Financial Planning: A Beginner's Guide

FINANCIAL PLANNING

-A BEGINNER’S GUIDE

By

Marc Beaudoin, MBA, MFisc

Philippe Beaudoin, MSc Finance

Pierre-Luc Bernier, BAA Finance

Translated by:

Patricia Guekjian, BA, CTrad

Kevin G. Mitchell

Distributed at Smashwords

© All rights reserved, Beaudoin, Rigolt + Associés, 2015

FINANCIAL PLANNING -A BEGINNER’S GUIDE

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to your favorite ebook retailer and purchase your own copy. Thank you for respecting the hard work of this author.

Although extensive research was conducted for this book, the authors and the editor assume no responsibility for errors, inaccuracies, omissions or contradictions that may be found. The reader should consult a professional in the area of finance for solutions to personal situations. All characters in this book are fictitious. Any resemblance to persons living or dead is strictly coincidental.

The authors and the editor request that you advise them of any error or omission as well as any other comment so that they can be taken into consideration for future editions of this work. You may use one of the following means of communication:

by facsimile: 819-566-5445

by email: (Marc@PlanificationFinance.com, Philippe@PlanificationFinance.com or Pierre-Luc@PlanificationFinance.com);

by regular post: 4050, rue Lesage, bureau 150

Sherbrooke (Québec) J1L 0B6.

© Copyright Beaudoin, Rigolt & Associés inc. 2015

4050, Lesage St., Suite 150, Sherbrooke (Québec) J1L 0B6

Tel.: 819-566-5470 or, toll-free, 1 866 566-5470

Preface

Financial Planning - A Beginner’s Guide deals with a subject usually considered dry and complex, but in a friendly and accessible manner. The authors tell the story of a father who hopes to explain the basics of financial planning to his young son who has recently graduated from high school. Attempting to discuss such mundane topics with a young man, certainly preoccupied with more pressing problems, is a challenge the authors ably overcome.

This book deals with another complex topic as well: father and son relationships. Many researchers have studied the importance of its role in the lives of young adults. Financial Planning - A Beginner’s Guide captures the dynamic of this relationship and explores it with situational challenges, jokes, humour and cooperation. An underlying message of love and friendship fills every page and demonstrates how enriching a father and son relationship can be. How appropriate, then, that two of the authors are themselves father and son. They share professions working together in the family financial consulting firm.

A weekend fishing trip in northern Quebec serves as the setting to a learning experience like no other. Key financial advice is passed on from father to son in a relaxed and friendly atmosphere and the reader is given permission to climb aboard and share in the experience.

Amateur fishermen themselves, the authors do not attempt to explain the methods of a successful fisherman (they’re still trying to figure that out...); they’re hoping more credence will be given to the financial notions they cover.

I am certainly not an expert in the field of finance. But like so many others, I have had to learn at my own expense through personal experience. What are the costs of not learning the notions of financial planning at a young age? How many mistakes and poor financial decisions could have been avoided had I known the basic concepts that the authors break down throughout this book. This reading has allowed me to clarify my own personal knowledge of finance. I knew about some of the concepts presented here, but they remained unclear - until now. No doubt, this book will help countless others, regardless of age or education.

The authors have provided chapter summaries which, in a few sentences, review key content discussed in previous pages, increasing the reader’s absorption of material.

The original way the father presents the information, and the easy bond between father and son help him assimilate unfamiliar and often complex concepts in a way that will warm your heart. Learning remains an active process and must be respectful of the person. In the same way a great teacher approaches instruction, the father tracks his son’s comprehension closely and supports theories with personal experiences. Like Socrates and his disciples, it is through dialogue and reflection that one may truly gain knowledge.

We are all vulnerable to today’s aggressive marketing strategies in our society of outrageous consumerism, and youth is even more vulnerable. This book advocates economic principles and rationality. It establishes the difference between needs and wants and demonstrates the importance of thinking before you act. It supports the values of responsible individuals in control of their finances and financial future, values too often thrown by the wayside in today’s economic environment.

I wish a plentiful catch of readers for the authors and hope that they enjoy learning and re-learning throughout the trip as much as I did.

Jean-Claude Thouin

Family friend

Table of Content

Preface

Introduction

Chapter 1: Economy and finance 101

Chapter 2: The financial markets

Chapter 3: Personal finance

Chapter 4: Matrimonial regimes

Chapter 5: Insurance

Chapter 6: Wills (for residents of Quebec)

Chapter 7: Real estate

Chapter 8: Investments and mutual funds (the basics)

Chapter 9: Retirement planning and tax issues

Chapter 10: Investments and mutual funds (advanced)

Chapter 11: Borrowing to invest

Conclusion

Epilogue – 10 years later

Index - Lexicon

Introduction

Summer is finally here. People are strolling about, smiling, without a care in the world. Happiness and tranquility prevail. It is the end of the afternoon, on a hot and sunny Thursday in the month of June, and I’m not in school. I’ve been waiting for this moment for a long time. Don’t worry. I’m not playing hooky... well, not today anyhow... I had my final exam this morning; an Economics exam actually. I really don’t care about Economics but I should pass nonetheless. I know how important it is to know about the economy and all that stuff but that doesn’t make me like it any better. I can hear my Dad’s voice (his name is Frank) repeating over and over again, that education in economics is a great asset, blah, blah, blah... you need it when you’re older, blah, blah, blah, you get the picture.

I’m sure I’ve passed my other exams too. School has never really been my thing yet I’ve kept my grades a tad above average with the least amount of effort. I’m aware that a minimum of education is required nowadays so we all have to go to school and take these types of courses, whether we like it or not. So I keep at it, like everyone else...

But not anymore! I’m done with school! Well, I’m done with high school...

Gone are my days of taking courses I have no interest in. I’m College bound! A whole new slew of useless courses await! Kidding aside, I will get to take classes I am actually interested in; core courses in my program: nursing. Now, I know what you’re thinking: Nursing is for girls, am I right? Why does a guy like me want to be a nurse? I’ve always wanted to help and take care of people, especially since Grandma Jones died.

Something else is keeping this smile on my face. As a graduation present, my father is taking me on a fishing trip to Lac St-Jean, a beautiful place in northern Quebec. I’m packing my bags as we speak. We’re heading out to an outfitter, 60 kilometres past St-Felicien, towards Chibougamau. I’ve been a fishing fanatic ever since my Dad took me on my first outing years ago. There’s a picture of me when I was 4, smiling ear to ear holding a homemade fishing pole my mother (Monica) made me. She says she made it the day the picture was taken. Apparently, I kept crying because I wanted a fishing pole, just like Dad.

Matthew Anderson! Turn that music down!

Mom has just come in.... few options here, so I lower the volume... it may have been a little too loud but I didn’t want to hear the phone ring. It’s never for me. It’s always for my Mom or Julie, my little sister.

My Mom uses my full name when she’s annoyed. We tease her because she gets mad at me for the things I do like my father. Sometimes I’ll do the same and call her ‘Monica Jones’. That never really goes over too well. You see, Mom doesn’t like to be teased, making it next to impossible to resist...

My friends have always found my love of fishing a little strange because of my age. Kids are rarely interested in a sport like fishing. Don’t even go there! Fishing is definitely a sport! Hey, if speed-walking is considered a sport, then fishing certainly is one too... It’s an activity that improves your patience for one thing. And if you’ve never experienced pulling a big one out of the water, you can’t imagine the workout it provides! The thrill of the catch and the joy you get from reeling in a big one are tremendously exciting and rewarding. Fishing isn’t just about putting your pole in the water and waiting for a fish to come and nibble the worm. You’re often forced to step through uncharted waters, essential to finding the best spots. Fly fishing for example requires an incredible sense of balance and leg strength to stand in rivers with strong currents.

One of the scariest things that could ever happen to you is to be carried away by a strong river current. I know that firsthand. I once split my elbow open on a rock after I was carried away. I lost everything, my pole, my lures, and Big Tom’s car keys. Big Tom is my father’s best friend. He had asked me to hold onto his keys and I forgot to snap the flaps on my fishing vest to close them. When the water grabbed hold of me, the keys didn’t stand a chance. I was taken downstream and was completely disoriented when I finally (luckily!) came to a stop. I had no idea where I was. No sign of life in any direction and no means of communication. After what seemed like an eternity, Dad could see a shiny object in the distance. The reflection of the sun off the famous keys gave my location away. I had been missing for a little over a half hour. A pretty big scare, as you can surely imagine.

Dad is the true fisherman of the family. Mom doesn’t like to fish as much as Dad and I, but tries to come out with us every once in a while, especially when we go out on Lac Megantic. She works as a waitress in a local restaurant and sometimes works the weekend shift because, as she says, that’s when it pays most. But when she can, she’s out on the water with us, enjoying the fresh air.

We usually go to Big Tom’s place. Tom has a cottage on Lac Megantic and lets us use his fishing boat, ‘Rhonda’. The cottage is about an hour and fifteen minutes from here. ‘Here’ refers to the outskirts of Sherbrooke, Quebec, in a residential area called Rock Forest. I’ve lived here all my life. The convenience of the big city of Sherbrooke just next door to Rock Forest’s beauty: lakes, mountains and eye-catching countryside... I couldn’t ask for more.

Last summer, while out on Lac Megantic, a falcon dropped from the sky right before our eyes to trap a fish in its claws less than 200 metres from the boat. It was one of those moments where you wish you had a camera but in some way, were glad you didn’t. We sat in awe. Nature’s beauty, power and stealth caught in a single instant.

If the whole family is out on the water together, Mom and Julie are usually tanning, enjoying the sun. Dad and I are always deep in fishing thoughts, busy trying to catch the evening’s supper. These are our most peaceful moments together. My sister, a typical teenager in full hormonal crisis, yells pretty much all the time, at pretty much anything, except however, when Dad and I are fishing.

Dad has taken the day off tomorrow. We’ll head out sometime after lunch and should be back by Monday night, which happens to be Saint-Jean Baptiste day, Quebec’s provincial holiday. Dad works in the pulp and paper industry and like me, didn’t like school. He had a few jobs until he decided to learn a trade and then studied to become a machinist. He’s been employed ever since.

Dad booked a 3-night stay with a remote outfitter. We’ll have a log cabin, fishing boat and unlimited lake access. He says this is how he wanted to congratulate me for graduating and that he wanted to talk about something in particular this weekend. We may need a few topics of conversation during all that time on the water, anyhow. Not that I’m worried we’ll run out of things to say but we’re going to be alone for over 3 days. We’ll have all the time we need.

I’ve finished packing my bags and I can hear my father packing upstairs. We’ll be stopping at the fishing supplies store tomorrow afternoon on the way there to pick up anything we may have missed.

Later on in the evening, Dad shows me the itinerary of our weekend getaway. We’ll leave for Trois-Rivieres and drive through La Tuque, towards Chambord. From there, we connect with the road that borders the lake we’ll be fishing on. The drive will be about 5 hours.

With the itinerary revealed, we leave for the grocery store to buy the weekend’s food supply. Your typical fishing excursion commodities: cold cuts, bread, soft drinks, chips, cookies and cold beer. Mom, bless her heart, prepares sandwiches and packs the cooler; the final touch.

Dad has a limitless supply of energy when it comes to fishing trips. He’s managed to tire me out for the evening and we haven’t even left. I head off to bed for some much needed sleep but end up talking on the phone with my girlfriend, Valerie.

Valerie transferred in from another school at the beginning of the year. I liked her the moment I saw her. For me, speaking to girls requires major mental preparation and one heck of a last-minute confidence boost. You could say that I’m a little on the shy side. I mustered enough courage to ask her out a little after Christmas. From then on, we started seeing each other regularly and a month and a half later, we were an item. She’s my first serious girlfriend. Valerie doesn’t yet understand my passion for fishing, but listens attentively as I describe the fishing schedule for the weekend. I promise to take her to Mont Orford upon my return, and after a goodnight kiss, we hang up.

The next day, I’m out of bed at nine and loaf around most of the morning. We have a surprisingly warm and peaceful family brunch at home before Dad and I leave. What’s gotten into my sister?

I can’t tell you how excited I am about this trip. I haven’t stopped thinking about it ever since my Dad told me in February. I’m sure Dad hasn’t either.

At 3 PM, we make our stop at the fishing supplies store and pick up the rest of the stuff. We should get there at 8 PM.

Matthew, do you have any idea what it is that I want to talk to you about this weekend?

Not the slightest clue, Dad.

Take a guess.

I honestly don’t have the slightest clue. My father’s very hard to predict. Can this be about something I did wrong? It