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financial planning

Men work on an oil well pump near Sweetwater, Texas on Dec. 23, 2014.LM Otero/The Associated Press

If someone were putting together a movie trailer about your financial planning for 2015, this might be the voice-over:

"In a world … where oil prices keep dropping and the dollar is down, they were told that interest rates could only go in one direction – up. Yet they couldn't let anything stop their mission – to plan their finances for the coming year."

It's a challenge every year for Canadians who are looking at their finances – deciding how much attention needs to be paid to day-to-day economic news, as well as longer-term forecasts.

The news doesn't matter as much as you might think, says Darren Coleman, senior vice-president and portfolio manager at Raymond James Ltd. in Toronto.

"You have to separate out the noise. Ask yourself, what does it mean from a planning perspective?" Mr. Coleman says.

"There's always going to be something in the headlines that causes alarm. The plan is what matters. The real key is, what's the plan?"

Investment planning and financial planning overlap – if one is going to invest, one needs to know how much money is available to do so, and which types of investments look best.

Mr. Coleman says that those who are planning their finances for 2015 should not ignore this year's economic forecasts entirely. Just be thoughtful about how to factor in what the projections mean.

The outlook for Canada's economy in 2015 is generally optimistic, yet mixed. CIBC World Markets recently dropped its growth forecast for the year from a previous projection of 2.7 per cent down to 2.2 per cent, while TD Economics predicts 2.3-per-cent growth because of a "significant downgrade" in oil prices.

Debt and housing

TD Economics' long-term forecast, issued in late December, also echoes concerns expressed by the Bank of Canada about heavy household debt. Canadians' indebtedness, combined with a lackluster job market and expected increases in interest rates, is likely to slow the still red-hot housing market "in an orderly fashion" this year, TD says.

For Canadian families these macroeconomic forecasts can be guides to the household decisions they will make during the year. The repeated warnings about high household debt are obviously a signal to pay off bills as much as possible, for example, and the predictions of interest-rate increases could affect peoples' decisions in the spring whether or not to go house hunting.

But forecasts are only part of the picture, Mr. Coleman says.

"It's easy to be pessimistic right now. But success lies in optimism."

Oil prices and interest rates

From the major 2015 forecasts, Mr. Coleman draws the point that, regardless of the longer-term impact, dropping oil prices are giving Canadians more disposable income right now.

"The fact that oil prices have changed so dramatically and so quickly is like a massive, instantaneous tax cut," Mr. Coleman says. "It's one of the fastest ways to put more money back in peoples' pockets immediately."

Like any windfall, it should not be squandered, he cautions.

"A big part of the year is to focus on the right things," Mr. Coleman explains. From his perspective, the extra cash that Canadians may now have because of lower gas and heating prices is more significant than interest hikes, which are widely predicted to kick in later this year.

"Concern about interest rates is more of a math problem. We believe interest rates are going to stay low for longer than expected. They may rise a bit, but not that much," he says.

Stock market volatility

Stock markets, including the TSX, have been turbulent in the past few months, but Mr. Coleman says that Canadians looking to be careful with investments in 2015 should look at the potential to draw income from their picks, rather than market volatility.

"A lot of clients say they would like to sit on the sidelines until they get a clearer picture," he says. But the picture is seldom clear, "and the math says it's actually worse for you when you miss the best days [invested in markets] than when you avoid the worst."

"What you're afraid of is probably not what you should be afraid of," he says.

Three tips

Mr. Coleman's general advice:

1) Look at dividend-paying investments and worry less about the price. "It's like being a landlord: Focus on the rent you're getting and not the price of the building."

2) Diversify your investments. Even if it hurts at times, you'll be safer in the long run. "We're all going to have to buy things we don't want at times. But it's better to be mostly right instead of really wrong.

3) Take advantage of tax deferral and tax-free vehicles such as registered retirement savings plans, tax free savings accounts and registered education savings plans. When you plan, make sure you understand the rules.

Most importantly, have a plan. "It's about discipline. It sounds easy, but it's hard," Mr. Coleman says.

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