A Good Financial Plan is an Accurate Road Map to the Future
If your financial plan contains the words “lottery ticket,” you’re not taking your future seriously.
A financial plan is a road map, of sorts − as clear and accurate as possible − that can help you determine:
- Where you’re situated financially
- The direction you should be heading
- What it might take to reach your destination
After all, you wouldn’t set off on a journey through a strange land without some kind of help − a map, a compass, even a guide.
It’s never too late to plan
Regardless of how near or far you may be from retirement, it’s never too late to create a financial plan.
The future is too important − and many people make poor financial decisions because they don’t know where they are or if they’re headed in the right direction.
What a plan should include
A financial plan can be either loosely structured or highly detailed, based on your individual needs. Written on a legal pad or imported onto a spreadsheet. With either approach, your financial plan should be a true picture of your current financial health and a realistic view of your goals (short-term, intermediate and long-term).
To be useful, it also should be updated as your needs and life situation changes and reviewed at least annually.
More than a list of investments
A realistic financial plan is not simply a list of your investments.
Investing may be a major part, but a comprehensive plan also should address such things as insurance, debt, cash flow management and estate planning and the seemingly mundane, as well − taxes, inflation, investment expenses, etc.
The investment professional as guide
Your investment professional can help you create a comprehensive financial plan and − just as importantly − work with you to keep it updated as your lifestyle, conditions and objectives change.
Getting started on your plan
Here are 10 things to consider or questions to answer as you prepare your financial plan:
- Your goals. Where do you want to be − and expect to be − in 10, 20, 30 years? Remember that you may be living in retirement longer than you think.
- An estimate of your longevity. There’s a 50-50 chance that at least one partner from a couple in their 60s today will live to age 95, so be optimistic.
- Your wages, debt payments and living/household expenses and other budget items. You’ll need to figure out how much you can afford to contribute to your plan.
- A list of your assets. Take stock of, well, stocks, bonds and other pieces of your investment portfolio, as well as savings accounts, retirement plans and the equity in your home.
- The kind of lifestyle you have now and what will you want or need later on. How will you be able to pay for the lifestyle you want?
- Your current savings plan. How much money are you saving now? Where is it going − savings account, Roth IRA, etc. Is it enough to help fund your future? And at what point do you expect to start using your savings for living expenses.
- Your level of investment risk − now and in the future. Are you comfortable with the investment risk you’re taking with your investments? Or does it need to change to better reflect your own situation or the state of the economy?
- Take a hard look at what income you may have in retirement. Research your Social Security benefits and look into any dividend, pension or other income.
- An estate plan. More than a will, an estate plan can ease the burden on your loved ones, ensure your assets are distributed as you wish, reduce taxes and plan your own personal and health care.
- An emergency fund. How would you pay for an unexpected event − flooded basement, extended illness, job loss, etc.?
Take the next steps
For more information about creating a financial plan, contact your investment professional.