Owning a new home, starting a business, or retiring comfortably - each of these financial goals come with a price tag, which is why it is integral to develop a plan for achieving them. Financial planning is a process that aids individuals in mapping out these goals by evaluating one’s entire financial picture, then outlining strategies that address individualized needs and available resources.
Why is financial planning important?
A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you will be better able to focus on your goals and truly understand what it will take to reach them.
One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly illustrate how your financial goals are related--for example, how saving for your children's college education might impact your ability to save for retirement. Once a plan is in place, your financial advisor will assist you in prioritizing your objectives, implementing specific strategies, and choosing the appropriate tools for attaining your goals. Most importantly, a financial plan provides a sense of comfort as you now have a clear path to reaching your financial security.
The financial planning process
Creating and implementing a comprehensive financial plan generally involves working with financial professionals to:
Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities, as well as evaluating your insurance coverage, investment portfolio, tax exposure, and estate plan
Establish and prioritize financial goals and time frames for achieving these goals
Implement strategies that address your current financial weaknesses and build upon your financial strengths
Choose specific products and services that are tailored to your financial objectives
Monitor your plan, making adjustments as your goals, time frames, or circumstances change
Let’s look at a hypothetical example of how one family utilized a financial plan:
Tom, an OBGYN, was reviewing his personal finances in an effort to determine a timeframe for his retirement. At 53, Tom has spent the last 20 years working hard to save money and manage a budget on his own. Tom knew he needed to save if he ever wanted to retire, and he has done a good job maximizing his workplace retirement plan so far, but he wants to ensure that he is on track to support his family’s goals with the assets he has built. Recognizing the increased complexity of his finances, Tom decided to meet with a professional in an effort to become more confident in his current and future financial decisions.
Tom and his wife, Jill, met with a financial advisor a few days later. After time spent discussing their family goals and the type of lifestyle they would like to maintain in retirement, the advisor recommended they work together to create a strategy that would include their personal values while reaching their lifestyle goals. This allowed them to peer into the future through cash flow projections that were inflated over time, taxation analysis running spending and income through Form 1040, and included baseline retirement expenses they had not even considered such as Medicare Supplements. Having this valuable information allows for a dynamic plan that helps them not only with current necessary changes, including how to fund college, appropriate 401(k) and taxable investment account allocations, and a well-designed estate plan, but it also helps to narrow in on possible dates of retirement, the ability to purchase a vacation home, and even design future gifts to their alma mater.
Some members of the team
The financial planning process can involve various different professionals. Our role as a financial planner, along with other key members, is described below:
Financial planners play a central role in the process, focusing on your overall financial plan while also coordinating the activities of other professionals who have expertise in specific areas. They typically provide advice about investment options and asset allocation and can help you plan a strategy to manage your investment portfolio.
Accountants or tax attorneys provide advice on federal and state tax issues.
Estate planning attorneys help you plan your estate and give advice on transferring and managing your assets before and after your death.
The most important member of the team, however, is you. Your needs and objectives drive the team, and once you've carefully considered any recommendations, all final decisions rest in your hands.
Staying on track
The financial planning process doesn't end once your initial plan has been created. Your plan should generally be reviewed at least once a year to make sure that it's up-to-date. It's also possible that you'll need to modify your plan due to changes in your personal circumstances or the economy.
Here are some of the events that might trigger a review of your financial plan:
• Your goals or time horizons change
• You experience a life-changing event such as marriage, the birth of a child, health problems, or a job loss
• You have a specific or immediate financial planning need (e.g., drafting a will, managing a distribution from a retirement account, paying long-term care expenses)
• Your income or expenses substantially increase or decrease
• Your portfolio has performed significantly better or worse than expected
• You're affected by changes to tax laws
Common questions about financial planning
Why can't I do it myself?
You can, if you have enough time and knowledge, but developing a comprehensive financial plan may require expertise in several areas. A financial professional can give you objective information and help you weigh your alternatives, saving you time and ensuring that all angles of your financial picture are covered.
What if I'm too busy?
Don't wait until you're in the midst of a financial crisis to begin the planning process. The sooner you start, the more options you may have.
Is the financial planning process complicated?
Each financial plan is tailored to the needs of the individual, so how complicated the process will be depends entirely on your individual circumstances. No matter the type of assistance you require, a financial professional will work hard to make the process as easy as possible, gladly providing answers to any questions.
What if my spouse and I disagree?
A financial professional is trained to listen to your concerns, identify any underlying issues, and help you find common ground.
Can I still control my own finances?
Financial planning professionals make recommendations, not decisions. You retain control over your finances. Recommendations will be based on your needs, values, goals, and time frames. You decide which recommendations to follow, then work with a financial professional to implement them.
Securities and investment advisory services offered through Securian Financial Services, Inc., Member FINRA/SIPC. Strategic Financial Partners is independently owned and operated. 1755 Telstar Drive, Suite 501, Colorado Springs, CO 80920. Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts. These product recommendations are not part of the financial plan and you are under no obligation to follow them. Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. The hypothetical example used in this article is for illustrative purposes only. 192795 DOFU 10202017