A Plan for Life

What is a financial plan? Well, for one thing, it’s a pain. More than an exercise in accounting, putting together a financial plan involves taking stock of who you are, where you are in life, and where you want to be years down the road.

Of course, you’ll have to dig through brokerage, mutual fund, and insurance statements, and fill out worksheets and forms. It involves taking stock of your investments to determine whether they’re suitable for your current situation. And you may have to answer nettlesome questions that bring up conflict. For instance, the process may very well mean that you have to fire your existing brokers and consolidate assets under one roof.

Finally, preparing a financial plan often embodies horrible news about how poor you’re going to be when you’re older.

But wait! Don’t stop reading. Preparing a well-thought-out financial plan is a good thing. It can keep you focused on your priorities, which are far more important than the pain you’ll endure while putting a plan together.

A financial plan is like a road map, and while that may be an obvious statement, it’s amazing how often in our business we have to refer our clients to their original plan—especially at times of market turmoil, such as now. With a plan, you’ll avoid the snap decisions that people sometimes make and regret.

A financial plan can help you save for major expenses, such as a child’s education, a house, or a car. It can also teach you how to spend, particularly by helping you spend within your means. After going through the planning steps, you end up with your family’s personal profit and loss statement: How much income you have, your recurring expenses, and the amount you have left over.

A plan can help you reduce your tax burden by identifying tax- deferred or tax-free savings strategies. A plan will help you manage risk. You’ll be better equipped to identify the right insurance to protect your life, your income (through disability insurance), and your living needs after you retire with long-term care insurance.

But your plan isn’t static. You should revisit it at least once each year to review how your assets are allocated and to realign the way your assets are distributed based on your time horizon, tolerance for risk, and financial goals.

You should also revisit your financial plan when your fundamental life situation changes. That can include starting a family, adding to your family, divorce, remarriage, the death of a spouse, a windfall from the sale of a business, or an inheritance. Then, of course, there’s the granddaddy of them all: retirement.

All of these circumstances have financial implications, some of them profound. For example, the death of a spouse can trigger numerous issues regarding the use of insurance proceeds or changes in monthly cash flow from pensions.