How to get started on an investment plan

A successful financial life is like taking a road trip: unless you know where you want to go, you’re not going to get there.

Just like you would plan a trip, you should map out your finances. Realizing your financial dreams requires goals and a strategy for reaching them. No matter what you want from your financial life, a good plan will get you there faster.

Get started by setting clearly defined long-term goals and time frames for reaching them. For example, do you want to save and invest for retirement, buy a home, or put money aside for your children’s education?

Your objectives must be realistic. If you set lofty goals that are unattainable, you’ll end up frustrated and perhaps give up on financial planning altogether. Don’t eaxpect to retire in luxury if you live a modest lifestyle, or buy a mansion on an average salary.

And keep in mind that it will take many years to reach some of your goals, including saving for retirement and financing your children’s post-secondary education.

You can ensure objectives are realistic by assigning them a dollar value.

Once you know exactly how much money is required, you can determine how much to save and invest, and the level of annual investment returns required to meet your targets. The wealth you accumulate will be a function of the amounts you regularly set aside and the returns that money earns.

You’ll be able to execute an effective savings and investment strategy only after you establish a firm foundation for your financial life. This foundation is the money you need for basic necessities such as food, shelter, insurance coverage and a cash fund for emergencies.

What you have left over after your day-to-day needs are met is your potential investment pool. In other words, it’s the cash that you can put toward long-term goals.

Not only must you determine how much to invest, but you should also have a strategy for ensuring cash gets into your investment account. One of the best ways is to set up a preauthorized contribution (PAC) plan. With a PAC, you invest regularly during the year through automatic withdrawals from an account at a bank or other financial institution. The money goes into your RRSP or other investments.

You also need to structure an investment portfolio so it is capable of meeting your objectives. Choose investments that will generate the returns you require at a risk level you’re comfortable with.

Your portfolio should be diversified among the basic asset classes — cash and cash-equivalent investments, fixed income and equities.

A financial advisor can help you define your goals and strategy, as well as choose appropriate investments.