The financial planning process is a lot like planning a vacation, although not anywhere near as fun.
The two most important parts of planning a “perfect” stress-free vacation are
1) figuring out the goals for your vacation (what, where, when,
with whom, for how long), and
2) developing a budget that won’t leave you stressed.
While the first phase of identifying the goals can be generally straight-forward, the next phase of figuring the cost of items for your vacation such as travel, lodging, dining, etc. can be a bit trickier. Designing a budget is always the tough part. In a perfect world, you wouldn’t need to sacrifice flying first class or staying at a 5-star resort, but the realities of life often drive the need to determine what pieces of your journey need to be adjusted or cut to stay within your budget.
Similar to getaway planning, financial planning, at its basic level involves matching goals and resources.
The process can introduce you to possible solutions and strategies that may help you reach your goals. Equally as important, a good planning process educates you along way – providing a tangential benefit of feeling more in control of your financial affairs. After all, knowledge is power.
Keep in mind, even the best plans do not always work out, so expect the unexpected and have some alternate (Plan B) plans in mind. Contingency and risk minimization strategies are often components of financial planning. Building wealth and resources are clearly great outcomes, but capital preservation is not to be put aside.
Financial planning involves the same process as our aforementioned vacation planning example, helping you identify and prioritize your financial goals and then using financial analysis to help assess what resources you will need to meet those goals.
Common Financial Planning goals and analysis involve:
- Planning for a child or other loved one’s education
- Cash flow planning
- Retirement planning
- How much do I/we need to have saved to retire and live the way that I/we want?
- Survivor needs planning
- How much do I/we have to leave behind to make sure that loved ones are taken care when that day comes?
- Specific goal planning – buying a house or a second home, car, boat, special vacation, etc.
- Can I/we afford it and how best to do it?
- Starting a business
- Investment planning
- Am I where I should be?
- Insurance planning
- Life/disability/long term care
- Income tax planning
- Are there ways to reduce the tax burden?
- Estate planning
- Making sure that what you have goes where you want
Once complete, a plan is developed to help your resources match your goals. However, it’s important to understand that the planning process is never really done. Rather, planning is an iterative process that is measured and adjusted over the years, with goals being refined and reprioritized as life moves forward.
Having a plan in place helps to eliminate some of the stress that comes with uncertainty. Though no plan is perfect or fool proof, a plan does provide an initial map to get you where you want to go and keep you moving in the right direction.
Scott D. LaValley
Managing Director: Financial Planning
Baldwin & Clarke Advisory Services, LLC