We spend a lot of time dreaming about our goals for the future. Buying a house, planning a new career, sending kids to college, or traveling abroad are common items on the “to do list”. You may share these aspirations, or perhaps you have a completely different list in mind. Either way, a solid financial plan can be essential in helping you achieve your life goals.
Financial plans come in all shapes and sizes, but there are some fundamental elements that distinguish which ones work best. A well-designed financial plan is:
1. Personalized. Your plan should contain details of your current financial situation and describe your life goals, both short term and until retirement. Using real data can ground your plan in reality and help you see what you need to do to stay on track. Generally, there are four areas you need to address:
• Cover your essentials. The essentials are the monthly expenses that keep your life going, such as mortgage payments, utility bills, and insurance premiums. Your financial plan should provide guidance and solutions for covering your day-to-day needs while providing for your necessary living expenses in retirement.
• Maintaining your lifestyle. Lifestyle refers to the things you want to do and the way you want to live now and in the future. If you dream of buying a second home or retiring to a warmer climate, your financial plan should quantify the costs of these goals and outline the steps you need to take to help you achieve them.
• Prepare for the unexpected. Life is not without surprises. Your financial roadmap should include contingency plans to help you stay on track financially when something unexpected happens to you or a loved one. This may include establishing an emergency fund and insurance coverage to help compensate for damaged property or lost wages.
• Leave a legacy. Your legacy is the impact you have on the people, charities and causes you care about – now, in retirement and after you die. Key elements are naming beneficiaries on key accounts, incorporating charitable giving into your financial life, and estate planning to determine how you want your assets to be distributed to your heirs.
2. Complete. All the basics of your financial life should be covered in your plan, from insurance to investments, cash flow, retirement, estate planning and everything in between. Include your obligations and financial goals, whether big or small. Seeing your full financial picture in one place makes it easy to adjust lesson or test scenarios as your priorities change.
3. Dynamic. A financial plan is not a static document that you create once and never revisit. Rather, it puts a stake in the ground that can inform future decisions. Your financial plan should be updated as your life goals and circumstances change.
4. Traceable. Without a plan, it’s hard to tell if you’ll be ready to meet your planned retirement date, if you have enough savings to send a child to college, or if you’ve taken the appropriate steps to protect your family. This way, your financial plan can help you stay accountable for your financial future.
5. Useful no matter your net worth. Turning your goals into reality without a financial plan is a bit like driving in an unfamiliar place without a GPS. No matter how much you earn or have saved, a financial plan can help you be strategic with your money.
If you haven’t yet prepared a comprehensive financial plan for you and your family, consider working with an advisor who can help you get started. Together, you can identify achievable steps to help you achieve your financial dreams.
Holley Smaldone-Cragg, CFPC, is a Financial Advisor at Ameriprise Financial in Geneva. She specializes in fee-based financial planning and asset management strategies and has been practicing for over 35 years. His website is ameripriseadvisors.com/holley.com.