When we begin our financial planning after the debt bubble crisis the world has experienced from 2007-2009, we should include a debt reduction plan. This is especially true if we have several credit cards  that charge high  interest. Compound interest at high credit card rates is mathematically viewed as negative investing. At 5%, all compound interest (or gains) can be added back into your initial investment and grow. Conversely, the average credit card rate is  approximately 15%.  Imagine tripling an investment illustration from 5% to 15%, yet subtracting this amount from your investment portfolio! Credit card debt is a heavy drag on cash flow. Become a millionaire by paying yourself and not the credit card company.

Debt has a heavy drag affect on your investment

Large credit card debt can blow an otherwise healthy financial plan because debt is a liability in your net worth that negates your wealth. If you have very little money to invest, lower debt where you can as quickly as possible (aside from mortgage debt which is normal). You cannot beat the mathematics of debt reduction, aside from some tax relief in your RRSP.

At 15% interest, you will have no money at the end of 7 years. Start paying yourself by paying down your high credit card debt.

The more debt you have to clean up, the more it costs in investment time

One of the other startling negatives of debt is that it defers your ability to invest until after the debt is dealt with, which for many can take two to five years or more.

You can use a spreadsheet and list a running balance of all credit card debts, along with any other debt you hold. Clarify and set reasonable budgets while reducing this debt. Then begin to increase your investing to meet your retirement goals.

. . . we must make absolutely certain that private debts do not ever reach proportions which will constitute a national peril.—Marcus Tullius Cicero (106-43 BC)

Why it is important to know your cash flow

Once you understand how to work the math, make a spreadsheet and examine your available monthly cash flow (where applicable, total family income), plus other cash sources per month—because this is what keeps you solvent while paying your bills. Treat your personal finances like a business - always know what your income is, versus your expenses. This will include:

• your employer income, and bonuses,
• part time income,
• income from a business.

A cash flow reckoning is something that should not be over-looked while we plan for the future, thinking of our distant retirement—which is also important. Discretionary income is our cash flow left over after the bills are paid. It determines how much you can save for emergencies, holidays, and invest in your investment fund portfolio—in order to increase your net worth for retirement later.

Discerning the true picture of your financial affairs

Even when you know your net worth, your cash flow statement can reveal important information how much you are depending on non-income-generating assets for security such as:

• a large home asset and its decorum;
• shares of a business nobody will ever buy;
• a boat or a cottage.

Assets that cannot create cash flow, pay down debt, put food on the table or pay your municipal taxes, must be viewed as non-liquid assets.

When you do that analysis, and put the math on the table, you can see the truth. Then maximize the use of your disposable income to invest as much as you can in your retirement portfolio and/or use an RRSP. Now examine the chart below to see if it is possible to reach your first million dollars by retirement time.

Attitude affects your financial altitude

If you have not been able to develop a financial plan, look for repeating patterns of defeat and ask your advisor to instill accountability in the planning process. It is quite normal to have a little fear as you begin investing, especially if it is a new process for you. Face reality. Just as everyone is born, and dies, there will be a retirement period somewhere inbetween. Thus replace any tendency toward believing in fantasies such as winning the lottery or that you can build and attain your own wealth overnight.

As for one's financial affairs it is a duty to make money; but this must only be done by honest means. It is also a duty to save money, by care and thrift, and to increase what one has got by similar methods.
—Marcus Tullius Cicero (106-43 BC)

Here are a few more planning items to add to your TO DO list

• Establish an emergency fund equal to three months' pay
• Buy adequate life and disability insurance
• Plan for retirement using diversified investments
• Reduce taxes using RRSPs
• Set up special income tax splitting strategies
• Shop for competitive mortgage rates
• Save for a child's education if applicable
• Put money aside for vacations
• Involve your spouse or other individuals as you plan
• Set timelines with stated deadlines
• Believe in long-term investment plans
• Establish an estate to leave to your heirs
• Make adjustments as your situation evolves and if investments are not performing
• Mark dates in your day planner for review
• Review your progress in the short-term with a financial advisor