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Why A Financial Plan Is Important To You

Insights

“Planning is bringing the future into the present so that you can do something about it now.”

― Alan Lakein


We have begun the process of reopening our economy after a disastrous few months that has tested us physically, emotionally, and financially.  Many have realized that they were caught unprepared for such a monumental shift in their financial lives.  Do I have enough in emergency funds in case I lose my job?  Am I too heavily invested in the markets?  Am I prepared in the event that a family member becomes sick or worse?  These are all questions that you may have had in the past but become top of mind in a crisis situation.  Having a financial plan in place allows one to envision some of these risks and put in place the resources to help mitigate them as they arise.  That said, financial planning isn’t just about preparing for the worst.  A carefully crafted plan prepares you for the good times as well as the challenges.  Buying a car or planning your vacation should be exciting and fun, and not necessarily have to entail the “worry” of how to pay for it.  If you have been implementing your plan, those funds should be there.  You don’t have to feel frustration as you prepare to pay for your children’s education, if you’ve done the groundwork and laid a foundation to get you there.  Of course, there will always be unplanned events in our lives, but we can face them with an added dose of resilience with the power of the plan behind us.  

 4 Reasons Why you Need A Plan

A comprehensive financial plan starts with clarifying the things that are most important in a client’s life.  Taking stock of the values and goals that will make for your best lived life is a thought exercise that offers certainty and empowerment.  Armed with this information, your planner is able to create an actionable template to help achieve your most important priorities.  Here are four money management ideals and an example of some of the necessary components of a comprehensive financial plan.  

1. Keeping What You Have

  •  Insurance- This includes an assessment of current insurance and potential future needs.  Are you covered in a way that protects        yourself and loved ones in the most cost-efficient manner?  
  •  Estate Planning- Evaluating needs for a last will and testament, a healthcare power of attorney/living will, a financial power of attorney, and Trust planning are all potential components of your estate plan.  
  • Tax Planning- Tax planning offers a means to keeping more of what you have by making sure you are maximizing efficiencies

2. Knowing Where It’s going

  • Cash Flow Analysis- A personal balance sheet that determines your net worth is a good first step in knowing what you have.  From there your planner can evaluate your income and expenses to optimize how and when money is saved and spent.  The plan will serve as your guide for making decisions about best practices with your money over the course of your life.  
  • Debt Management- There are many varied attitudes toward debt.  Some have a preference for a debt free life, while others have a more strategic view.  The point is that your plan should take into account your personal feelings toward debt and how it gets paid.  Whether it’s credit card, student loan, or a mortgage, your plan should allow you to tackle it in a manner that best works for you.

3. Growing It

  • Investment Management- Growing your money involves investing in a way that best articulates your views and comfort level.  Whether through Real Estate, Stocks, Bonds, or Commodities among others, the plan should address a number of factors in order to be customized to your needs.  Maybe you have a preference, or a knowledge base steeped in a particular asset class.  Or you may wish to only invest in assets that stress environmental, social or corporate governance issues.  These are all valid and should be expressed in your plan.   
  • Time Horizon- The plan needs to account for the accrual of assets over your life as well as when you will be needing them.  While this may change as your life interests and circumstance change, having the template in place may allow for less disruption when your course varies.  
  • Risk Tolerance- The plan must account for your attitude towards risk.  Everyone has a different view of risk and how it applies to their lives.  There is not a correct or “one size fits all” approach to risk. The plan should recognize and deliver prudent investment advice as it pertains to your view.  

4. Living with Grace and Autonomy in Retirement

  • The ultimate goal of your plan should be to have you live in a way that affords comfort as you age.  This means living independently and with dignity, utilizing the best mix of retirement funds, social security, and Medicare.  This combined with a strategy for long term care, if necessary, can offer piece of mind as you move through the later stages of your life. 

Who Needs A Financial Plan?

A financial plan is a valuable tool for everyone but has different priorities and goals depending on your stage of life and personal situation. As you move through the stages of your life, with its many blessings and disruptions, your plan should have the ability to adapt to your circumstance.  The plan is a living document that allows you to make decisions with confidence, knowing that you have prepared for what may come before you.   Below are 5 broad life stages and some typical planning opportunities that may arise.

 1. Early Career

  • Budgeting and Cashflow analysis
  • Start saving to a retirement account
  • Create a plan for paying down credit card and student loan debt
  • Explore disability insurance

2. Family and Career Building

  • Insurance Review- life, health, disability insurance update
  • Estate plan review and will preparation
  • Child education saving
  • Growing your savings and investment

3. Pre-Retirement

  • Paying down mortgage and debts
  • Late stage college planning
  • Explore life/career changes
  • Explore retirement needs and make required adjustments

4. Early Retirement

  • Budgeting needs
  • Update estate plan and will
  • Develop a strategy for turning retirement savings and pension to income
  • Reduce tax friction

5. Late Stage Retirment

  • Tax optimization
  • Long term healthcare considerations
  • estate plan updates

These are just some of the considerations that arise in your planning horizon but can offer a view into how a properly crafted financial plan can alleviate concern as it serves as your guide toward each life stage.  

Transitions


In addition to life stage planning, there may come a time where you find yourself in an unplanned transition.  Divorce, job loss, and death in the family are all examples of unforeseen circumstances that have a profound effect on your life and will likely lead to changes in what you see as important, necessitating a new look at your financial priorities.  In these instances, working with a planner that can help you work through your emotions in order to clarify your new goals and priorities is key to creating a template to help you overcome adversity and thrive.  

 

Our personal finances serve as a tool to enjoy the fruits of our hard work.  Earning our way in the world, supporting our families, and retiring in a way that respects our working life is at the heart of our shared experience.  A financial plan can offer focus and relieve the nagging stress that comes from constantly thinking about your next steps.