When Life Goes Wrong, Your Financial Plan Can Help
Our lives are rarely on a straight trajectory toward our goals. We have successes and defeats, and times of prosperity and hardship. A financial plan can help you navigate your life’s ups and downs. It can help you take advantage of the good times and weather the tough times.
This article covers how a financial plan can help you when life goes wrong and some areas that your financial plan should ideally cover.
How a Financial Plan Can Help You
Many people keep their finances in their head, but the best kind of planning is put to paper (or, these days, a digital file). By creating a tangible plan for your financial future, you give your money a framework. You take a systematic approach that can help you optimize opportunity and minimize setbacks.
Ideally, your financial plan will tie into your life goals. By aligning your finances with your goals, you gain a focus. And you will be able to make financial decisions by how much they impact, positively or negatively, the achievement of your goals.
But a financial plan does more than help you reach goals. It gives you an in-depth understanding of your money. By taking an active role in your finances, you educate yourself on how you can help grow your wealth and avoid pitfalls.
This becomes invaluable when times get rough. If you lose a job or your portfolio drops in a recession, you will be less likely to panic and make emotional decisions that hurt your long-term net worth. Ideally, you will have the cash cushion to help you through this difficult period, and you will have a plan you can stick to, just like a life preserver for rough waters.
Our Sacramento-area, fee-only financial advisory firm begins with a financial plan for all our wealth management clients. By organizing their finances, we help them see the big picture while helping them make measurable progress toward their goals.
What Should Your Financial Plan Cover?
The short answer to this question is “Everything.” Ideally, your plan will integrate all areas of your financial life so that they work together toward your goals.
You may want to include:
Budgeting and cash flow: By creating a budget, you can understand where your money is going. You can decide how much to save toward your emergency fund and goals while reducing debt, such as credit card balances.
Retirement planning: Retirement planning can help you determine how much you will need for the day you retire and how much to contribute to retirement accounts so that you have that nest egg ready.
Investing plan: An investment portfolio is integral to your long-term financial goals. An investing strategy includes an appropriately diversified portfolio for your objectives, time horizon, and risk tolerance.
Tax planning: Your tax strategy encompasses more than your current tax burden. It helps optimize your long-term financial flexibility through strategic moves such as tax loss harvesting and Roth conversions.
Insurance review: You will want to periodically review your insurance to make sure it adequately protects you, your livelihood, and your family. Assess your needs for policies such as life insurance, disability insurance, and umbrella liability insurance.
Estate planning: An estate plan can help ensure an orderly transfer of your assets and reduce conflict among family members. It can help protect you while alive through documents such as advance directives and durable powers of attorney for finances and health care.
Work with a Financial Advisor
If the idea of creating a comprehensive financial plan feels overwhelming, that’s OK. It’s natural. You can manage the overwhelm by taking the plan piece by piece, starting with a budget. Once you have that in place, move on to another area until you have pulled together a single, cohesive plan.
You may also find that you lack the time, expertise, or desire to do it yourself. A financial advisor can help lift that burden off your shoulders so you can focus on your other priorities, like family or career.
A financial planner can provide the experience you need and will likely suggest strategies you might not have considered on your own. And in difficult times, they can be an invaluable coach and sounding board for decision-making.
We generally advise that people work with a fee-only, fiduciary financial planner. That way, you know your advisor isn’t receiving commissions and is obligated to uphold your best interests.
Whether you go it alone or work with a financial advisor, remember that a financial plan is a blueprint for your life. It will help create a financial house that protects you in good weather and bad.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.