There seems to be a common misconception when it comes to financial planning. The other day, a client came in and said, “I don’t need financial planning. We have funds in our checking account and do not overdraw it, but I do need to know if I have enough to retire.” After chuckling a bit, I said, “That is planning and you do need it.” Financial planning all too often is interpreted as needing help on setting a budget. Most of the media on TV calls that planning and it is a part of the planning process. The media often is fielding calls from folks that have high rate credit card balances, big car payments, etc., but comprehensive planning is so much more. Being able to create a budget and live by it is in fact one of the important building blocks to financial freedom, but that alone does not answer whether you have enough in retirement, if you can pay for your child’s college, if that vacation home is an option, or how to model life in a post-divorce situation.
Tackling planning is time consuming and can be very confusing as the scenarios are endless and the results serve as a road map at best and a paper weight at worst. No plan can predict the exact time of any action, but can keep you going in the right direction, but not following the plan means it does nothing more than having an expensive paper weight that keeps your bills from blowing away.
There are two popular ways to put a plan together – cash flow and goals based. Do you want to set goals and see if they are achievable? Or figure out how much you have and how much you can make, then determine if the goal is doable? We find most people are goals based as it provides something to strive for and helps keep them on their budget.
When working on a financial plan, we like to look at retirement, asset allocation, college savings, estate planning, vacation homes, debt reduction, divorce planning, insurance needs, cash flow planning and tax minimization to name a few. These are areas that the client can semi- or completely control, which helps remove the frustration of watching the market go up and down, and focusing on things beyond one’s control. It is important to be transparent with your adviser and ask questions. The more information provided, the more accurate the plan. At TBH, we like to do planning with both spouses as this provides an accurate picture of their goals, expenses, desires in retirement, etc. With money being one of the top reasons for divorce, it is imperative to understand these issues about one another.
For an attorney, helping a client plan for a major life event is invaluable, including inheritance, divorce, birth of a child, etc. It is common practice at our firm to help attorneys obtain as many viable options for their clients so a settlement is in the client’s best interest.
Just like investing early has its benefits from things like compound growth, so does planning. Mistakes can be avoided (like not utilizing a 1031, when one should), savings can start earlier and figuring out the right time to buy or sell an asset for tax purposes all occur early in one’s life just as much as it does when they are older.
This article is for informational purposes only and does not constitute tax, legal, insurance or investment advice. This article should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Readers should discuss the personal applicability of the specific products, services, strategies or issues posted herein with a professional adviser of his or her choosing. Travis S. Anderson