This Insights article is contributed by Kayla Willliford Johnson, Financial Planning Associate at Pathfinder Wealth Consulting. This is the second post in a two-part series on the importance of a financial plan to your long-term financial success. Part 1 can be found here.
A financial plan is not a budget. A budget tracks every dollar and establishes limits of how much can be spent on various categories of expenses. A budget can certainly support a financial plan, but the two are separate. A financial plan is an overall picture of what you want to do with your life, and how you are going to use your current and future money to create the life that you want. A truly comprehensive financial plan includes current and future cash flow planning, retirement savings and retirement income, investment planning, managing current debt, risk management planning, tax planning, estate planning, and education planning. Every piece of your plan depends on and informs the others. For example, if you are a disciplined saver, but you haven’t planned for the (very real) possibility of being unable to work for a time, then you could quickly exhaust much of your savings if you became disabled. But you want to be adequately insured — not too little and certainly not too much. You don’t want something to go wrong and completely derail your plan, but you also don’t want the cost of that coverage to prevent you from reaching some of your other goals.
Managing your investments, particularly as life and your career move you to a place where you can really begin to accumulate, becomes increasingly important and complex as we age. It is most critical during the time in life when you need to withdraw from your nest egg. You need to be mindful of tax-advantaged strategies inside your various savings vehicles and continuously monitor the performance, fees, and volatility of your investments to ensure they are advancing your plan and financial goals and that you can stomach the inevitable ups and downs. A financial plan grounds all investment decisions. It allows you to tune out the noise of the 24/7 news cycle and focus on investments that will support your financial goals. If you have a solid financial plan with a cash flow plan built to support that plan, and you are managing your investments to provide for that cash flow plan, then you don’t need to worry about what a tweet will do to the market. That is the beauty of a financial plan. It gives complete peace of mind.
Russell recently conducted a study that showed advisors who rebalance clients’ portfolio annually, help correct behavioral mistakes people are prone to make, help them plan financially for life transitions, and invest clients’ assets in a tax-efficient manner, add 4.4 percent to a client’s portfolio, conservatively. And I don’t know any advisor who charges that much.
Another important piece of your financial plan is a solid estate plan. It is imperative that you have the four main legal documents: Will, Living Will/Advanced Directive, Health Care Power of Attorney, and Durable Power of Attorney. Consider whether your financial situation merits a trust to provide for minors, protect otherwise probatable assets, or to preserve wealth for future generations. There are many options and every person’s financial life and estate wishes are unique.
A critical piece of a financial plan is creating an income stream in retirement. Pensions are falling away and, especially for young folks, Social Security is seeming less and less like a guarantee in retirement. At the very least, it is anticipated that Social Security for future generations will be significantly less than what it was for past generations. A robust savings plan that arises out of a robust financial plan is critical to having the resources you will need to have sufficient income in retirement.
The value of proactively planning your finances cannot be overstated. At Pathfinder Wealth Consulting, we will guide you through the intricacies of the financial planning process and will guide you forward along your financial path. To learn more, please give us a call at 910-793-0616 or visit our website at www.pwcpath.com.
4018 Oleander Dr, Suite 102, Wilmington, NC 28403 | 910.793.0616 office | 910.793.0617 fax | www.pwcpath.com
Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser.
Jason Wheeler is currently the CEO and a Wealth Consultant at Pathfinder Wealth Consulting. Pathfinder specializes in comprehensive financial, estate and tax planning services, investment management, and risk management (insurance) for business owners and successful executives. Jason Wheeler offers securities and advisory services through Commonwealth Financial Network®. Member FINRA, SIPC, a Registered Investment Adviser. To learn more about Pathfinder Wealth Consulting, visit www.pwcpath.com. Jason can be reached at [email protected] or 910-793-0616.
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