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Creating a Financial Plan- How do I create one?

| January 30, 2019

Great!  You’ve made it this far.  My previous posts on spending plans and why a financial plan is important coincide with how you create a financial plan.  A lot of you might be saying, “yes, I want a plan”, but don’t know where to begin and that’s ok.  I imagine a lot of you didn’t go to school for finance or maybe can’t remember back that far from your personal finance class.  There’s a reason why I started out first talking about a spending plan, because financial planning begins and ends with knowing and owning your spending plan.  Next, you’ll need to take inventory of all your investment accounts along with your checking and savings.  Here’s a list of some you could potentially have:  401k, 403(b), Traditional IRA, Roth IRA, Individual, Joint, health savings account, and 529- college savings account.  There are some platforms that help link or aggregate all of your accounts onto one easy-to-use interface.  Do yourself a favor.  Make it easier on yourself and find a platform that will do the same for you.  At some point, you are most likely going to use these  accounts to help support your eventual retirement, future college expenses, or for supplementing Social Security.  Now, I understand not everyone is Warren Buffet and wants to work into their 90s and that’s ok, but we are in a different time where folks are working part-time, consulting, or doing a side hustle while in “retirement.”  We’re also going to include all forms of risk management.  That means you’re going to assess any life insurance, disability insurance, long-term care insurance, or even an umbrella policy.  This is important because you might find out that you’re under-insured, and it’s important just even doing a simple beneficiary review to make sure in the event of a death that the right person is receiving the correct funds.  I can’t tell you enough how important that is!  An often overlooked step in financial planning is in regards to estate planning and how you intend to leave a legacy.  I’ll go into further detail at another time, because estate planning is a bit more complicated.  Not everyone is fortunate to come from a wealthy family, but whether your wealthy or not, you should still have a conversation with your family and parents to discuss if there are any future inheritances.  There are strategies that seek to control how much is lost to taxes and that it doesn’t go to probate.  You’re also going to want to account for any pension or other income streams.  Other income streams could be rental property income, part-time work, etc.  An often overlooked aspect of financial planning is optimizing social security.  This isn’t the time nor the place to discuss whether it will be here 10, 20, 30 years down the road.  However, the majority of people take it before their Full Retirement Age (FRA) which results in a severe reduction of payments over your lifetime.  This mainly comes down to people just not knowing what they don’t know.

A financial plan will help you visualize how all the components are working together to help you work toward reaching your goals.  Your plan should not be stagnant.  Your plan will adjust as life events come about.  For example, if someone were to get a raise, you’d want to see how you can maximize that income towards putting more of a percentage towards your 401k, Traditional IRA, or even Roth IRA.  Having a child will also impact many pieces of your plan and without the proper planning you’ll leave yourself open to mistakes like not enough insurance, saving for college, leaving a legacy, etc.

You should only retire once so shouldn’t you do it right?

Unfortunately, no strategy assures success or protects against loss.