About Financial Triangle

Financial triangle offers free ebooks written by both industry professionals and independent financial authorities. Get expert level, in-depth information on topics ranging from budgeting to insurance to investing.

The Financial Triangle

The Financial Triangle is a concept that shows us the order of operations we should take when administering our finances – what we should do first, what we should do second, and so on. Starting from the base up, in order, the steps are:

  • 1) Cash Flow – Always the very first thing we must do and thus the base of our triangle. Before we can save or spend our money, we need to budget. Controlling our cash flow allows us to make decisions on what we spend, as well as evaluate tradeoffs between spending, debt repayment, and savings. Cash flow control must come before insurance or retirement savings, because without cash flow we can’t plan the next stages.
  • 2) Insurance – The second step in financial planning. Before we tackle our long term plans we must first guarantee the stability of our current cash flows and lifestyles. Life insurance, disability insurance and critical illness insurance are the three pillars of this section of the triangle. Insurance comes before savings and investing as we need to protect what we have today before we set aside for tomorrow.
1
Cash Flow
2
Insurance
3
Saving & Investing
4
Tax & Estate Planning
5
Investing
  • 3) Saving and Investing – in this step we plan for our retirement and long term goals such as home ownership and RESP’s. At this stage we look at how much we can save, the vehicles we can save in (RRSP’s, TFSA’s, and RESP’s). In this step we look at strategies such as index investing, canadian couch potato portfolios, and passive investing.
  • 4) Taxes and Estate Planning – With our long term financial goals realized, the next step on top of saving and investing is estate planning and tax minimization strategies. Many people will not get to this stage, but for those that have fully maximized their savings and investing strategies the next step is to maximize any remaining funds.
  • 5) Speculative and Advanced Investing – this stage is advanced financial planning. With all of our other financial needs fully met we can now start looking at other more advanced (and more risky) investment and tax strategies.