By Darien November 3, 2023 In Financial Planning

4 Investment Planning Must Haves

As information becomes easily accessible, our inboxes and social media pages have become saturated with messages that promise quick and substantial financial gains. However, in the world of investments, the old saying “If it sounds too good to be true, it probably is” often holds true. Be wary of these claims as there are no big and fast gains when it comes to investing that don’t come with tremendous risk. 

Here are the four factors you should consider when creating an investment plan that will help you reach your financial goals.

1. Assess Your Current Financial Situation

The initial step in creating any investment plan is understanding your financial situation.

You should have a clear idea of the amount of money you have coming in every month and as well as your monthly expenses.  It’s also important that you understand the difference between gross and net income.  Gross income is the total amount of money you earn.  Net income is the gross amount less deductions and taxes.

For example, if you earn a monthly gross income of $5000 in BC, your net income may be around $3,905. The difference of $1,095 includes contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI).  You should therefore always work with your net income when carving out a financial plan.

Once you’ve determined your net income, you should be allocating a certain amount for each of your expenses, savings and investments.  One example can be seen in the table below.

CategoryDescriptionIncome allocation 
ExpensesSpend on bills, debt and other monthly expenses 50% – 60%
Money you set aside for short-term and long-term goals, such as an emergency fund, a down payment on a house, or retirement
10% – 25%
InvestmentsMoney you put into assets that you expect to appreciate over time, such as stocks, bonds, and real estate10% – 25%

Tip: Use a financial tool, app or Excel sheet to track and analyze your financial data easily.

2. Understand Why You Are Investing

You need to clearly understand why you are investing by asking yourself these questions:

  • What are your financial goals?  What do you want your savings and investments to do for you?
  • What is your investment timeline? Is it long-term or short-term?
  • What’s your risk tolerance?  The market is always fluctuating so you need to choose investments that match your risk tolerance.
  • Do you know how to properly diversify your portfolio?
  • Do you have an emergency or sinking fund? If not, we explain below why you should.

3. Combine Saving and Investing

Contrary to what most people think, you should not save and then invest later.  You should save as you invest.  

Savings provide you with a cushion you need to cater for any emergencies or any expenses you anticipate for the future. For instance, you can have an emergency fund that caters for any unexpected bills like medical bills, car repairs, and job loss. 

In addition to your emergency fund, you can have a sinking fund in which you save towards larger purchases like a vacation, a new car, home repairs, or even holiday gifts. That way, when it is Christmas time, you don’t have to withdraw funds from your emergency fund or sell the investments you’ve accumulated while investing at a loss to cover your loved ones’ gifts.

Investments, on the other hand, are typically longer-term in nature and can carry more risk than savings, meaning the chances of your money losing value is higher. The degree to this risk will depend on several variables which make up your individual risk profile.  Investments do, however, have the potential to grow your money at a faster rate than savings. 

So, by combining saving and investing, you balance your risk and reward.

4. Discipline

Lastly, when you’ve reviewed your goals and have developed a strategy to achieve them, it is important that you able to exercise the discipline required to stick to the strategy you’ve put in place.  Investing can be emotional, but don’t be tempted to deviate from your plan when markets fluctuate.   

Committing to a plan ensures that money meant for investments is not spent on something else, especially when you have set aside some emergency cash for a rainy day.

Discipline also means contributing regularly to your investments.  This can be done through dollar-cost averaging to help you spread out risk over time. Utilizing this strategy involves investing fixed amounts at regular intervals into your investments over an extended period, regardless of market conditions.

Having an investment plan and staying disciplined by keeping a long-term perspective will help you avoid the emotional and irrational behaviours many individual investors face during difficult times. 

Plan Your Investments With a Financial Planner

If you don’t want to go through the trouble of second-guessing every step of your investment path, you should talk to Kara Day for your financial planning.

With the knowledge and expertise of a professional financial planner, you will feel secure knowing you have a solid investment plan in place, and their guidance will help take the emotions of the investment decision making process. 

Get in touch with us today and we will simplify your investment journey.