Good Offence and Defence: Parts of a Sound Financial Plan
Updated: Aug 20, 2020
The month of August is upon us and the hockey playoffs are under way. Both the Habs and Maple Leafs (and all the other Canadian teams, except the Sens) have a chance to win the Stanley Cup. Just another example of how 2020 is not a typical year, but nonetheless, discussions abound about what it takes to build a championship team. Some will argue great teams are built on a solid defence, others will say a high-powered offense is the key. I think most can agree you need both to finish on top.
Similarly, a thorough financial plan should address your “offense” and “defence” so that you may reach your goals and avoid any unpleasant surprises or weaknesses that could set you back. Just like every player has a role that fits within the team strategy for success, every element of a financial plan is linked to the others and reinforces the plan itself.
In financial planning, you can think of your offense as the area that will grow your net worth to reach various goals such as retirement, major purchases, post-secondary education for kids, and more. Your offensive players include cash management, savings strategies, investment management and tax planning. Growing your net worth would be the equivalent of scoring goals. Just as you can’t win a match if you don’t score, you cannot reach your financial goals if you don’t increase your net worth. The offensive part of your plan is largely something that you can control like the amounts that you will invest and the decisions you will make with the help of experts for your investment strategies and tax planning.
As for the defence, while its role in sports is to stop the other team from scoring, in financial planning, your defence is there to prevent significant setbacks to reaching your goals. This is where insurance and risk management, wills, powers of attorney and estate planning come into play. The defensive part of your plan is there largely to protect you in situations that are out of your control.
Then you have some elements, like an emergency fund, that are both offensive and defensive tools, just like a defensive forward in hockey. Saving money for emergencies will increase your net worth and if you don’t use it to cover unforeseen expenses, it can be used to fulfil your other financial goals. However, if something happens that affects your cash flow, such as a job loss, disability or lower business revenue as many have seen with the COVID-19 pandemic, having an emergency fund will help soften the blow and prevent the derailment of your financial plan.
If there are no defensive elements to your financial plan, you risk having an event that is out of your control prevent you from reaching your goals by destabilizing your offensive strategies. And of course, if your plan does not have offensive elements, goals will be difficult if not impossible to reach.
Finally, behind every winning team, there are coaches: a head coach that oversees all the aspects of the game plan and assistant coaches that focus on specific elements of the plan. Surrounding yourself with a team of experts – financial planner, accountant, lawyer, tax expert – will help you develop and implement the winning strategies best suited for you.
This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. For complex matters you should always seek help from a professional. Any opinions expressed are my own and may not reflect those of Louisbourg Investments.
Marc André Castonguay, CFP®, CIM® is a financial planning manager with Louisbourg Investments. Comments or questions may be submitted to him at email@example.com.