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Why You Need a Financial Plan

| May 30, 2018
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If you care about your financial health, a financial plan makes good sense

A financial plan doesn’t only address the management of your money. It’s also about identifying your life goals:  some that you’ve already considered, and some you may have overlooked.  Going through the process itself will help you identify all of these and sort out your priorities. It will also be an excellent opportunity for you and your significant other to determine your mutual goals.

A comprehensive financial plan is just that: comprehensive.  Sure, it looks at all of your investments, but it also addresses the interrelated parts of your financial life:  income, expenses, asset protection, insurance, taxes, retirement planning, estate planning— to make sure they’re all coordinated.

Last but definitely not least, a good financial plan is actionable. It’s designed to give you concrete steps to take to help you move forward toward your goals, and it should be flexible enough to help you understand how to make adjustments if your goals change down the road.

What a financial plan will cover

A comprehensive financial plan should include the following:

  • A net worth statement—a financial “inventory” of what you own and what you owe. This helps understand exactly where you stand, and also gives you a benchmark against which to measure your progress toward your goals.
  • A cash flow analysis—so you can see how much money comes in and goes out every month. It’s the foundation for a budget, which should also separate your fixed costs from your discretionary ones – and it can help you get a handle on your debt.
  • A retirement forecast— documenting key assumptions, and determining steps needed to achieve success (e.g. not outliving your assets in retirement).
  • A plan for funding college education of children/grandchildren.
  • If nearing retirement, a cash flow plan detailing out your sources of income and what your investments will need to produce to meet your lifestyle needs.
  • An investment plan structured and allocated to help meet your goals (e.g. the income plan), time horizon, and risk profile.
  • A review of your insurance coverage— to ensure all key risks are evaluated and covered for the right amounts and lengths of time. This includes asset protection planning.
  • A review of your income tax profile, to identify opportunities for minimizing future taxes.
  • An evaluation of your estate plan— to help ensure you are able to take care of your loved ones according to your goals and leave the legacy you wish.

Putting all this together takes time and expertise—and that’s where an experienced financial planner comes in. By gathering your information, evaluating your financial status, and developing and helping you implement specific recommendations, a financial planner can help your get your financial life on track.

Working with a CERTIFIED FINANCIAL PLANNER professional

There are many types of financial planners. Consider working with a CERTIFIED FINANCIAL PLANNER (CFP®) professional. The individuals with this credential have completed extensive training, passed a rigorous test and are required to meet ongoing continuing education requirements.

The key is to find a financial planner that you trust and with whom you are personally comfortable. Many offer a complimentary initial consultation so you can ask questions to see if they will fit your needs. You might start with recommendations from friends, colleagues, other trusted professionals or consult the website: to find a CFP® practitioner.  Make an appointment for a consultation and, before you meet, make a list of questions. Ask about cost, background, types of services and number of clients.

An extra word about cost

Financial planners can be compensated in different ways. Some may charge an hourly fee; others may give you a set price based on the complexity of your financial situation. Be cautious when it comes to financial planners who are only paid by commission based on what they “sell” to you, versus giving you advice about your total financial picture. Consider how that inherent conflict of interest may impact his/her ability to provide you with the best and most objective advice for your situation.

Many people think a financial plan is only for the wealthy, but realistically, a financial plan can be well worth the time & cost for almost everyone, and can more than pay for itself if you follow the recommendations you receive. In fact, in today’s complicated financial world, it can well be the one guide you need most of all.  If you’d like to explore having an assessment of your own financial health via a comprehensive financial plan, feel free to give our offices a call.

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