Financial planning can help you better understand where you are financially, how to prepare for the challenges ahead, and how to plan where you want to go. If you haven’t prepared a financial plan for yourself or your family, a financial advisor can help. Here are the typical steps in the planning process:
In this fundamental step, your financial goals take center stage. This is an opportunity for you to identify what you hope to accomplish in your life and when you would like to get there.
For example, you might want to own a house in three years and start a family in five years. Or you may want to go back to school to pursue higher education, which may have short-term costs but help you earn more in the long run. Or you might want to retire early and travel the world. In order to achieve any of these goals, you must first name them.
During this phase, you will gather numbers to see how things add up. Your financial advisor may ask you questions to calculate your personal balance sheet, which estimates your net worth based on assets and liabilities. Your income, spending habits, monthly bills, and unpaid debts should all be on the table.
The price of future goals should be quantified, so you can determine what you need to save to afford them. If your goals don’t match the reality of your financial situation, one or the other needs to change.
A comprehensive financial plan outlines how to achieve personal and professional goals within the context of actual income and expenses. With a clear line of sight to your financial situation, you can look for opportunities to cut unnecessary spending and redirect money to your goals. Your financial advisor can also provide investment strategy, asset allocation and portfolio recommendations based on your individual goals and personal risk tolerance to help you optimize your finances.
This is where things get real. If your plan requires you to save a certain amount of money each month, that’s up to you. If achieving your goals means you need to increase your income, now is the time to put in the extra effort to get that promotion or change your field for increased compensation. Your financial adviser can help you select savings vehicles suited to your investment objectives.
Ideally, your financial plan is a dynamic document that is periodically adjusted to reflect your life situation. Your financial advisor will recommend at least one annual meeting to check on your progress towards your goals and refine your financial plan.
Financial planning takes work, but the process can be very rewarding. Bigger goals become easier to achieve when you can take small steps towards them. It’s never too early or too late to put a financial plan in place. A financial advisor can help you create your plan and manage your investments to help you achieve your life goals.
Jeff Jolly, CFP, is a private wealth advisor and senior vice president at Ameriprise Financial Services, LLC, in North Haven. He specializes in financial planning and fee-based asset management strategies and has been practicing for 16 years. Contact him at 203-407-8188 ext. 330.