step 2: Set SMART goals
A SMART goal is:
| Letter | Meaning | Example |
|---|---|---|
| S | Specific | save for a used car |
| M | Measurable | $6,000 |
| A | Achievable | $250/month fits the budget |
| R | Relevant | needed for a job |
| T | Time-bound | in 24 months |
Short, medium and long term
| Term | Time | Examples |
|---|---|---|
| short | under 1 year | emergency fund, a phone |
| medium | 1–5 years | car, tuition, travel |
| long | 5+ years | home down payment, retirement |
Step 3: Make a budget
Track income and expenses; plan savings first ("pay yourself first").
Step 4: Manage debt
- Pay high-interest debt first (credit cards).
- Avoid new high-interest debt.
- Make all payments on time to protect your credit score.
Step 5: Save and invest
- Build an emergency fund (3–6 months of expenses).
- Use registered accounts (TFSA, RRSP, RESP, FHSA) for long-term goals.
- Match investments to time horizon and risk tolerance.
Step 6: Protect yourself
Insurance (health, home or tenant, auto, life, disability) protects your plan from disasters.
Step 7: Review regularly
Life changes: a new job, moving out, a family. Review the plan at least once a year.
Calculating savings goals
Example: Save $15,000 for a down payment in 3 years at 3% compounded monthly. Monthly deposit?
PMT = FV × i / [(1 + i)ⁿ − 1] with i = 0.0025, n = 36 → ≈ $399/month
Without interest: 15,000 ÷ 36 ≈ $417. Interest helps a little; time helps more.
Worked examples
Example 1: Assets $45,000; liabilities $52,000. Net worth? −$7,000 (common for new graduates with student loans).
Example 2: Make SMART: "I want to save money." → "Save $1,200 for a laptop by June by putting aside $100 a month."
Example 3: Monthly expenses $2,000. Emergency fund for 4 months? $8,000.
Common mistakes
- Vague goals with no amount or deadline.
- Investing before an emergency fund.
- Never reviewing the plan.
Try it yourself
- Assets $12,000; liabilities $4,500. Net worth?
- Rewrite as a SMART goal: "Pay off my credit card."
- Save $3,000 in 12 months without interest. Monthly amount?
- Put in order: invest, build an emergency fund, pay off credit card debt.
Answers: 1) $7,500 2) e.g. "Pay off my $1,800 credit card balance in 6 months by paying $300 a month." 3) $250 4) Pay off credit card debt, build an emergency fund, then invest (some plans build a small emergency fund first).
Quick recap
- A financial plan starts with net worth = assets − liabilities.
- Set SMART goals; budget, manage debt, save and protect.
- Build an emergency fund and review the plan regularly.