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5 min read

Saving sanity - how financial planning can reduce stress

It’s little wonder that financial stress has reached new levels. The latest Financial Stress Index from FP Canada, however, shows that people who work with a Certified Financial Planner (CFP®) are less affected by financial adversity.

By Amit Tewary, BComm., CFP®, CIM®
Amit is an Associate Financial Consultant and specializes in providing direction regarding cash flow planning, investment planning, tax planning, and retirement planning.

With unpredictable markets, geopolitical turmoil, and increasing financial complexity in our lives, it’s little wonder that financial stress has reached new levels. If the past few years have taught us anything, it’s that income flow can change overnight, and we should be prepared for any financial situation.

Fortunately, Canadians who are taking steps toward financial preparedness are less impacted by adverse financial events. According to FP Canada’s 2022 Financial Stress Index, the pandemic impacted the financial stress of 58% of Canadians, but only 39% of those who worked with a Certified Financial Planner (CFP®) during that time were affected.

Other key findings in the Index were:

  • 92% of Canadians worry about the rising cost of living
  • 38% of Canadians say money is their biggest concern, outranking personal health (21%), work (19%), and relationships (18%)
  • People feel less hopeful now about their future (49%) than they did one year ago (57%)
  • 35% say financial stress is leading to anxiety, depression, or mental health issues

On a positive note, the survey also showed that Canadians who work with a CFP® were less likely to rate money as their top concern, significantly less likely to face anxiety, depression, or mental health issues, and were more hopeful about their financial future than they were a year ago (see figure below).

 

 Does this sound familiar?

With planner   Without planner
 Money is my top source of stress  15%  39%
 I have lost sleep because of financial worries  26%  44%
 Keeping up with bill payments and expenses causes me financial stress  16%  32%
 My debt causes me stress  10%  27%
 My financial stress had led to anxiety, depression or mental health challenges  16%  36%
 I feel more hopeful about my financial future today that I did a year ago  55%  48%
Source: FP Canada

The value of a financial plan

A good financial plan can help mitigate financial instability. Saving money alone may not protect you from things like inflationary pressures or a rise in commodity prices. Also, it’s important to understand that $100 today has a greater purchasing power than it will tomorrow.

A financial plan can help you determine how to steadily, and sustainably, meet your short and long-term financial goals, taking your current resources into consideration. These goals can be planning a vacation, having an emergency fund, paying for your children’s education, funding large purchases, or retiring early.

When devising your financial plan, it’s important to build your financial knowledge so you can be a proactive participant in decisions that affect your financial well-being. Having a basic knowledge of investment options and taxation gives you confidence when dealing with your money. Furthermore, Canadians with basic knowledge of finances are generally less vulnerable to financial fraud.

Some other benefits from financial planning include:


Increased emotional well-being
According to FP Canada, those with comprehensive plans feel their financial goals and retirement plans are more on track, their ability to save improves, and they’re more confident they can handle the inevitable bumps in life.

Debt management
It’s a universal belief that paying off your debt is the topmost priority, however, understanding different kinds of debt is crucial because it helps ensure you don’t fall into the debt trap. It’s important to prioritize the order in which you pay off your debt.

The highest interest debt should be paid first and the lowest interest debt last. For instance, mortgages are generally people’s lowest interest debt and credit cards typically have the highest interest rates, so it makes sense to pay down your credit cards before adding extra money to your mortgage debt.

Budgeting
Tracking your spending habits and purchasing decisions helps you better manage non-essential spending, which can bring you closer to achieving your financial goals. Your spending plan should consider your short-term and long-term goals, to create a more effective financial plan.

Insurance
Insurance is often overlooked, yet it’s an important part of your plan. Not only does insurance protect you from risk, but it can often give you a return on investment that’s unmatched by traditional investments. This can save you money in the long run by paying for out-of-pocket expenses.

Out-of-pocket expenses not covered by government health care (e.g., medications, long-term care, and some surgeries) can impact your savings, setting you back years. Looking into insurance options is always a sensible, but voluntary, decision. Health and life insurances must be looked at like an investment, which will take care of your loved ones in case of any unforeseen event.

Focusing on what matters
There’s no shortage of online apps that can help you learn how to manage expenses and debt, invest in different asset classes directly, and do a myriad of other financial activities right from your smartphone. This can cause information overload, overwhelm, and frustration because of conflicting information. You must choose the content you consume wisely and consciously.

A CFP® can help you cut through the noise and focus on what matters to create solutions that fit with your personal circumstances, giving you a tangible plan for meeting your goals. The Index echoes this sentiment, showing that Canadians who work with a CFP® are more likely to report benefits from planning than those who engage non-certified advisors for their financial planning needs.

  • Canadians working with a CFP® were more likely to say that money is not a stressor (71%) than those without a planner (43%)
  • Those who don’t work with a CFP® find saving for major purchases or expenses (e.g., buying a house or car, home renos, weddings) twice as stressful as those who do

Some people consider working with a CFP® to be a nice-to-have rather than a necessity, but those who do tend to save more than just money – they save their sanity. A CFP® can help you take control of your finances amid the ongoing inflationary crisis, educate you on financial matters, and develop a holistic personalized plan to keep you on track with your life goals. If you’re feeling overwhelmed and aren’t sure where to start, we can help.

Sources: FP Canada 2022 Financial Stress Index, 2022 Financial Stress Index Whitepaper (fpcanada.ca), 2022 Financial Stress Index Infographic (fpcanada.ca)

 

This blog is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon as advice. Please contact your lawyer, accountant or other advisor for relevant advice. CWB Group takes reasonable steps to provide up-to-date, accurate and reliable information but is not responsible for any errors or omissions contained herein. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by CWB Group or any other person as to its accuracy, completeness or correctness. CWB Group reserves the right at any time and without notice to change, amend or cease publication of the information. Click here to view the full disclaimer.

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