Get Onboard with Financial Planning Basics

What’s involved in financial planning? Your cash flow, savings, debt, investments, insurance and other such elements of your financial life. Financial planning also impacts estate planning. It’s an ongoing process.

Here are some steps to consider when making a financial plan:

• What are your goals? Identify what you hope to achieve and how you’d like to get there. For example, do you want to own a home in three years? Start a family in five? Return to school to pursue an advanced degree? Retire early and travel the world? Each one of these has different implications for how you need to plan.
• What do you need to accomplish your goals? The fact-finding stage includes gathering numbers to see how things add up.
  • Your financial adviser may ask questions to calculate your personal balance sheet, estimating your net worth based on assets and liabilities. Your income, spending habits, monthly bills and outstanding debts should be accounted for.
  • The price of future goals needs to be quantified so you can determine what you need to save to afford them.
  • If your goals don’t match your financial circumstances, one or the other needs to change.
• What does the actual plan look like? When you have your financial plan, plot how to reach the goals you set within the context of actual income and expenses. You may create an investment strategy, asset allocation and portfolio recommendations based on your individual goals and personal risk tolerance to help optimize your finances. You may select savings vehicles suited to your investment goals.
• How will you implement your strategy? This is where things get real. If your plan requires you to save a certain amount of money each month, you are responsible for making that happen. Do you need to trim expenses? Increase your income by making an extra effort to get a promotion, or by switching jobs or even fields?
• How often will you review your plan? Your financial plan is dynamic and should be adjusted to reflect your life circumstances. Set dates to review where your plan stands and make any necessary adjustments. Meet with your adviser at least annually to check your progress toward your goal and fine-tune your financial plan.

The process of financial planning can be very rewarding. Taking small steps toward achieving your goal gives a more immediate sense of accomplishment, making the goal loom less large. Being in charge of the day-to-day decisions gives you the confidence to ride out any bumps along the way.

How to create your plan

Online services, like robo-advisers, employ algorithm-driven financial management with little or no human intervention. They use online questionnaires to obtain information about your degree of risk aversion, financial status and desired return on investment.

But robo-advisers lack subjectivity to offer fully personalized services. Human advisers check in with clients to reevaluate investment goals based on changes in the market. A hybrid robo-human model can combine the strengths of both, offering a balance of automated efficiency and personalized advice.

Between fees, features and funds, there are myriad aspects to compare and consider. Financial advisers can help you with tax strategies to maximize deductions. They should also advise on scheduling tax-loss-harvesting security sales to ensure the best use of capital gains tax rates and on minimizing taxes in retirement. Financial advice should also consider estate planning and long-term care. Your plan should create simulations of best- and worst-case scenarios.

Financial advisers work for the client, not the company that employs them. They should be responsive, willing to explain financial concepts and keep your best interests front and center. You want a financial plan that helps solidify your future.