Financial planning is multifaceted.
A customized financial plan should consider all of the following (and more):
Cash Flow Management
How much money are you making, spending, and saving?
What is your savings rate?
Do you have an adequate emergency fund?
Where should you hold that emergency fund to obtain the highest risk-adjusted return?
Debt Management
How much debt? At what interest rate? What are the minimum monthly payments?
Do you qualify for any Government loan forgiveness programs?
Should you prioritize debt repayment over saving and investing?
Real Estate
Do you own a home, rent, or something else?
Should you refinance your mortgage?
Should you use a HELOC as an emergency fund?
Should you consider a reverse mortgage during retirement?
Education Planning
Do you want to return to school? Do other members of your family?
What funding vehicles are available, and which is most appropriate given your situation?
If you can’t do both, should you save for college or fund your retirement?
Career Planning
What is your career and income potential?
Do you enjoy your work, or are you looking for something different?
What benefits are offered at your job? Are you properly utilizing them, or paying for unnecessary benefits?
Investing
How much are you paying in fees and what are the available investment options?
Are you utilizing available retirement plans?
Does Traditional or Roth make more sense for you?
How risky are your investments, given your risk tolerance?
Insurance
Do you have adequate coverage for your home, cars, etc.?
Do you need life insurance, disability insurance, or an umbrella policy?
Should you consider switching providers to save money?
Retirement Planning
Do you have adequate savings to fund your retirement?
Should you consider purchasing an annuity to provide guaranteed income?
How can we plan retirement income distributions to minimize the tax burden?
Estate Planning
Have you completed the essential estate planning documents (will, power of attorney, etc.)?
Will you have a taxable estate? If so, how can we minimize taxation?
Should you consider whole life insurance or a trust?
Sound financial planning requires a significant investment in human capital, and a competent financial planner should have a thorough understanding of the content areas described above. Without this knowledge base, how can a planner add value to your life?
There are some great financial planners out there, and some terrible ones. It’s mixed bag, and I’ve seen numerous brokers masquerading as financial planners, despite having zero financial planning education. An individual’s level of education, training and experience will make a big difference in their ability to provide sound financial advice.
Why Does it Matter?
Financial planning can improve many aspects of your life:
Clarity for your financial life – Knowing your cash flows can help you identify problem areas, and can ultimately help you better manage the resources available to you.
A positive mentality – Taking control of your financial situation can improve your outlook on life. Instead of being worried or anxious about money, you can rest assured knowing that your money is being used to fund your goals and dreams.
More confidence – According to a CFP Board survey, 52% of those with a financial plan feel “very confident” about managing their money. Only 30% of those without a plan feel the same way. Having a tailored financial plan helps you feel in control of your finances.
More wealth – That same survey, among other research, shows that financial planning often leads to high levels of wealth for clients. You won’t get rich overnight, but a financial plan can help you be more intentional with your spending, saving, and investing decisions.
This article was republished with permission from Cash Cow Couple.