What exactly is a financial plan? These words are used by many industry professionals, and there is no governing body that defines them, so I intend to “take back” the words Financial Planning and use them in a way that’s meaningful to investors and savers.
Financial Planning takes “money management” to new heights, determining how to best plan for your future, while living the life you enjoy, today. The basis of your financial plan is your goals – your plans for retirement, saving for college or even that second home. You’ll find that once you’ve set your goals and built a plan to deliver them the burden of “am I saving enough” is lifted. You know you’re on the right track to financial freedom.
A comprehensive financial plan goes beyond saving and spending and delves in to each part of your financial picture: investment assets, retirement assets, insurance, tax planning and estate planning. If you’re not working on all of these areas, you’re not properly building and protecting your wealth.
Know what you’re paying your Financial Planner and that he’s working only for you. Financial professionals earn their income in several different ways – fee-only, commission, or, fees and commission. Fee-only means that the advisor charges you based on an hourly, annual or asset-based basis for financial advice. In this case, the advisor has no reason to sell you a specific investment that may not be in your best interest. There may be some conflict of interest, though, when a financial professional earns a commission or referral fee. In this case, the advisor may earn a large fee if your purchase a certain security or investment vehicle.
You need a plan at every stage of your life. Whether you are in the earliest stages of wealth creation, building wealth in your hard-working years, or sustaining your lifestyle while protecting the wealth you’ve built, it’s never too soon and never too late to start. Each stage of your life calls for a new plan – in your career, your personal life and your finances. Each “life event” brings with it new challenges and new goals – saving for college, a new home, life insurance, and estate planning. Make sure you’re on track at all times by reviewing your financial plan annually.
Financial Planning is for the long-term. Having a financial planner who knows you, understands your values, family history, and life events can prove invaluable when it comes time to make impactful financial decisions. You Financial Planner must provide you the attention to detail that your portfolio deserves and ensure that all of your asset investments align with your goals.
An independent financial planner can give you an unbiased recommendation on planning, saving and preparing for your future. Your comprehensive financial plan should include recommendations on how much to save for each goal and where to invest it, how much insurance is appropriate for you at this stage of life, recommendations for reducing taxes through tax-efficient investing and deductions, and, how to best protect the wealth you’ve built with your estate plan.
As you can see, all of these areas work together – decisions on estate planning cannot be made without full understanding of your investment strategy. Similarly, tax savings are inextricably linked to saving for retirement and college. This is the true beauty of a comprehensive financial plan that is built personally for you, and is reviewed and updated regularly.