32 - Sunday, September 28, 1986 - North Shore News

Business -

Financial plan is
worth the effort

HAVING a financial plan
drawn up for you can be a
bit unnerving — but the
rewards are worth the ef-
fort.

plan. But I could be saving a lot
more, and I could be making some
investments that will see that
money grow.

McKay also showed me the
reason why that money must grow.

money
matters

by Lisa Smedman

It’s like a visit to the doctor.
You have to reveal every financial
detail, no matter how embarrass-
ing. After all, if you made $30,000
last year and spent every penny of
it, you need help. It won’t do you
a bit of good to hide the fact that
your bank account has hovered
around zero for the past few years
— that’s what the financial plan-
ner wants to change for you.

So, bank account statements in
hand, I took the plunge, on an of-
fer by..Gerry McKay, a financial
planner who operates out of the
Vancouver office of Aetna
Canada.

The first step involves taking
about an hour to fill out a ques-
tionnaire that not only lists your
cash flow (how much is coming in
and how much is going out), but
also your financial goals (ie: saving
to buy a home) and wet worth (a
list of your assets versus your
liabilities), The. questionnaire also
serves to determine how much of a
risk taker you are, on a scale of
one to five.

McKay then plugged the infor-
mation into a computer program
that generated graphic images that
told me at a glance where my
money was coming from ard going
to. The infermation package con-
tained both tips specific to my sit-
uation, and a bundle of more
general information on tax tips,
inflation, statistics that show the
likelihood of becoming disabled,
tax shelters, wills, and such in-
vestments as commodities, op-
tions, futures, stocks, mutual
funds, annuities, life insurance,
term deposits and bonds.

The exercise told me that, out of
every $20 I earn, I save $2, pay $4
in tax, and spend $14. So at least
I’m tucking 10 per cent of my
paycheque away into a savings

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Reading information on inflation
based on the consumer price index
(a government measurement of
how much the same sampling of
goods and services costs each
year), I learned that the $1 I earn-
ed in 1971 was only worth 35 cents
in 1984. I can probably count on
an inflation rate of at least five per
cent per year.

And to prompt me into saving
more, McKay generated a calcula-
tion of how much money could

pass through my hands in the nest
40 years. For example, a 25-year-
old person earning $2,000 per
month can expect to see close to
$4.8 million pass through their
hands by age 65. (The chart
assumes a salary increase of seven
per cent per year).

Some of McKay’s conclusions:

If 1 want to accomplish my goal
of having $10,000 as a down pay-
ment for a home in five years’
time, I should be investing $175
per month at an after-tax rate of
return of at least eight per cent.

As well as starting a firm savings
plan, I should also be making
prepayments on my loan, to reduce
the amount of interest 1 will
ultimately pay.

To reduce taxes, I should con-
sider maximizing my uSe of the
Registered Retirement Savings
Plan program. The money in my
RRSP could be used as an
emergency fund, as a short term
source of funds in the event of my
becoming disabled, or as a means
of saving towards a home.

Because: 1 am young and want
my money to really grow, and
because 1 have no dependents and
am a risk taker, I should look into
inutual furds as an investment
vehicle.

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Name Phone No...

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